CHAPTER 2 – Business

Part 2 Environment
Analysis
Business analysis Models
External
🞇 Macro Business Environment
• PEST Analysis
🞇 Micro Business Environment
• Potter's 5 Forces
Internal
🞇 BCG
🞇 SWOT
External
🞇 The environmental factors within which the business activities of an
organization take place.
🞇 The external environment is everything outside an organization that
might affect it. An organization's external environment consists
of two layers:
🞇 The macro environment - refers to those nonspecific dimensions
and forces in an organization's surroundings that might affect
its activities. It includes all PEST factors.
🞇 The micro environment - refers to those specific organizations or
groups that are likely to influence an organization. It consists
of competitors, customers, suppliers, regulators, unions and
owners.
What is PEST analysis?
🞇 PEST analysis is an analysis model examining
the external environment and the global
factors that may affect a business. It can
provide a quick understanding of the external
pressures facing a business and their possible
constraints on its strategy.
🞇 It is usually divided into four external
influences on a business – Political,
Economic, Social and Technological.
PEST ANALYSIS
🞇 POLITICAL FACTORS
🞇 These PEST Analysis political factors could be things such as: local or
national elections and the issues on which politicians propose to
implement policies such as legal constraints, environmental
regulations,
business and personal taxation, product labeling and customer
protection. Where your business may operate overseas, consider the
international environment.
🞇 ECONOMIC FACTORS
🞇 economic factors have to be viewed from a wider perspective than the
organization’s domestic economy. In the global economy, domestic
economic conditions are heavily influenced by events in other areas
of the world. Economics is concerned with the allocation of
resources.
Therefore, issues such as conservation of natural resources, costs of
pollution, energy consumption and the whole area of the
management of natural resources should be considered under this
heading.
PEST ANALYSIS
🞇 SOCIAL FACTORS
🞇 Demographic changes are important and can be used as lead
indicators in certain areas, such as health care and education.
However, other critical areas such as social/cultural values and
beliefs that are central to changes in consumer behaviour are
harder to
predict and can be subject to more dramatic shifts.
🞇 TECHNOLOGICAL FACTORS
🞇 technological developments are fast-moving it is critical to
understand the fundamental consumer needs which the
organization’s technology is currently serving. Identifying new
technologies that can service that
consumer’s needs more completely or economically is the critical part
of this area of the analysis.
Potter’s 5 forces
🞇 A Porter’s Five Forces model will show that competitive forces are not generated by
competitors alone. Rather, they depend on five major forces. These are:
🞇 Bargaining power of suppliers to control terms of services, quality and prices of
goods. Reduced quality or higher prices will result in reduced profitability.
🞇 Bargaining power of buyers for a particular product. The buyer is more likely to
bargain if the product isn’t cheap or if there are several alternatives.
🞇 The threat of new entrants entering a market and gaining market share.
🞇 The threat of substitute products or services that can easily make a customer
switch sides.
🞇 Rivalry among existing competitors is an important force in any Porter’s Five Forces
model example as more competitors mean more options for customers and
greater rivalries.
Potter’s 5 forces
STARBUCKS COFFEE
🞇 With Porter’s Five Forces example Starbucks Coffee tracked
the key characteristics of the industry competition.
Starbucks faces stiff competition due to a large number
of organizations in the market, moderate variety of
products and high probability of customers switching.
They have a smaller size of buyers and high prices,
coupled with substitute products, which increase chances
of customers switching.
🞇 Using Porter’s Five Forces example Starbucks Coffee also
evaluated the bargaining power of suppliers. They buy
from different sources to avoid monopoly.
BCG
🞇 Using the classic Boston Consulting Group
(BCG) approach, a company classifies all its
SBUs according to the growthshare matrix.
🞇 On the vertical axis, market growth rate
provides a measure of market attractiveness.
🞇 On the horizontal axis, relative market
share serves as a measure of company
strength in the market.
SWOT Analysis
🞇 SWOT analysis is a strategic planning technique
that provides assessment tools.
🞇 Identifying core strengths, weaknesses,
opportunities, and threats leads to fact-based
analysis, fresh perspectives, and new ideas.
🞇 SWOT analysis works best when diverse groups
or voices within an organization are free to
provide realistic data points rather than
prescribed
messaging.
SWOT table
Strengths Weaknesses
1. What is our 1. Where can we improve?
competitive advantage? 2. What products are
2. What resources do we have? underperforming?
3. What products are 3. Where are we
performing well? lacking resources?

Threats Opportunities
1. What new regulations 1. What technology can we
threaten operations? use to improve operations?
2. What do our competitors do 2. Can we expand our core
well? operations?
3. What consumer 3. What new market
trends threaten segments can we explore?
business?
🞇 Select one company in different industries
🞇 Analyze factors influencing the company’s business
management using PEST and SWOT analysis.
🞇 Analyze factors in Porter’s Five Forces Model to
evaluate the company’s operation.
🞇 Suggest strategies for the company and some
solutions for short and long term.
🞇 Deadline: 19/09/2023