Business Environments
Environmental scanning
Definition: Process of obtaining info about possible, current and future events that could affect
the performance of the business
Purpose:
1. Identify possible changes taking place
2. Identify challenges and opportunities in a constantly changing environment.
3. Gain a better understanding of the nature of changes in the external environment.
4. Management uses info gained to draw up flexible contingency plans
5. Help management understand impact of business decisions on competitive position and
sustainability of business
Crisis- quick unexpected change. Business may not have a contingency plan in place
Trends-Changes that occur over a period of time. Business is aware and adapts/has a
contingency plan
Contingency Plan-a plan designed as a course of action to help a business respond effectively to
a future event or situation
Where does environmental scanning fit into the Strategic:
• Vision/mission- managent has to take into consideration vision and mission of business then
• Formulate strategies- that will direct the business on how to reach and achieve vision/mission
• Implement a strategy-
• Evaluation and control-
CONTINOUS ENVIRONMENTAL SCANNING
Conducting Environmental Scanning
External Environment External Environment Internal Environment
Macro-Environment Market Environment Micro-Environment
PESTLE PORTERS and O&T S&W
SWOT Analysis
1. Strengths: factors which add value to the performance of the business and a competitive
advantage. Develop strategies to overcome weaknesses with strengths and turn threats into
opportunities.
Possible strengths :
• Competitive Price-
• selling product/service at a better price compared to competitors
• Location-
• food stores and convenience stores depend on “impulse purchases” need a location with a lot
of “foot traffic”. Easily accessible to target market.
• Pay attention to demographics of target market
• Manufacturing businesses need to first determine if it easier to transport the raw material or the
finished product. If it is easier to transport the finished product business will need a location
near the raw material. If it is easier to transport to transport the raw material business will be in a
location close to the target market.
Continues on next page….
,• Additional factors to consider when choosing location
• The type of business must fit into surrounding community(chemical factory industrial)
• Complementary businesses in close proximity(pharmacy and doctor)
• Customers have easy access to business(roads and availability of parking)
• Security is important so customers feel safe to come to business
• Future developments in the area the maybe advantages or disadvantages to your business
• If considering a shopping mall take into consideration mall trading hours can be an advantage/
disadvantage depending on the business.
• See if any surround businesses could be a direct competitor to the business. Sometime it is
good to be near competition as it is convenient for the target market.
• Unique Product(Patents)- unique product for target market. Patent registered by business to
give them legal exclusive rights to produce a product in a certain manner. Limits potential
competitors. Product differentiation is a competitive advantage.
• Workers Skills- a skilled workforce. Employees know how to perform in their jobs. Less
wastage. Improved productivity. Send employees for training and courses. Happy
employees=more productivity=increase in profits
• Business Culture- morals and values of a business. Way things are done in a business. Good
relations with customers, staff and suppliers. CSR.
• Good Marketing and a Strong Brand- positive brand image higher sales, reduce marketing cost.
Reputable brand a brand which has been around longer
• Access to Financing and Other Resources- capital, labour, raw materials and other resources
are needed for a business to function. Sufficient capital makes its easier to get other resources.
Good credit records makes it easier for the business to get financial aid if needed. Investors
• Operational Efficiency(Good Quality)- more efficient less wastage more profit. Good quality
products will differentiate business from its competitors.
2. Weaknesses: all the above factors that are strengths if not managed properly will turn into
weaknesses. Has the exact opposites effect on the business than a strength, may prove to be
debilitating for the business. Put necessary strategies in place to overcome weaknesses.
3. Opportunities and Threats (External
• Opportunities present business with a chance to outperform competitors. Offer a better
product, getting product to the consumers sooner, having access to larger markets
• Threats factors that hamper the businesses growth and success. Business should have
contingency plans win place to deal with these factors.
• Access the impact opportunities/threats may have on business to deal with these factors
quickly and effectively.
• Use PESTLE in macro-environment
• Use Porter’s 6 Forces Model in market environment.
4. How the business uses the info obtained by a SWOT analysis is what makes it a successful
tool. Use the info to look towards future and see how the info can lead to success or failure.
Convert into strategies with tactical planning.
Porter’s 6 Force Model
• Assess attractiveness of markets
Attractive Market (high profits) Unattractive Market (low profits)
1. High barriers to enter 1. Low barriers to enter
2. Low levels of competition 2. High levels of competition
3. Few substitute products/services 3. Many substitute products/services
4. Weak supplier bargaining power 4. Strong supplier bargaining power
5. Weak buyer bargaining power 5. Strong buyer bargaining power
, Porter’s 6 Force Model
• Threats of New Competitors-how easy or difficult for new competitors to enter exiting market.
no. of entry barriers. Profitable market fewer barriers more rivalry. Many competitors same
market competing for the same market share. Decrease in profits. Existing businesses look for
ways to create high-entry level barriers
• Possible barriers that will make it difficult to enter the market:
• high capital required to enter market.
• Existing businesses have strong trademark and patents
• Strict government legislation
• High level of customer loyalty
• Economies of scale not easy to achieve(max input for min output. Only supply what is
demanded. Less/no wastage)
• Current Competitors- number of current competitors when assessing competitiveness/
profitability of market. Competitive market compete aggressively to maintain a market share.
• Rivalry amongst competitors is high when:
• Many competitors in market are more or less the same size. High exit barriers(expensive to
stop selling a particular product). Limited potential for market to grow
• No product differentiation
• More substitute products
• Low level of customer loyalty
• Threat of Substitute Products/Services- a threat to the business when the buyer easily finds a
substitute product at a better price and quality. More threatening if it does not cost buyer too
much. Different TRADEMARKS NOT substitute.
• Power of Suppliers- high bragging power it allows suppliers to: sell at high price and a low
quality. Only have this power if they are the only supplier and large enough. Negative impact on
business. Negative impact on the quality of the products
• Suppliers have strong bargaining power when:
• Few supplier is market
• Large enough to make integration in distribution channel difficult
• Limited substitute options to raw material
• Cost of switching to a different material is high/complicated process
• Power of Buyer- customer is king. Buyer power to demand: lower price, higher quality, longer
trading hours, delivery of a wider range of products. Business will decide if demands should be
met. Satisfy customers=lower profits. Not meeting demands=customer switches to competitor.
Buyer can be resell or supplier.
• Buyer has strong bargains power when:
• Buying in bulk
• Many suppliers of the same product
• Only few buyers exist
• Easy and not expensive to switch suppliers
• Buyer can integrate backwards and become manufacturer/supplier
• Impact of Complementary Products/Services- increase demand on original product by
introducing a complementary product. (Apple introduced iTunes to complement iPod)
PESTLE Analysis
Used to understand the Macro-Environment. All factors have an affect on each other.
• Political
• Economic
• Social
• Technological
• Legal
• Environmental
Environmental scanning
Definition: Process of obtaining info about possible, current and future events that could affect
the performance of the business
Purpose:
1. Identify possible changes taking place
2. Identify challenges and opportunities in a constantly changing environment.
3. Gain a better understanding of the nature of changes in the external environment.
4. Management uses info gained to draw up flexible contingency plans
5. Help management understand impact of business decisions on competitive position and
sustainability of business
Crisis- quick unexpected change. Business may not have a contingency plan in place
Trends-Changes that occur over a period of time. Business is aware and adapts/has a
contingency plan
Contingency Plan-a plan designed as a course of action to help a business respond effectively to
a future event or situation
Where does environmental scanning fit into the Strategic:
• Vision/mission- managent has to take into consideration vision and mission of business then
• Formulate strategies- that will direct the business on how to reach and achieve vision/mission
• Implement a strategy-
• Evaluation and control-
CONTINOUS ENVIRONMENTAL SCANNING
Conducting Environmental Scanning
External Environment External Environment Internal Environment
Macro-Environment Market Environment Micro-Environment
PESTLE PORTERS and O&T S&W
SWOT Analysis
1. Strengths: factors which add value to the performance of the business and a competitive
advantage. Develop strategies to overcome weaknesses with strengths and turn threats into
opportunities.
Possible strengths :
• Competitive Price-
• selling product/service at a better price compared to competitors
• Location-
• food stores and convenience stores depend on “impulse purchases” need a location with a lot
of “foot traffic”. Easily accessible to target market.
• Pay attention to demographics of target market
• Manufacturing businesses need to first determine if it easier to transport the raw material or the
finished product. If it is easier to transport the finished product business will need a location
near the raw material. If it is easier to transport to transport the raw material business will be in a
location close to the target market.
Continues on next page….
,• Additional factors to consider when choosing location
• The type of business must fit into surrounding community(chemical factory industrial)
• Complementary businesses in close proximity(pharmacy and doctor)
• Customers have easy access to business(roads and availability of parking)
• Security is important so customers feel safe to come to business
• Future developments in the area the maybe advantages or disadvantages to your business
• If considering a shopping mall take into consideration mall trading hours can be an advantage/
disadvantage depending on the business.
• See if any surround businesses could be a direct competitor to the business. Sometime it is
good to be near competition as it is convenient for the target market.
• Unique Product(Patents)- unique product for target market. Patent registered by business to
give them legal exclusive rights to produce a product in a certain manner. Limits potential
competitors. Product differentiation is a competitive advantage.
• Workers Skills- a skilled workforce. Employees know how to perform in their jobs. Less
wastage. Improved productivity. Send employees for training and courses. Happy
employees=more productivity=increase in profits
• Business Culture- morals and values of a business. Way things are done in a business. Good
relations with customers, staff and suppliers. CSR.
• Good Marketing and a Strong Brand- positive brand image higher sales, reduce marketing cost.
Reputable brand a brand which has been around longer
• Access to Financing and Other Resources- capital, labour, raw materials and other resources
are needed for a business to function. Sufficient capital makes its easier to get other resources.
Good credit records makes it easier for the business to get financial aid if needed. Investors
• Operational Efficiency(Good Quality)- more efficient less wastage more profit. Good quality
products will differentiate business from its competitors.
2. Weaknesses: all the above factors that are strengths if not managed properly will turn into
weaknesses. Has the exact opposites effect on the business than a strength, may prove to be
debilitating for the business. Put necessary strategies in place to overcome weaknesses.
3. Opportunities and Threats (External
• Opportunities present business with a chance to outperform competitors. Offer a better
product, getting product to the consumers sooner, having access to larger markets
• Threats factors that hamper the businesses growth and success. Business should have
contingency plans win place to deal with these factors.
• Access the impact opportunities/threats may have on business to deal with these factors
quickly and effectively.
• Use PESTLE in macro-environment
• Use Porter’s 6 Forces Model in market environment.
4. How the business uses the info obtained by a SWOT analysis is what makes it a successful
tool. Use the info to look towards future and see how the info can lead to success or failure.
Convert into strategies with tactical planning.
Porter’s 6 Force Model
• Assess attractiveness of markets
Attractive Market (high profits) Unattractive Market (low profits)
1. High barriers to enter 1. Low barriers to enter
2. Low levels of competition 2. High levels of competition
3. Few substitute products/services 3. Many substitute products/services
4. Weak supplier bargaining power 4. Strong supplier bargaining power
5. Weak buyer bargaining power 5. Strong buyer bargaining power
, Porter’s 6 Force Model
• Threats of New Competitors-how easy or difficult for new competitors to enter exiting market.
no. of entry barriers. Profitable market fewer barriers more rivalry. Many competitors same
market competing for the same market share. Decrease in profits. Existing businesses look for
ways to create high-entry level barriers
• Possible barriers that will make it difficult to enter the market:
• high capital required to enter market.
• Existing businesses have strong trademark and patents
• Strict government legislation
• High level of customer loyalty
• Economies of scale not easy to achieve(max input for min output. Only supply what is
demanded. Less/no wastage)
• Current Competitors- number of current competitors when assessing competitiveness/
profitability of market. Competitive market compete aggressively to maintain a market share.
• Rivalry amongst competitors is high when:
• Many competitors in market are more or less the same size. High exit barriers(expensive to
stop selling a particular product). Limited potential for market to grow
• No product differentiation
• More substitute products
• Low level of customer loyalty
• Threat of Substitute Products/Services- a threat to the business when the buyer easily finds a
substitute product at a better price and quality. More threatening if it does not cost buyer too
much. Different TRADEMARKS NOT substitute.
• Power of Suppliers- high bragging power it allows suppliers to: sell at high price and a low
quality. Only have this power if they are the only supplier and large enough. Negative impact on
business. Negative impact on the quality of the products
• Suppliers have strong bargaining power when:
• Few supplier is market
• Large enough to make integration in distribution channel difficult
• Limited substitute options to raw material
• Cost of switching to a different material is high/complicated process
• Power of Buyer- customer is king. Buyer power to demand: lower price, higher quality, longer
trading hours, delivery of a wider range of products. Business will decide if demands should be
met. Satisfy customers=lower profits. Not meeting demands=customer switches to competitor.
Buyer can be resell or supplier.
• Buyer has strong bargains power when:
• Buying in bulk
• Many suppliers of the same product
• Only few buyers exist
• Easy and not expensive to switch suppliers
• Buyer can integrate backwards and become manufacturer/supplier
• Impact of Complementary Products/Services- increase demand on original product by
introducing a complementary product. (Apple introduced iTunes to complement iPod)
PESTLE Analysis
Used to understand the Macro-Environment. All factors have an affect on each other.
• Political
• Economic
• Social
• Technological
• Legal
• Environmental
