BME2-Chapter-2.pdf

ANALYSIS OF THE BUSINESS ENVIRONMENT 1 EXTERNAL ENVIRONMENT THE EXTERNAL ENVIRONMENT  Physical or natural environment  General or societal environment  Industry or task environment 3  EXTERNAL ENVIRONMENT ANALYSIS PROCESS ⬥ Environmental...

ANALYSIS OF THE BUSINESS ENVIRONMENT 1 EXTERNAL ENVIRONMENT THE EXTERNAL ENVIRONMENT  Physical or natural environment  General or societal environment  Industry or task environment 3  EXTERNAL ENVIRONMENT ANALYSIS PROCESS ⬥ Environmental scanning – the critical surveillance and evaluation of events happening in the external environment that may influence the current position and future plans of a company. ⬥ Involves setting up an environmental scanning system, collecting and analyzing secondary and primary data, identifying issues that consistently surface and interpreting results and preparing a report. 4  EXTERNAL ENVIRONMENT ANALYSIS PROCESS ⬥ Environmental monitoring – process of tracking the environmental trends or sequence of events determined during an environmental scanning. ⬥ It involves identifying emerging issues, evaluating the time frame of emerging issues and deciding on the action to be taken. 5  EXTERNAL ENVIRONMENT ANALYSIS PROCESS ⬥ Competitive Intelligence – is a systematic process of collecting, analyzing, and interpreting information about business competitors, intended mainly to monitor the probable moves of competitors. ⬥ It involves identifying the sources of information, validating and analyzing collected information, making a projection and defining the action to be taken. 6  THE EXTERNAL ENVIRONMENT Layers of the Forces or Variables Objective of the Environmental External Existing in the Analysis Environment Environment Physical Physical resources, climate, To determine sustainability issues that environment and wildlife will reduce the impact of physical or natural resources on a business Societal Sociocultural, technological, To determine the strategic forces that environment economic, environmental and can influence the growth, future, and political forces direction of a company or an industry Industry Customers, suppliers, To determine the level of competition environment creditors, employees, the and the forces that drive competition in government, and competitors the industry for a business to position itself accordingly. 7  PHYSICAL ENVIRONMENT ⬥ The elements inherent and beyond the control of the company. ⬥ Analysis includes concerns on the following: ⬦ Availability of raw materials used in production ⬦ Unpredictable weather conditions ⬦ Increasing greenhouse gas emissions 8  CONDUCTING A PHYSICAL ENVIRONMENT ANALYSIS 1. List the forces from the physical environment that are currently affecting the company. 2. Gather information, preferable quantitative, from reliable sources. 3. Evaluate the level or impact of the effects of these forces (very strong, strong, moderate, negligible). 4. Determine the frequency of occurrences. 5. Assess if the company is vulnerable to climate-related effects. 6. Group the identified climate change effects into 6 risk categories: regulatory, supply chain, product and technology, litigation, reputational, and physical. 9  THE SOCIETAL ENVIRONMENT ⬥ Consists of political or legal, economic, sociocultural and technological factors. ⬥ Is composed of several variables that influence the growth of the industry in which a company belongs. ⬥ Analysis is done to determine the strategic forces that can influence the growth and future of a company. 10  SOCIETAL ENVIRONMENT POLITICAL OR ECONOMIC SOCIOCULTURAL TECHNOLOGICAL LEGAL Tax laws Interest rates Level of Internet availability Government GDP trends education Spending on system Inflation rates Population research and Foreign trade Unemployment growth rate development relations levels Lifestyle Telecommunication Government Money supply Population age infrastructure programs Disposable income distribution Computerized Birth rates and operations life expectancies 11  THE INDUSTRY ENVIRONMENT ⬥ The immediate external environment of a company. ⬥ The environment where a company operates, which has an immediate effect on its operation, and where it interacts and faces its direct competitors. ⬥ Analysis is done to determine the different factors that influence competition so that a company can correctly position itself for continued growth. 12 THE INDUSTRY ENVIRONMENT The different players in the industry environment: ⬥ Customers ⬥ Suppliers ⬥ Creditors ⬥ Employees ⬥ Government ⬥ Competitors 13 2 INTERNAL ENVIRONMENT  THE INTERNAL ENVIRONMENT ⬥ Refers to the environment within a company. ⬥ Its variables are now within the control of the top management within a short-run period. ⬥ It consists of the following strategic elements: ⬦ Corporate culture ⬦ Organizational structure ⬦ Business resources 15  THE INTERNAL ENVIRONMENT ⬥ An internal environment analysis identifies a company’s internal strategic factors, such as its strength and weaknesses, to enable it to exploit opportunities and avoid threats of the external environment. 16  SWOT ANALYSIS SWOT analysis is a method for identifying and analyzing internal strengths and weaknesses and external opportunities and threats that shape current and future operations and help develop strategic goals. 17 SWOT ANALYSIS 18  BASIC EXAMPLE OF ANALYSIS STRENGTHS WEAKNESSES 1. Localized products 1. High employee turnover 2. Highly skilled workforce 2. Weak finances (high debt) 3. Strong market position 3. Rigid (bureaucratic) 4. Effective corporate social organizational culture responsibility (CSR) projects impeding fast introduction of new products 4. Investments in R&D are below the industry average 19  BASIC EXAMPLE OF ANALYSIS OPPORTUNITIES THREATS 1. Weak competitors 1. Economic slowdown/inflation 2. New technological 2. Global warming developments 3. Technological threat 3. New markets 4. Rising raw material prices 4. Disposable income level will 5. Increasing fuel prices increase 5. Government’s incentives for ‘specific’ industry 20  TOWS MATRIX The Matrix is divided into four quadrants, each representing a different combination of internal and external factors: ⬥ The first quadrant identifies the strengths and opportunities (SO) ⬥ The second quadrant identifies the weaknesses and opportunities (WO) ⬥ The third quadrant identifies the strengths and threats (ST) ⬥ The fourth quadrant identifies the weaknesses and threats (WT) 21 COCA-COLA TOWS ANALYSIS 22  COCA-COLA TOWS ANALYSIS (1) Strengths/Opportunities (SO) SO: Coca-Cola can leverage its strong brand recognition and global distribution network to expand into emerging markets with growing demand for healthier and low-calorie beverages. (2) Strengths/Threats (ST) ST: Coca-Cola can innovate in packaging and distribution technology to take advantage of the trend towards e-commerce and direct-to-consumer sales for its wide variety of products and flavors. 23  COCA-COLA TOWS ANALYSIS (3) Weaknesses/Opportunities (WO) WO: Coca-Cola can diversify its product line to offer more options for health-conscious consumers and tap into the growing demand for healthier and low-calorie beverages. (4) Weaknesses/Threats (WT) WT: Coca-Cola should continue to monitor changing consumer preferences and tastes and adjust its product line accordingly, while also addressing controversies over environmental and labor practices to mitigate potential negative impacts on its brand image. 24  VALUE CHAIN ANALYSIS MODEL ⬥ Value chain analysis (VCA) is a process where a firm identifies its primary and support activities that add value to its final product and then analyze these activities to reduce costs or increase differentiation. ⬥ Value chain represents the internal activities a firm engages in when transforming inputs into outputs. 25 26  VALUE CHAIN ANALYSIS MODEL ⬥ There are two different approaches on how to perform the analysis, which depend on what type of competitive advantage a company wants to create: ⬦ cost advantage ⬦ differentiation advantage 27  COST ADVANTAGE This approach is used when organizations try to compete on costs and want to understand the sources of their cost advantage or disadvantage and what factors drive those costs. 28  DIFFERENTIATION ADVANTAGE The firms that strive to create superior products or services use differentiation advantage approach. 29 30 31 32 VRIO FRAMEWORK 33  VRIO FRAMEWORK ⬥ Valuable - The first question of the framework asks if a resource adds value by enabling a firm to exploit opportunities or defend against threats. If the answer is yes, then a resource is considered valuable. ⬥ Rare - Resources that can only be acquired by one or very few companies are considered rare. 34  VRIO FRAMEWORK ⬥ Costly to Imitate - A resource is costly to imitate if other organizations that doesn’t have it can’t imitate, buy or substitute it at a reasonable price. Imitation can occur in two ways: by directly imitating (duplicating) the resource or providing the comparable product/service (substituting). ⬥ Organized to Capture Value - The resources itself do not confer any advantage for a company if it’s not organized to capture the value from them. A firm must organize its management systems, processes, policies, organizational structure and culture to be able to fully realize the potential of its valuable, rare and costly to imitate resources and capabilities. 35 36  BCG GROWTH-SHARE MATRIX MODEL ⬥ BCG matrix (or growth-share matrix) is a corporate planning tool, which is used to portray firm’s brand portfolio on a quadrant along relative market share axis (horizontal axis) and speed of market growth (vertical axis) axis. ⬥ Growth-share matrix is a business tool, which uses relative market share and industry growth rate factors to evaluate the potential of business brand portfolio and suggest further investment strategies. 37 38  BCG GROWTH-SHARE MATRIX MODEL Each of the four quadrants represents a specific combination of relative market share, and growth: 1. Low Growth, High Share. Companies should milk these “cash cows” for cash to reinvest. 2. High Growth, High Share. Companies should significantly invest in these “stars” as they have high future potential. 3. High Growth, Low Share. Companies should invest in or discard these “question marks,” depending on their chances of becoming stars. 4. Low Share, Low Growth. Companies should liquidate, divest, or reposition these “pets.” 39 THANKS! ANY QUESTIONS? 40