Business Environment

Learning Objectives

I. What exactly is business environment?
i. What are the constituents of a business environment?
ii. Identify & examine three classes of business environment?
iii. What is the behaviour and performance outcomes of management for each
class of business environment?
II. Business Environment Scanning and analysis (BESA).
i. What are the benefits of conducting a BESA?
ii. Where should you focus the analysis?

© 2013 Berlin Asong. All rights reserved. 2

Learning Objectives

III. Macro Environment Analysis (BESA).
i. Using the PESTEL model to conduct macro environment analysis.
ii. Where should you focus the analysis?
iii. What are the attributes of an excellent macro-environment analysis?


Business
Environment

The space in
which an organisation
does business.


What is inside
that space?


Classes of Business
Environment.

Classes of Business Environment
Stable

Dynamic

Complex


Minimal
or subtle
changes.


Manager’s are
relatively confident in
their decisions and of
the future.

Mood of Management

Managers tend to
have plenty of time to
“right” past mistakes.


Performance (Results)

Organisational
performance tends
to be predictable.


Planning Cycle

In principle,
strategic plans tend to
run their full course.


In a globalisation
age, is there such thing
as a stable business
environment?


Speedy and
challenging changes.


Manager’s are relatively
less confident in their
decisions and uncertain
about the future.


Time becomes a
luxury to managers.



Organisational
performance tends to
be less predictable.


Planning Cycle

Strategic plans are unlikely
to run their full course, & if
they do, they are shorter.


An extension of a dynamic
environment; myriad of contradictory
issues, difficult to understand.


Short-term &
long-term decisions
become hard to make.



Organisational
performance is less
predictable.


Planning Cycle

Strategic plans are no
match to tumultuous &
uncertain environment.


The 2008/09
global financial
meltdown epitomises
today’s complex
environment.


Business
Environment
Scanning &
Analysis

Importance
of environmental scanning
in strategic planning process?


1

…leads to the identification of

Strengths Opportunities

Weaknesses Threats


Strengths & Strengths Opportunities

Weaknesses are
concerned with
‘internal issues’. Weaknesses Threats



Opportunities &
Threats are concerned Weaknesses Threats

with ‘external issues’.


Match


Convert Convert

Weaknesses Threats

Minimise Minimise


2

The process is information
driven; can improve the quality
of strategic decisions.


3

The firm maybe better
prepared to capture market
opportunities; confront market risks.


The assumption is the process enables
managers to grow specific knowledge
vital to outperform the competition.


4

Improved managerial
knowledge of the business
environment.


5

To identify & deploy
suitable competitive
strategies.


6

Can result to
effective and efficient
use of firm’s resources.


7

Can lead to improved
sales and profit.


Dimensions
of Business Environment
Analysis

Consumers, communities,
competitors, suppliers, etc


McKinsey 7S diagnosis

Value-chain diagnosis

P
r
i
Inbound Outbound Marketing & Margin/Profit
m Production Service
Logistics Logistics Sales
a
r
y

S Procurement
u
p Technology Development
p
Margin/Profit
o Human Resource Management
r
t Firm Infrastructure


Macro-Environment:
PESTEL Analysis


PESTEL Analysis


Opportunities

Risks


Political
Environment

Political rule or
governance of a
country or state.

© 2013 Berlin Asong. All rights reserved.

How appealing is your country to
foreign businesses? What initiatives are
been taken by your national government
to attract foreign businesses?


…ushers in
new policies.

ObamasignsintoLawnew
Wall Street Reforms and
Consumer Protection
Reforms—21July2010


DavidCameron’s
immigration cap and
economic austerity—
July2010


Political
uncertainty
in Syria, 2012.


Civil unrests in the Gulf region, and
geopolitical tension between the West
and Iran tend to push up oil prices.


Libya’s crude oil
production output
fell, supply-routes were
Picture Source: Wikipedia
disrupted by the 2011
spring uprising.92

Libya's Oil Production Could Quadruple In A Year

Source: Business Insider (2011). Retrieved from http://articles.businessinsider.com/2011-10-20/markets/30301294_1_libyan-crude-oil-industry-libyan-oil


Source: Business Insider (2011). Retrieved from http://articles.businessinsider.com/2011-10-20/markets/30301294_1_libyan-crude-oil-industry-libyan-oil


The political, economic,
socio-cultural and technological
integration of nations.


Opportunities
Globalisation


1

Access to low-cost
labour and raw materials.


2

Access to new markets


3

Access to additional
income streams.


4

Increased productivity


Threats
Globalisation


Political risks
Regulatory risks
Competitive forces
Exchange rate risks
Competitive forces
Natural disasters
Etc.

A clear political order & application of laws

Executive | Parliament |
Judiciary | Human rights


Summary
War
Political stability
Change of governments
Governmental policies
Terrorism
Etc.

Economic
Environment

Recession | Recovery | Boom


Booming Economy Indicators
Rise in real GDP
Rising employment rate
Increase in personal income
Increase in consumer spending
Rise in corporate spending
Rise in corporate earnings
Etc.

Declining Economy Indicators
GDP contraction
Fall in personal income
Rising unemployment rate
Decline in corporate earnings
Fall in consumer spending
Fall in corporate spending
Etc.

UK Economy Continues to Contract


Have firms modified their
behaviours as a result of the
2008/09 global economic
recession? In what ways?


Laid-off staffs
Exited market
Entered new markets
Renewed focus on ethics
Forged new partnerships
Risk-adverse management
Focused on short-term gains
Reconfigured competitive strategy
Etc.

Mass layoffs in the auto,
financial, retail, FMCG, tech,
public-service industries
between 2008 & 2012.


UK Unemployment Rate 2008-2010


Are some industries
more affected by rising
unemployment?


Sony’s 2010 & 2011 TV
sales were hurt by a strong
Yen amidst other reasons.

Does the UK tourism
industry benefit from a
declining British pound?


Does Brazil’s export
industry benefit from
a declining real?


Levies on personal &
corporate earnings.


Low corporate tax rates is one
of the main reasons Ireland attracts
businesses like Google & Facebook.
Humphries, C. (2012), “Apple Announces 500 New Jobs in Ireland”.
Retrieved April 20, 2012, from www.retuers.com


The of price
borrowed money.


Has the BoE’s
interest rate of 0.5%
stimulated bank lending?


Fiscal policies aimed at
reducing national debt


Austerity (Fiscal) Policies

Welfare benefit cuts.
Public sector job-cuts.
Cut in government spending.
Public-sector wage cut/freeze.
Increase in taxes (income, consumption, corporate, etc.).
Etc.

Are austerity measures
the reason for slow economic
growth in the Eurozone?


An increase in the prices
of products and services in a
country over a period of time.


Is
inflation
good or
bad to an
economy
?

…expressed by the number
of competitors in an industry.


Monopoly
A single provider of a service or good in an industry

E.g.: the market for desktop operating systems


Duopoly An industry dominated by two firms



The aerospace
industry is far from
being duopolistic.


Oligopoly An industry dominated by few firms



Availability and quality of
services used to facilitate economic
transactions & development.


Economic Infrastructure

Fiscal policies
Banking system
Transport system
Monetary policies
Telecommunication system

How strong is the
economic infrastructure
in your country?

Summary
GDP
Interest rates
Exchange rates
Consumer confidence
Price inflation
Unemployment
Size of disposable income
Nature of market competition
Etc.

Socio-cultural
Environment

Source: Office for National Statistics, UK, 2010


Age Group Growth Rate


Fertility | Mortality | Life Expectancy



Growing
Middle Class
Population.


Middle-class population
as a % of global population.

1820 1890 1913 1938 1950 1960 1980 1990 2000 2006

Source: Economist


Middle-class population as a % of global population

1700 1850 1950 1980 2006

Source: Economist


1—2 3—4 5—6 7+

Family-size Segments

... Couple-households

... Single-mother households

Single Engaged Married Widow Widower Divorced

Marital-status Segments

The habits, attitudes,
moral standards, economic
level, etc., that typify your
mode of living.

Crimes
Murder
Hacking
Kidnappings
Money laundering
Bribery & corruption
Counterfeiting
Hijacking
Piracy
Theft
© 2013 Berlin Asong. All rights reserved. Etc. 194

Wal-Mart May Pay Millions to
Resolve Mexican Bribery Allegations.

Source: LA Times (2012). Retrieved from www.latimes.com/business/la-fi-wal-mart-bribery-20120424,0,2920404.story


Should the bribery
allegation be true, what effect
would it have on Wal-Mart?


Global Corruption Barometer:
2009 Corruption Perception Index (CPI)—Selected Ranks
Source: Selected data from the TI Corruption Perception index, 2009

Top 20—Least Corrupt
1. New Zealand 12. Luxembourg
2. Denmark 14. Germany
3. Singapore 14. Ireland
3. Sweden 16. Austria
5. Switzerland 17. Japan
6. Finland 17. United Kingdom
6. Netherlands 19. United States
8. Australia 20. Barbados
8. Canada
8. Iceland
11. Norway
12. Honk Kong


Global Corruption Barometer:
2009 Corruption Perception Index (CPI)—Selected Ranks
Source: Selected data from the TI Corruption Perception index, 2009

Bottom 20—Most Corrupt
158. Tajikistan 176. Iraq
162. Angola 176. Sudan
162. Congo Brazzaville 178. Myanmar
162. Dem Rep Congo 179. Afghanistan
162. Guinea-Bissau 180. Somalia
162. Kyrgyzstan
162. Venezuela
168. Burundi
168. Equatorial Guinea
168. Guinea
168. Haiti
168. Iran
168. Turkmenistan
174. Uzbekistan
175. Chad

Pandemics


Avian Flu
Swine flu
Mad-cow

Which industries were
affected by the 2009
Swine flu pandemic?


Airline
Food
Agribusinesses
Restaurant dining
Public-gathering activities

It’s difficult to predict a pandemic.
Pandemic-vulnerable businesses
should have contingency plans.


Increasing
preference for
healthy foods &
drinks.

Source: Joe (2009). Retrieved from www.livestrong.com/blog/blog/curious-joe-wants-to-know-are-you-addicted-to-diet-coke/


Launched in March 2012


Source: Northattan (2011). Retrieved from http://northattan.com/wp-content/uploads/2011/11/IMG_93111.jpg


STPaul’s Cathedral, London

Source: Bonini, McKillop, & Mendonca 2007


Protectionism


Buddhism
Christianity
Hinduism
Islam
Judaism
Shintoism
Etc.

Hofstede Four
Dimensions of National Culture

Power distance
Uncertainty avoidance
Individualism
Masculinity


According to
Geert Hofstede…

Power distance culture

The degree to
which hierarchy and
class exist in a society.


Low Power Distant Culture Nations
UK
Germany
Australia
Austria
USA
Denmark
Canada
Etc.

Uncertainty avoidance culture

The degree to which
people tend to avoid
uncertainty, ambiguity,
conventions.


High Uncertainty
Avoidance Culture Nations

Japan
South Korea
Greece
Pakistan
Etc.


Low Uncertainty
Avoidance Culture Nations

Hong Kong
Denmark
Etc.


Individualism culture

The degree to
which people place
personal interests
over collective
interests.

High Individualism
Culture Nations
Australia
Canada
Netherland
UK
USA
Etc.

Low Individualism
Culture Nations
Columbia
Greece
Hong Kong
Mexico
Peru
Taiwan
Etc.

Technological
Environment

The state and pace of
technological advances
and uses.


Internet

The internet has altered the
business landscape, & continues to
rewrite the “rules” of doing business.


How is the internet
revolutionising society and
businesses?


Broadband Speed


Then Now

The impact of mobile
technologies on society.

The advent of
mobile payment.

Influence of Social Media


Has the power
of social media been
exaggerated?


Ecological
Environment

Tsunami
Drought
Earthquake
Volcanic eruption
Hurricane
Flooding
Etc.

2011 Japanese
Tsunami: lost of lives
& livelihood; supply-
chains disrupted, etc.


Flight cancellations in
urope in 2010 & 2011
aused by the Icelandic
volcanic ash-cloud.


Drought in the
Horn of Africa.


Depletion
of natural
resources.


Waste


BP oil spill
in the Gulf
of Mexico
of 2010.


LEGAL
Environment

Major Business
Regulatory Frameworks.
Advertising laws
Competition laws
Consumer protection laws
Intellectual property laws
Health & Safety laws
Employment laws
Etc.

Burger King to scrap ad after complaint


What are the
attributes of a great
macro-environment
analysis?


1

Thorough &
facts-checked.


2

The issues covered are
relevant to the purpose for which
the analysis was commissioned.


PESTEL PESTEL PESTEL PESTEL PESTEL

PESTEL
PESTEL
PESTEL
PESTEL
PESTEL PESTEL

PESTEL

PESTEL


3

It’s up-to-date and
tracks future trends.


4

It’s actionable.


Business Environment

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