Understanding SWOT Analysis & Business Environments

• Understanding the business environment and adapting to its changes is important for business success.
• Changes in government policies can significantly affect business operations, requiring continuous adjustments.
• Technological advancements can make products obsolete, as seen with computers replacing typewriters.
• Current fashion trends can influence business, reflecting people's lifestyles.
• The business environment includes external factors that directly or indirectly affect business functions, covering customers, competitors, suppliers, government, and various conditions.
• Changes in the business environment are constant, unpredictable, and vary by location.
• Political conditions, fashion, and culture differ significantly across countries, impacting businesses differently.

Environmental Forces

• Businesses must understand the environment to foresee opportunities and turn threats into advantages.
• These forces are external and uncontrollable, but businesses can adapt using internal resources.
• Uncontrollable forces in the external environment include sociocultural, political, technological, legal, competitive, and economic factors.

Sociocultural Environment

• It refers to the structure and dynamics of individuals/groups, including behaviors, beliefs, and lifestyles.
• Sociocultural factors include interpersonal relationships, poverty, life expectancy, and literacy.
• Societal values have a considerable influence on business firms.
• During holidays or special occasions, demand increases for specific items like clothes and decorations.
• The fast-paced lifestyle of younger generations drives demand for condominiums, gadgets, and online services.
• Consumption patterns vary significantly based on differences in social structures.

Political Environment

• It encompasses the political form, government policies, and attitude towards the business community, which align with business strategies.
• Government attracts investors, opening opportunities for organizational growth and expansion.
• Countries with strong trade union activities may face challenges in attracting investors.
• Strikes, lockouts, and labor disputes can negatively affect business operations.
• Trade unions are becoming more flexible and supportive of workers' participation in management.

Technological Environment

• Technology includes methods, techniques, and approaches for product/service development and distribution.
• Businesses must adapt to rapid technological changes to survive and grow.
• Some companies have departments focused on continuous innovation to avoid becoming obsolete.

Legal Environment

• It consists of laws, regulations, and legalities affecting business operations.
• Businesses must follow and obey legal frameworks.
• Government restrictions on imports and exports can impact firms operating in specific fields.

Competition

• Businesses must know their competitors.
• Understanding competitors provides firms with advantages to design effective strategies using controllable variables.

Economic Environment

• The survival and success of a business depend on its economic environment.
• It includes economic growth, interest rates, foreign exchange rates, inflation, unemployment, and globalization.
• These factors improve the pace of economic growth and are crucial for business activities.

PEST and SWOT Analysis

• Analysis and evaluation are necessary for business management to learn the internal and external factors
• SWOT and PEST are commonly used analysis frameworks.

SWOT Analysis

• SWOT (Strengths, Weaknesses, Opportunities, Threats) helps in strategizing.
• Albert Humphrey (1926-2005) developed SWOT between the 1960s and 1970s at the Stanford Research Institute (SRI).
• Strengths are internal advantages over competitors.
• Weaknesses are internal disadvantages.
• Opportunities are external factors for advantage.
• Threats are external factors causing potential harm.
• Decision-makers use SWOT to discern if goals are worth pursuing and to match resources against competitors.
• SWOT analysis is effective for planning by introducing relevant internal and external factors for brainstorming.

PEST Analysis

• PEST (Political, Economic, Social, Technological) describes macro-environmental factors for environmental scanning in strategic management.
• Francis Aguilar, a Harvard professor, created PEST analysis as a scanning tool.
• PEST analysis provides an overview of the environmental forces to consider for improving market growth.

Factors of PEST Analysis

• Political: Government intervention in the economy through laws, global issues, legislation, and regulations.
• Economic: Taxes, interest rates, inflation, stock markets, and consumer confidence.
• Social: Changes in lifestyle, buying trends, media, major events, ethics, advertising, and publicity.
• Technological: Innovations, access to technology, licensing, manufacturing, research, funding, and global communications.
• PEST analysis spots opportunities/threats, guides direction within the business environment, avoiding failing projects.
• PEST analysis helps firms planning to enter new markets by providing a broad view of the environment.

Forms of Business Organizations

• Understanding different types of business organizations like proprietorship, partnership, and corporation is important.
• The owner's choice impacts the company's legal liability, income tax treatment, financial concerns, and personal concerns.

Sole Proprietorship

• It is a business with one owner.
• It is the simplest and most common form of business organization.
• The owner can use a business name different from their own.
• The owner has total unlimited liability for losses and liabilities.
• Self-contracting is an example of a sole proprietorship.
• The owner makes all decisions, controls the operation, and profits flow directly to their account.
• Sole proprietorships are the simplest and least expensive to establish and dissolve
• Raising capital can be difficult, so owners use personal savings
• Sole proprietorship is not ideal for high-risk businesses as it puts personal assets at risk.

Partnership

• A partnership is managed and owned by two or more individuals.
• The business structure is ideal if several owners exist
• Partners share the liabilities and operate the business together.

General Partnership (GP)

• It is where partners share personal liability for business debts.
• Partners can make decisions affecting the whole business.
• Profit and loss are divided according to an agreement

Limited Partnership (LP)

• One partner is responsible for decision-making.
• One partenr can be held personally liable for the business debts and is limited to the extent of each partner's' investment

Limited Liability Partnership (LLP)

• In this partnership all partners have have limited liability for the business debts.
• LLPs are common to professionals like doctors and lawyers.
• LLPs protect each partner's personal assets from debts or liability incurred by other partners.
• Partnerships are relatively easy to form, but time should be invested in developing an agreement among partners.
• It is easier to raise capital since there is more than one investor, and there are no corporate income taxes.
• Disadvantages of partnerships include decision-making disputes and conflicts, which may lead to breaking the partnership.

Corporation

• It is owned by multiple shareholders and is overseen by a board of directors.
• It is a limited liability entity distinct from its owners, allowing it to borrow money, enter contracts, pay taxes, and be sued.
• Shareholders earn profit through dividends or stock appreciation.
• The shareholders are not responsible for the company's debts.
• Corporations raise funds through stock sales and easily transfer ownership by selling shares.
• The corporations operation is restricted by more regulations.
• Corporations are closely monitored by governmental agencies and are more costly to incorporate than other forms of organizations.
• The Profit of the business is taxed at the corporate tax rate.

Test your knowledge of SWOT analysis and business environments. Questions cover internal/external factors, frameworks, and environmental forces. Assess your understanding of business dynamics.