Business Environment

BUSINESS ENVIRONMENT

I. What exactly is business environment?

i. What are the constituents of a business environment?

ii. Identify & examine three classes of business environment?

iii. What is the behaviour and performance outcomes of management for each

class of business environment?

II. Business Environment Scanning and analysis (BESA).

i. What are the benefits of conducting a BESA?

ii. Where should you focus the analysis?

Learning Objectives

III. Macro Environment Analysis (BESA).

i. Using the PESTEL model to conduct macro environment analysis.

ii. Where should you focus the analysis?

iii. What are the attributes of an excellent macro-environment analysis?

Learning Objectives

Business Environment

The space in which an organisation

does business.

What is inside that space?

Classes of Business

Environment.

Stable

Dynamic

Complex

Classes of Business Environment

Minimal or subtle changes.

Manager’s are relatively confident in their decisions and of

the future.

Mood of Management

Managers tend to have plenty of time to “right” past mistakes.

Performance (Results)

Organisational performance tends to be predictable.

Planning Cycle

In principle, strategic plans tend to run their full course.

In a globalisation age, is there such thing

as a stable business environment?

Speedy and challenging changes.

Manager’s are relatively less confident in their

decisions and uncertain about the future.

Time becomes a luxury to managers.

Organisational performance tends to

be less predictable.

Planning Cycle

Strategic plans are unlikely to run their full course, & if they do, they are shorter.

An extension of a dynamic environment; myriad of contradictory

issues, difficult to understand.

Short-term & long-term decisions

become hard to make.

Organisational performance is less

predictable.

Planning Cycle

Strategic plans are no match to tumultuous & uncertain environment.

The 2008/09 global financial

meltdown epitomises today’s complex

environment.

Business Environment Scanning &

Analysis

Importance of environmental scanning

in strategic planning process?

Strengths Opportunities

Weaknesses Threats

…leads to the identification of 1

Strengths & Weaknesses are concerned with ‘internal issues’.

Weaknesses Threats

Opportunities & Threats are concerned with ‘external issues’.

Weaknesses Threats

Minimise

Convert

Minimise

Convert

The process is information driven; can improve the quality

of strategic decisions.

The firm maybe better prepared to capture market

opportunities; confront market risks.

The assumption is the process enables managers to grow specific knowledge vital to outperform the competition.

Improved managerial knowledge of the business

environment.

To identify & deploy suitable competitive

strategies.

Can result to effective and efficient

use of firm’s resources.

Can lead to improved sales and profit.

of Business Environment

Analysis Dimensions

Consumers, communities, competitors, suppliers, etc

McKinsey 7S diagnosis

mary Support

Inbound Logistics

Production Outbound Logistics

Marketing & Sales

Service

Procurement

Technology Development

Human Resource Management

Firm Infrastructure

Margin/Profit

Value-chain diagnosis

Macro-Environment: PESTEL Analysis

PESTEL Analysis

Opportunities

PoliticalEnvironment

Political rule or governance of a country or state.

How appealing is your country to foreign businesses? What initiatives are

been taken by your national government to attract foreign businesses?

…ushers in new policies.

Obama signs into Law new Wall Street Reforms and Consumer Protection

Reforms— 21 July 2010

David Cameron’s immigration cap and economic austerity—

July 2010

Political uncertainty in Syria, 2012.

Civil unrests in the Gulf region, and geopolitical tension between the West

and Iran tend to push up oil prices.

Picture Source: Wikipedia

Libya’s crude oil production output

fell, supply-routes were disrupted by the 2011

spring uprising.

Libya's Oil Production Could Quadruple In A Year

Source: Business Insider (2011). Retrieved from http://articles.businessinsider.com/2011-10-20/markets/30301294_1_libyan-crude-oil-industry-libyan-oil

The political, economic, socio-cultural and technological

integration of nations.

Opportunities Globalisation

Access to low-cost labour and raw materials.

Access to new markets

Access to additional income streams.

Increased productivity

Threats Globalisation

Political risks Regulatory risks

Competitive forces Exchange rate risks Competitive forces Natural disasters

Executive | Parliament | Judiciary | Human rights

A clear political order & application of laws

War Political stability

Change of governments Governmental policies

Terrorism Etc.

Summary

EconomicEnvironment

Recession | Recovery | Boom

Rise in real GDP Rising employment rate

Increase in personal income Increase in consumer spending

Rise in corporate spending Rise in corporate earnings

Booming Economy Indicators

GDP contraction Fall in personal income

Rising unemployment rate Decline in corporate earnings

Fall in consumer spending Fall in corporate spending

Declining Economy Indicators

UK Economy Continues to Contract

Have firms modified their behaviours as a result of the 2008/09 global economic recession? In what ways?

Laid-off staffs Exited market

Entered new markets Renewed focus on ethics Forged new partnerships Risk-adverse management Focused on short-term gains

Reconfigured competitive strategy Etc.

Mass layoffs in the auto, financial, retail, FMCG, tech,

public-service industries between 2008 & 2012.

UK Unemployment Rate 2008-2010

Are some industries more affected by rising

unemployment?

Sony’s 2010 & 2011 TV sales were hurt by a strong Yen amidst other reasons.

Does the UK tourism industry benefit from a

declining British pound?

Does Brazil’s export industry benefit from

a declining real?

Levies on personal & corporate earnings.

Low corporate tax rates is one of the main reasons Ireland attracts businesses like Google & Facebook.

Humphries, C. (2012), “Apple Announces 500 New Jobs in Ireland”. Retrieved April 20, 2012, from www.retuers.com

The price of borrowed money.

Has the BoE’s interest rate of 0.5%

stimulated bank lending?

Fiscal policies aimed at reducing national debt

Welfare benefit cuts. Public sector job-cuts.

Cut in government spending. Public-sector wage cut/freeze.

Increase in taxes (income, consumption, corporate, etc.). Etc.

Austerity (Fiscal) Policies

Are austerity measures the reason for slow economic

growth in the Eurozone?

An increase in the prices of products and services in a country over a period of time.

Is inflation good or

bad to an economy

…expressed by the number of competitors in an industry.

E.g.: the market for desktop operating systems

Monopoly A single provider of a service or good in an industry

Duopoly An industry dominated by two firms

The aerospace industry is far from being duopolistic.

Oligopoly An industry dominated by few firms

Availability and quality of services used to facilitate economic

transactions & development.

Fiscal policies Banking system Transport system Monetary policies

Telecommunication system

Economic Infrastructure

How strong is the economic infrastructure

in your country?

GDP Interest rates

Exchange rates Consumer confidence

Price inflation Unemployment

Size of disposable income Nature of market competition

Summary

Socio-culturalEnvironment

Source: Office for National Statistics, UK, 2010

Age Group Growth Rate

Fertility | Mortality | Life Expectancy

Growing Middle Class Population.

Middle-class population as a % of global population.

2006 1960 1938 1913 1990 1890 1980 1950 2000

Source: Economist

1700 2006 1850 1980 1950

Source: Economist

Middle-class population as a % of global population

7+ 1—2

Family-size Segments

5—6 3—4

... Couple-households

... Single-mother households

Widow Single

Marital-status Segments

Divorced Married Widower Engaged

The habits, attitudes, moral standards, economic level, etc., that typify your

mode of living.

Murder Hacking

Kidnappings Money laundering Bribery & corruption

Counterfeiting Hijacking

Piracy Theft Etc.

Crimes

Wal-Mart May Pay Millions to Resolve Mexican Bribery Allegations.

Source: LA Times (2012). Retrieved from www.latimes.com/business/la-fi-wal-mart-bribery-20120424,0,2920404.story

Should the bribery allegation be true, what effect

would it have on Wal-Mart?

Global Corruption Barometer: 2009 Corruption Perception Index (CPI)—Selected Ranks

Source: Selected data from the TI Corruption Perception index, 2009

Top 20—Least Corrupt 1. New Zealand

2. Denmark

3. Singapore

3. Sweden

5. Switzerland

6. Finland

6. Netherlands

8. Australia

8. Canada

8. Iceland

11. Norway

12. Honk Kong

12. Luxembourg

14. Germany

14. Ireland

16. Austria

17. Japan

17. United Kingdom

19. United States

20. Barbados

Global Corruption Barometer: 2009 Corruption Perception Index (CPI)—Selected Ranks

Source: Selected data from the TI Corruption Perception index, 2009

Bottom 20—Most Corrupt 158. Tajikistan

162. Angola

162. Congo Brazzaville

162. Dem Rep Congo

162. Guinea-Bissau

162. Kyrgyzstan

162. Venezuela

168. Burundi

168. Equatorial Guinea

168. Guinea

168. Haiti

168. Iran

168. Turkmenistan

174. Uzbekistan

175. Chad

176. Iraq

176. Sudan

178. Myanmar

179. Afghanistan

180. Somalia

Pandemics

Avian Flu Swine flu Mad-cow

Which industries were affected by the 2009 Swine flu pandemic?

Airline Food

Agribusinesses Restaurant dining

Public-gathering activities

It’s difficult to predict a pandemic. Pandemic-vulnerable businesses should have contingency plans.

Increasing preference for

healthy foods & drinks.

Source: Joe (2009). Retrieved from www.livestrong.com/blog/blog/curious-joe-wants-to-know-are-you-addicted-to-diet-coke/

Launched in March 2012

Source: Northattan (2011). Retrieved from http://northattan.com/wp-content/uploads/2011/11/IMG_93111.jpg

ST Paul’s Cathedral, London

Source: Bonini, McKillop, & Mendonca 2007

Protectionism

Buddhism Christianity Hinduism

Islam Judaism Shintoism

Power distance Uncertainty avoidance

Individualism Masculinity

Hofstede Four Dimensions of National Culture

According to

Geert Hofstede…

Power distance culture

The degree to which hierarchy and

class exist in a society.

Brazil Spain

Singapore Japan

Philippines Venezuela

France India Etc.

High Power Distant Culture Nations

UK Germany Australia Austria USA

Denmark Canada

Low Power Distant Culture Nations

Uncertainty avoidance culture

The degree to which people tend to avoid

uncertainty, ambiguity, conventions.

Japan South Korea

Greece Pakistan

High Uncertainty Avoidance Culture Nations

Hong Kong Denmark

Low Uncertainty Avoidance Culture Nations

Individualism culture

The degree to which people place personal interests

over collective interests.

Australia Canada

Netherland UK USA Etc.

High Individualism Culture Nations

Columbia Greece

Hong Kong Mexico Peru

Taiwan Etc.

Low Individualism Culture Nations

TechnologicalEnvironment

The state and pace of technological advances

and uses.

Internet

The internet has altered the business landscape, & continues to

rewrite the “rules” of doing business.

How is the internet revolutionising society and

businesses?

Broadband Speed

Then Now

The impact of mobile technologies on society.

The advent of mobile payment.

Influence of Social Media

Has the power of social media been

exaggerated?

EcologicalEnvironment

Tsunami Drought

Earthquake Volcanic eruption

Hurricane Flooding

2011 Japanese Tsunami: lost of lives & livelihood; supply-

chains disrupted, etc.

Flight cancellations in urope in 2010 & 2011

aused by the Icelandic volcanic ash-cloud.

Drought in the Horn of Africa.

Depletion of natural resources.

BP oil spill in the Gulf of Mexico of 2010.

LEGALEnvironment

Advertising laws Competition laws

Consumer protection laws Intellectual property laws

Health & Safety laws Employment laws

Major Business Regulatory Frameworks.

Burger King to scrap ad after complaint

What are the attributes of a great macro-environment

analysis?

Thorough & facts-checked.

The issues covered are relevant to the purpose for which the analysis was commissioned.

PESTEL PESTEL PESTEL PESTEL PESTEL

PESTEL

PESTEL PESTEL

PESTEL

It’s up-to-date and tracks future trends.

It’s actionable.

Business Environment

Business

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