Environments

• Internal environment


  Also known as the micro-environment
• External environment


  Made up of the market and macro environments
• Environmental scanning


  The process of finding information about possible current and future events that may have an impact on the performance of the business
• Purpose of environmental scanning

  To identify possible challenges, but also possible opportunities for the business in a constantly changing environment that the business operates in
• A quick and unexpected change is a crisis, because the business did not anticipate the change and therefore the business will probably not have a contingency plan in place to deal with the crisis
• Changes which occur over a period of time can be identified as trends and the business will be warned to adapt its current strategies to deal with the change taking place
• SWOT analysis


  A tool to conduct an environmental scan to identify opportunities (O) and threats (T) in both the Macro and Market environments, and strengths (S) and weaknesses (W) in the Internal (Micro) environment
• Strengths


  • Factors (tangible and intangible) within the business which add value to the performance of the business and/or which give the business a competitive advantage within the market place, when compared to competitors
• Strengths


  • Competitive price
  • Location
  • Unique product: patents
  • Work skills
  • Business culture
  • Good marketing/ strong brand
  • Access to finance / other sources
  • Operational efficiency /good quality
• Weaknesses


  • Any and all of the strengths that have been discussed will apply as weaknesses if not properly managed
• Opportunities


  External factors which present the business with the chance to outperform competitors
• Threats


  External factors that could hamper the success or growth of the business
• SWOT matrix


  Used to illustrate the inter-connectivity of S, W, O and T elements and to develop business strategies
• SO strategies


  Strategies that use strengths to take advantage of opportunities
• ST strategies


  Strategies that use strengths to avoid threats
• WO strategies


  Strategies that take advantage of opportunities by overcoming weaknesses
• WT strategies


  Strategies that will minimize weaknesses and will also avoid threats
• Control over the market environment

  Management can only influence the Market Environment, not control it
• Control over the macro environment


  The macro-environment is the most challenging environment as it comprises of external factors over which the business has absolutely no control
• Porter's Six Force Analysis

  A tool to assess the attractiveness of a market

  
• Threat of new entrants to the market

  Assesses how easy or difficult it is for a new competitor to enter the current market, based on the number of entry barriers to the market
• Porter's Six Force Analysis

  A tool used to assess the attractiveness of a market

  
• Attractive markets have a high level of profits
• Characteristics of attractive markets

  • High barriers to enter
  • Low levels of competition
  • Few substitute products/services
  • Weak supplier bargaining power
  • Weak buyer bargaining power
• Characteristics of unattractive markets

  • Low barriers to enter
  • High levels of competition
  • Many substitute products/services
  • Strong supplier bargaining power
  • Strong buyer bargaining power
• Threat of new entrants


  • Assesses how easy or difficult it is for a new competitor to enter the current market, based on the number of entry barriers
• Possible barriers to entry

  • High capital required
  • Existing businesses have strong trademarks or patents
  • Strict government legislation
  • High customer-switching costs
  • High customer loyalty
  • Economies of scale not easily achievable
• Rivalry amongst existing competitors


  • The number of current competitors in the market is an important factor to consider when assessing the competitiveness or profitability
• Factors that increase rivalry amongst competitors


  • Many competitors
  • Competitors are more or less of equal size
  • High exit barriers
  • Limited market growth potential
  • Homogeneous products
  • Easy product substitution
  • Low customer loyalty
• Threat of substitutes


  • A business may feel threatened when a buyer is easily able to find a substitute product at a better price or better quality
• Bargaining power of suppliers

  • When the bargaining power of the supplier is high, it allows the supplier to sell products or raw materials for higher prices or to offer lower quality products/materials
• Factors that increase supplier bargaining power

  • Few suppliers in the market
  • Supplier is large enough to make forward integration difficult
  • Limited options to substitute raw materials
  • High cost of switching to different materials
• Bargaining power of buyers

  • The buyer has the power to demand a lower price, a higher level of quality, longer trading hours, delivery of products, a wider variety of goods
• Factors that increase buyer bargaining power

  • Buying in bulk
  • Many suppliers selling similar products/services
  • Few buyers exist
  • Easy and inexpensive to switch suppliers
  • Ability to integrate backwards
• Complementary products


  Products that increase the demand for the original product
• An example of a complementary product is Apple creating iTunes to complement the iPod
• PESTLE analysis


  A tool used to help a business understand the macro environment
• PESTLE analysis gives the business an overview of the impact from different elements in the macro environment
• PESTLE analysis helps align the business to forces of change (positive and negative) that could affect the business
• The different PESTLE elements have an impact on each other