Business Environment Analysis

• Understanding the business environment requires developing business forecasts as a start.
• Environmental scanning, environmental monitoring, and collecting competitive intelligence are critical inputs to the forecasting process.
• Scenario planning is a technique useful for firms competing in industries characterized by unpredictability and change.

Environmental Scanning & Monitoring

• Environmental scanning involves surveillance of a firm's external environment.
• Environmental scanning predicts potential environmental changes and detects current changes.
• Environmental scanning allows a firm to be proactive.
• Environmental monitoring tracks the evolution of environmental trends.
• Hard trends are based on measurable facts and events.
• Soft trends are based on estimated, probable events.

Competitive Intelligence

• Competitive intelligence helps firms define and understand their industry.
• Competitive intelligence identifies rivals’ strengths and weaknesses.
• Competitive intelligence collects and interprets data on competitors.
• Competitive intelligence helps firms avoid surprises by anticipating competitors' moves.
• Competitive intelligence decreases response time.
• When gathering intelligence, beware of the potential for unethical behavior.

Environmental Forecasting

• Environmental forecasting predicts potential change.
• Plausible projections include direction, scope, speed, and intensity of environmental change.
• Scenario analysis involves assessments of how trends may affect an issue along with the development of alternative futures based on these assessments.

SWOT Analysis

• SWOT analysis is used for analyzing firm and industry conditions.
• Internal firm conditions are equal to Strengths and Weaknesses.
• Strengths or weaknesses are based on where the firm excels or is lacking.
• External environmental conditions are equal to Opportunities and Threats.
• Opportunities and threats are based on activities among firms competing for the same customers.
• SWOT analyses force managers to consider internal and external factors simultaneously.
• SWOT analyses make firms act proactively.
• A firm's strategy must build on its strengths and remedy the weaknesses and work around them to take advantage of opportunities and protect from threats.

The General Environment

• The general environment is composed of factors that are hard to predict and control.
• Factors in the general environment include Demographic, Sociocultural, Political/Legal, Technological, Economic, and Global segments.

The Demographic Segment

• Demographic information is easily understandable and quantifiable.
• Demographics include aging population, rising affluence, changes in ethnic composition, geographic distribution of population, and greater disparities in income levels.

The Sociocultural Segment

• Sociocultural forces influence the values, beliefs, and lifestyles of a society.
• Sociocultural shifts include more women in the workforce, dual-income families, increase in temporary workers, greater concern for healthy diets and physical fitness, concern for the environment, and postponement of marriage and family formation.

The Political/Legal Segment

• Political/Legal processes and legislation influence environmental regulations with which industries must comply.
• Legislation includes tort reform, Americans with Disabilities Act (ADA), deregulation of utilities and other industries, increases in minimum wages, taxation at local, state, federal levels, legislation on corporate governance reforms, and Affordable Health Care Act.

The Technological Segment

• Technological developments lead to new products and services, creating new industries and altering existing ones.
• Technologies include genetic engineering, computer-aided design/computer-aided manufacturing systems (CAD/CAM), research in synthetic and exotic materials, pollution/global warming solutions , wireless communications, and nanotechnology.

The Economic Segment

• Factors that can affect all industries are economic forces.
• Consideration are trends in GDP & net disposable income.
• Economic forces include interest rates, unemployment, Consumer Price Index and changes in stock market valuations.

The Global Segment

• Global forces offer both opportunities and risks.
• Factors include increasing global trade, currency exchange rates, emergence of the Indian and Chinese economies and trade agreements among regional blocs (NAFTA, EU, ASEAN).
• It also includes creation of the WTO in attempt to decrease tariffs and lead to free trade.
• Understanding global forces is useful in increasing risk associated with terrorism,

The Competitive Environment

• The competitive environment consists of factors in the task or industry environment that are particularly relevant to a firm's strategy.
• Important influences are Competitors (existing or potential), Customers (or buyers) and Suppliers
• Competitors include those considering entry into an entirely new industry.
• Suppliers include those considering forward integration.

Porter's Five Forces of Industry Competition

• The Threat of New Entrants
• Bargaining Power of Buyers
• Bargaining Power of Suppliers
• The Threat of Substitute Products and Services
• The Intensity of Rivalry Among Competitors in an Industry

The Threat of New Entrants

• The threat of new entrants is the possibility that the profits of established firms in the industry may be eroded by new competitors.
• Depends on existing barriers to entry: economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, and cost disadvantages independent of scale.

The Bargaining Power of Buyers

• Buyers have the power to force down prices, bargain for higher quality or more services, and play competitors against one another.
• Buyer groups are powerful when purchasing standard products in large volumes, profits are low and switching costs are few, backward integration is possible, and quality is not affected by industry product.

The Bargaining Power of Suppliers

• Suppliers can exert bargaining power by threatening to raise prices or reduce the quality of purchased goods and services.
• Supplier groups are powerful when only a few firms dominate the industry, there is no competition from substitute products, suppliers sell to several industries, buyer quality is affected by industry product, products are differentiated and have switching costs, and forward integration is possible.

The Threat of Substitute Products and Services

• Substitute products and services limit the potential returns of an industry by placing a ceiling on the prices that firms can profitably charge.
• Substitutes are those that come from another industry, and can perform the same function as the industry's offerings.
• As the price/performance ratio becomes more attractive, industry profits decrease.

The Intensity of Rivalry Among Competitors in an Industry

• Rivalry tactics include price competition, advertising battles, new product introductions, increased customer service or warranties.
• The interacting factors that lead to intense rivalry includes numerous or equally balanced competitors, slow industry growth, high fixed or storage costs, lack of differentiation or switching costs, capacity augmented in large increments, and high exit barriers

Explore business environment analysis including environmental scanning, competitive intelligence, and scenario planning. Understand how these practices help firms navigate unpredictable industries and gain a competitive advantage.