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ANALYZING THE ANALYZING THE BUSINESS BUSINESS
ENVIRONMENTENVIRONMENT
By,By,Priyanka SangolgiPriyanka Sangolgi
ContentContent
External EnvironmentExternal EnvironmentIndustry Level AnalysisIndustry Level AnalysisInternal Analysis of the firmInternal Analysis of the firmLearning Curve and Experience CurveLearning Curve and Experience CurveVulnerability AnalysisVulnerability AnalysisStrategic AnalysisStrategic AnalysisFormulating Long-term StrategiesFormulating Long-term StrategiesBehavioral Considerations Affecting Behavioral Considerations Affecting Strategic ChoiceStrategic Choice
External EnvironmentExternal Environment
PEST AnalysisPEST Analysis
What is PEST Analysis?What is PEST Analysis?
This analysis is essential for an organization before This analysis is essential for an organization before
beginning its marketing process beginning its marketing process
It is very important that an organization considers its It is very important that an organization considers its
environment before beginning the marketing process. environment before beginning the marketing process.
In fact, environmental analysis should be continuous In fact, environmental analysis should be continuous
and feed all aspects of planning. The organization's and feed all aspects of planning. The organization's
marketing environment is made up of:marketing environment is made up of:
1. The internal environment e.g. staff (or internal 1. The internal environment e.g. staff (or internal
customers), office technology, wages and finance, etc.customers), office technology, wages and finance, etc.
2. The micro-environment e.g. our external customers, 2. The micro-environment e.g. our external customers,
agents and distributors, suppliers, our competitors, etc.agents and distributors, suppliers, our competitors, etc.
3. The macro-environment e.g. Political (and legal) forces, 3. The macro-environment e.g. Political (and legal) forces,
Economic forces, Socio cultural forces, and Technological Economic forces, Socio cultural forces, and Technological
forces. These are known as forces. These are known as PESTPEST factors. factors.
Political FactorsPolitical FactorsThe political arena has a huge influence upon the regulation of The political arena has a huge influence upon the regulation of
businesses, and the spending power of consumers and other businesses, and the spending power of consumers and other
businesses. You must consider issues such as:businesses. You must consider issues such as:
1.How stable is the political environment? 1.How stable is the political environment?
2.Will government policy influence laws that regulate or tax your 2.Will government policy influence laws that regulate or tax your
business?business?
3.What is the government's position on marketing ethics? 3.What is the government's position on marketing ethics?
4. What is the government's policy on the economy? 4. What is the government's policy on the economy?
5. Does the government have a view on culture and religion? 5. Does the government have a view on culture and religion?
6. Is the government involved in trading agreements such as EU, 6. Is the government involved in trading agreements such as EU,
NAFTA, ASEAN, or others?NAFTA, ASEAN, or others?
Economic FactorsEconomic Factors
Marketers need to consider the state of a trading Marketers need to consider the state of a trading
economy in the short and long-terms. This is economy in the short and long-terms. This is
especially true when planning for international especially true when planning for international
marketing. You need to look at:marketing. You need to look at:
1. Interest rates.1. Interest rates.
2. The level of inflation Employment level per capita. 2. The level of inflation Employment level per capita.
3. Long-term prospects for the economy Gross Domestic 3. Long-term prospects for the economy Gross Domestic
Product (GDP), and so on.Product (GDP), and so on.
Socio cultural FactorsSocio cultural Factors Lifestyle trends Lifestyle trends Demographics Demographics Consumer attitudes and opinions Consumer attitudes and opinions Media views Media views Law changes affecting social factors Law changes affecting social factors Brand, company, technology image Brand, company, technology image Consumer buying patterns Consumer buying patterns Fashion and role models Fashion and role models Major events and influences Major events and influences Buying access and trends Buying access and trends Ethnic/religious factors Ethnic/religious factors Advertising and publicity Advertising and publicity Ethical issues Ethical issues
The social and cultural influences on business vary from country to The social and cultural influences on business vary from country to
country. It is very important that such factors are considered. Factors country. It is very important that such factors are considered. Factors
include:include:
1.What is the dominant religion? 1.What is the dominant religion?
2.What are attitudes to foreign products and services? 2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets? 3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure? 4.How much time do consumers have for leisure?
5.What are the roles of men and women within society? 5.What are the roles of men and women within society?
6.How long are the population living? Are the older generations 6.How long are the population living? Are the older generations
wealthy? wealthy?
7.Do the population have a strong/weak opinion on green issues? 7.Do the population have a strong/weak opinion on green issues?
Technological FactorsTechnological Factors
Technology is vital for competitive advantage, and is a major driver of Technology is vital for competitive advantage, and is a major driver of
globalization. Consider the following points: globalization. Consider the following points:
1. Does technology allow for products and services to be made more 1. Does technology allow for products and services to be made more
cheaply and to a better standard of quality? cheaply and to a better standard of quality?
2.Do the technologies offer consumers and businesses more 2.Do the technologies offer consumers and businesses more
innovative products and services such as Internet banking, new innovative products and services such as Internet banking, new
generation mobile telephones, etc?generation mobile telephones, etc?
3.How is distribution changed by new technologies e.g. books via 3.How is distribution changed by new technologies e.g. books via
the Internet, flight tickets, auctions, etc? the Internet, flight tickets, auctions, etc?
4.Does technology offer companies a new way to communicate with 4.Does technology offer companies a new way to communicate with
consumers e.g. banners, Customer Relationship Management consumers e.g. banners, Customer Relationship Management
(CRM), etc? (CRM), etc?
Role of PESTRole of PEST
Helps Assess the market including Competitors Helps Assess the market including Competitors
from the stand point of a Particular Business.from the stand point of a Particular Business.
PEST is relevant for any type of Business large, PEST is relevant for any type of Business large,
small & medium.small & medium.
Industry Level AnalysisIndustry Level Analysis
Threat of new entrantsThreat of new entrants Economies of scaleEconomies of scale Product DifferentiationProduct Differentiation Capital RequirementCapital Requirement Cost disadvantages independent of sizeCost disadvantages independent of size Access to distribution channelsAccess to distribution channels Government policyGovernment policy
Intensity of rivalry among existing Intensity of rivalry among existing competitorscompetitors Rivalry Rivalry in the industry is determined in the industry is determined
on the number of players.on the number of players. Less playersLess players More playersMore players
Price warsPrice wars AdvertisementsAdvertisements New product launchNew product launch Customer serviceCustomer service
Bargaining Power Of BuyersBargaining Power Of Buyers Many suppliers and few large buyersMany suppliers and few large buyers Purchases in large quantityPurchases in large quantity Switching cost is lowSwitching cost is low
Bargaining Power Of SuppliersBargaining Power Of Suppliers Few suppliers and large number of Few suppliers and large number of
buyersbuyers When firm depends on the single When firm depends on the single
suppliersupplier Switching cost is highSwitching cost is high
Threat of substitutesThreat of substitutes
BuyersSuppliers
Substituteproducts
Potentialentrants
Industry competitors
Rivalry amongexisting firms
Threat ofnew entrants
Bargaining powerof suppliers
Bargaining powerof buyers
Threat ofsubstitutes
BuyersSuppliers
Substituteproducts
Potentialentrants
Concept of complimentarily Concept of complimentarily
Company
Suppliers
ComplementorsCompetitors
Customers
The value Net
Internal Analysis of the firmInternal Analysis of the firm
Analyzing Department and FunctionsAnalyzing Department and Functions Production/operations/technical Production/operations/technical Strategies for small business unitsStrategies for small business units Strategies for large business unitsStrategies for large business units Finance and Accounting Finance and Accounting Marketing Marketing Research and developmentResearch and development
Learning Curve and Experience CurveLearning Curve and Experience Curve
x
y
Experience Curve
Accumulated
Output
Unit costs
Strategic AnalysisStrategic Analysis
BCG Growth-Share MatrixBCG Growth-Share Matrix
Vulnerability AnalysisVulnerability Analysis
Defenseless Defenseless Endangered Endangered
Vulnerable Vulnerable Prepared Prepared
High
High Low
Low Company’s Ability to react
Imp
act
of
Th
reat
Vulnerability Matrix
The GE Nine-Cell Planning GridThe GE Nine-Cell Planning Grid
Business Strength
Mkt
Att
ract
i ven
ess
Strong
Medium
Weak
StrongMedium
Weak
SWOT AnalysisSWOT Analysis SWOT Analysis is a strategic planning tool used to evaluate the Strengths, SWOT Analysis is a strategic planning tool used to evaluate the Strengths,
Weaknesses, Opportunities, and Threats involved in a project or in a Weaknesses, Opportunities, and Threats involved in a project or in a
business venture.business venture. It involves specifying the objective of the business venture or project and It involves specifying the objective of the business venture or project and
identifying the internal and external factors that are favorable and identifying the internal and external factors that are favorable and unfavorable to achieving that objectiveunfavorable to achieving that objective
StrengthsStrengths: attributes of the organization that are helpful to achieving the : attributes of the organization that are helpful to achieving the objective. objective.
WeaknessesWeaknesses: attributes of the organization those are harmful to : attributes of the organization those are harmful to achieving the objective. achieving the objective.
OpportunitiesOpportunities: external conditions those are helpful to achieving the : external conditions those are helpful to achieving the objective. objective.
ThreatsThreats: external conditions that is harmful to achieving the objective. : external conditions that is harmful to achieving the objective.
Strengths and weaknessesStrengths and weaknesses
Resources: financial, intellectual, location Resources: financial, intellectual, location
Cost advantages from proprietary know-how Cost advantages from proprietary know-how
and/or location and/or location
Creativity (ability to develop new products) Creativity (ability to develop new products)
Valuable intangible assets: intellectual capital Valuable intangible assets: intellectual capital
Competitive capabilities Competitive capabilities
Effective recruitment of talented individualsEffective recruitment of talented individuals
Opportunities and threats Opportunities and threats
Expansion or down-sizing of competitors Expansion or down-sizing of competitors Market trends Market trends Economic conditions Economic conditions Expectations of stakeholders Expectations of stakeholders Technology Technology Public expectations Public expectations All other activities competitors All other activities competitors Criticisms by outsiders Criticisms by outsiders Changes in markets Changes in markets All other environmental conditionsAll other environmental conditions
DiversificationDiversificationMarketDevelopment
MarketDevelopment
MarketPenetration
MarketPenetration
ProductDevelopment
ProductDevelopment
Present Products
NewProducts
Present Mission
NewMission
Product/ Mission Matrix of Ansoff
Game TheoryGame Theory
Assessing another player’s likely behaviorAssessing another player’s likely behavior
The game consists of the elements such as players, The game consists of the elements such as players,
actions, information, strategies, outcomes, payoff actions, information, strategies, outcomes, payoff
and equilibrium.and equilibrium.
The players in the game are rival companies, The players in the game are rival companies,
hence the decision makers in the organization take hence the decision makers in the organization take
on the roles of rival companies, Company A (own on the roles of rival companies, Company A (own
company) and Company B( competitor company).company) and Company B( competitor company).
ActionsActions are the choices available to a decision maker. are the choices available to a decision maker.
StrategiesStrategies are guidelines that tell a decision maker which are guidelines that tell a decision maker which
action to choose at each point of the game.action to choose at each point of the game.
OutcomesOutcomes are the results of the game such as price wars.are the results of the game such as price wars.
PayoffsPayoffs are the potential benefits that each decision are the potential benefits that each decision
maker realizes for a particular outcome.maker realizes for a particular outcome.
EquilibriumEquilibrium is a stable result which need not always be is a stable result which need not always be
beneficial.beneficial.
GAME THEORY AIMS TO HELP ORGANIZATIONS TO GAME THEORY AIMS TO HELP ORGANIZATIONS TO
UNDERSTAND SITUATIONS IN WHICH THE DECISION UNDERSTAND SITUATIONS IN WHICH THE DECISION
MAKERS INTERACT.MAKERS INTERACT.
Assessing another player’s likely behaviorAssessing another player’s likely behavior FishbowlFishbowl Red team/blue team Red team/blue team Future mappingFuture mapping
FishbowlFishbowl In this every body brings in his or her In this every body brings in his or her
independent views.independent views. Advocates of certain points stay in the center of Advocates of certain points stay in the center of
the “fishbowl” in the room.the “fishbowl” in the room. And the executives accountable for the decision And the executives accountable for the decision
stay outside the “fishbowl” in the room.stay outside the “fishbowl” in the room. Advocates and other experts present their data Advocates and other experts present their data
and debate one another and,and debate one another and, While the decision makers evaluate the quality While the decision makers evaluate the quality
of the facts at the hand, expos weak positions of the facts at the hand, expos weak positions and analyze the strategic options.and analyze the strategic options.
Red team/blue teamRed team/blue team
In this simulation of a classic war game, managers are In this simulation of a classic war game, managers are
put in charge of teams representing major competitors put in charge of teams representing major competitors
and they plan the strategies they would be use to beat and they plan the strategies they would be use to beat
the organization. the organization.
This type of team work and research increases the This type of team work and research increases the
organization’s competitive intelligence and quickness its organization’s competitive intelligence and quickness its
reflexes by building competitive awareness into its reflexes by building competitive awareness into its
reactions.reactions.
Future mappingFuture mapping This is a name for a way of looking at different This is a name for a way of looking at different
scenarios for the future. scenarios for the future.
In this method decision makers look at several In this method decision makers look at several
alternative futures, or “ end states,” for the alternative futures, or “ end states,” for the
company business, assign a probability to each company business, assign a probability to each
one, and identify the forces that will determine one, and identify the forces that will determine
whether that scenario will actually unfold. whether that scenario will actually unfold.
The aim is to identify those actions with the The aim is to identify those actions with the
biggest returns and the least risk, or both.biggest returns and the least risk, or both.
Formulating Long-term Formulating Long-term StrategiesStrategies
Concentration Concentration
Market DevelopmentMarket Development
Product DevelopmentProduct Development
Horizontal IntegrationHorizontal Integration
Vertical IntegrationVertical Integration
Quasi IntegrationQuasi Integration
Diversification Diversification
Behavioral Considerations Behavioral Considerations Affecting Strategic ChoiceAffecting Strategic Choice
Role of Past StrategyRole of Past Strategy
Attitude Towards RiskAttitude Towards Risk
Competitive ReactionCompetitive Reaction
Degree of Firm’s external DependenceDegree of Firm’s external Dependence SuppliersSuppliers Customers Customers Government Government Competitors Competitors Unions Unions
Values and PreferenceValues and Preference