Business environments – chapter 1
1. The macro environment
- External environment
- bus has no control over but still needs to consider these events + design strategies to
adapt to situations
Various tools can be used to analyse events in macro environment to eliminate threats + capitalise
on opportunities
a. environmental scan
- NB to do in order to identify factors that may impact on bus and then adjust existing
plans/ develop new plans to deal with these factors
- Can be used for market environment
Process for environmental scan
bus look at macro environments to identify issues that must be addressed
only opps and threats considered for SWOT
PESTLE used to identify specific opps + threats
b. SWOT- analysis [only O + T]
- The O’s + T’s refers to issues in macro/ market environments
c. PE2STLE- analysis
- Letters in PE2STLE represent a factor in macro environment that could threaten the bus
or bus may use to create comp ad
o Political: -political situation of country in which bus operated
- Political situation of other countries in which bus may operate
- World politics in general
o Economic:
-economic growth + development rates
-Inflation rates [inflation= continuous + significant increase in general
price level of goods + services]
- interest rates [ rate at which ppl/ bus borrow money from bank or % return
on investment when saving money in bank]
- exchange rates [strength of local currency vs. currencies of other countries]
- high unemployment rates: [means ppl don’t have money and so bus suffer
lower profits]
- taxes such as income tax, VAT, import duties
o Ethical:
- Ethics refer to the principles/ values that will determine if decisions and actions are
acceptable
- Provides guidelines to evaluate how to act in ‘right way’
- Elements bus has to consider when looking at ethics:
o Fair trade: respect and transparency in bus dealings, one party won’t attempt to
exploit the other
o CSR: responsibility towards shareholders to make profit vs. responsibility
towards giving back to community
, o Employees privacy regarding use of interest vs. rights of bus to expect
responsible behaviour from employees
o Social/ socio- economic factors:
- impact that social trends have on the role players in the economy
- bus must adapt to changes in social trends
- factors to consider: unemployment rates, HIV/Aids infection and diseases, levels of literacy…
o Technological factors:
- Refers to the equipment the bus uses to buy / make, advertise or sell products/services
- Challenges: online shopping, rapid development of issues surrounding social media,
advances in online money transactions [internet banking]
o Legal factors:
- Refers to all the laws that impact bus
- E.g labour legislation, legislation to protect consumer, criminal justice that protects bus…
o Physical environment and other environmental factors:
- Environmental factors are NB if one thinks of growing awareness to protect the
environment + prevent negative consequences such as global warming
2. The Market environment
- Any place where goods + services are bought and sold
Tools used: environmental scan, SWOT [O +T], Porter’s six forces
Porter’s 6 forces model
a. Current competitors [level of rivalry]
- NB to know what competitors doing
- If find sector where competitors not performing well- opportunity
- Area competitors achieving success- threat to bus
When bus compared with competitors, look at:
o Size + financial resources of bus
o Market share
o Quality of products
o Customer brand loyalty
o Pricing
o Convenience of location + distribution channels
o Trading hours
b. Threat of new entrants
- May be a challenge from a new bus that sees an opp to make money by entering market
- New bus= threat to market share + profits therefore bus must build barriers to prevent
new business from entering market
c. Substitute products
- Is a diff product that satisfies same need
- Does not refer to diff brand
- Increasing availability of substitute products = more ‘indirect competitors’
- E.g sugar and artificial sweeteners
, d. Power of suppliers
- Need reliable supplier
- Suppliers need to provide good quality product when needed [timing] and correct
quantity at a reasonable price
- Bus needs to develop + maintain good relationship with suppliers
- Cost associated with unavailability of stock:
o if no material, manufacturer can’t produce
o if no material, machines and labour can’t be utilised to full capacity bcs the
production or selling process will grind to a halt
o administrative and opportunity costs are incurred when dealing with a stockout.
If bus runs out of stock, hard to negotiate discounts when placing orders
o customer goodwill mat be lost if go to competitors
e. Power of buyers
- Buyer may be: wholesaler ordering from manufacturer, retailer buying for their
shop/customer
- If buyers not respected, offered good value for money then can go to competitor
- Need to consider: type of product/service, is customer brand loyal, price sensitivity,
snob value [image associated with product]
f. Power of complementary products
- Where the use of 1 product is interrelated with use of another
- Paired together e.g bread and butter
3. Micro environment:
- environmental scan, SWOT [S +W], resource based analysis and value chain analysis
A. Purchasing function
- Buys goods + service needed by all departments
- 3 types of purchases: goods bought for own use, good bought in order to resell them,
goods bought for processing
- Need to find good supplier
- Aim of PF: ensure best ROI/ profitability
- Cost price of goods purchases must be low- get discount
- Orders must be placed + confirmed to ensure delivery of correct goods and when goods
delivered, must be checked to verify quality, precise and adequate quantities and that
goods undamaged
- Develop a system of control inventory to maintain optimum stock levels otherwise if run
out, competitors get opp to ‘steal’ customers
- Integrating backwards= bus takes over the role of supplier in order to become own
supplier and by doing so, gain control over material needed
- Supply chain management:
o Used in context of procurement but included all activities performed to deliver right product
to right consumer at right time, right place, reasonable cost
o SCM refers to sourcing, processing manufacturing, transporting, storing and distributing
products and services from time raw material extracted until final product sold to consumer
o Aim: oversee flow of materials + info from supplier to customer
o The more effective the control, the less capital has to be invested into stock
, o Effective SCM requires info is accurately + timeously shared in the network of bus’s that buy
+ sell to each other
o Ethical SCM is becoming NB
B. Production function
- Combination of the factors of production in order to provide right product, right place,
time, quality and price customer prepared to pay
- Aim: transfer raw material into products to satisfy needs
- Keep production costs as low as possible while maintaining quality + standards
- Continuous product design= NB
Automation
o Refers to situation where activities that were performed by hand are now performed by
machines
Advantages Disadvantages
Lower labour costs high capital investment in machines
More machines enables faster production time Job losses
Higher quality products [less mistakes] Division of labour- lead to worker dissatisfaction
Remaining workers might need retraining + new skills Additional costs for bus to retrain workers to use machines
development- higher wages and so ad for worker
Quality control
- NB in production phase
- Quality of product is influenced by standard of raw material, labour, reliable machines
and stable working conditions
- E.g a. sampling: few products per batch are tested, if sample satisfactory, whole batch is
accepted and approved but risk if one sample good but batch is bad.
- B. inspection: each product tested + compared with quality control standards but time
consuming + increases cost of quality control
- Ad of good quality control:
o Eliminates problems in production process and therefore reduces production costs by
eliminating sub-standard products
o Encourage workers to deliver quality of high standard
o Serve as basis for remuneration decisions
o Retailers confident receiving good quality products to sell in shops- higher turnover for them
C. Financial function
- Bus needs capital to start bus. Capital can be owner’s or borrowed
- Financial statements= statement of comprehensive income + statement of financial
position
Main objectives:
o Maximise profits
o Ensure liquidity
o Increase profitability
o Remain solvent
a. To max profits is to keep customers cost of products as low as possible. COS must be
reduced by negotiating with suppliers for better prices or by finding cheaper supplier w/out
