EXTERNAL & INTERNAL FACTORS OF BUSINESS ENVIRONMENT

External Factors

 Macro Environment
 Micro Environment

Internal Factors

 The Establishment/Company
EXTERNAL ENVIRONMENT
This constitutes everything outside the organization that might have the ability to
affect the organization from achieving its goal.
MACRO ENVIRONMENT
It is known as the general environment that constitutes the legal and political forces,
macroeconomic forces, sociocultural forces, demographics, technology, and
international forces.
1.1 Economic Forces
 Refers to the aggregate nature of the economic system of the country, business
cycle, and the socio-economic structure.
1.2 Social, Cultural, Demographics, and Natural Environment Forces
 These changes have a major impact on virtually all products, services, markets,
and customers.
 Small large, for-profit, and nonprofit organizations in all industries are being
staggered and challenged by the opportunities and threats arising from changes
in social, cultural, demographic, and environmental variables.
Factors which affect Socio-Cultural Environment

 Demographics
Socioeconomic characteristics of a population expressed statistically, such as
age, sex, education level, income level, marital status, occupation, religion,
birth rate, death rate, average size of a family, and average age at marriage.
 Individual and Community Lifestyle
Expressed in both work and leisure behavior patterns and (on an individual
basis) in activities, attitudes, interests, opinions, values, and allocation of
income. It also reflects people’s self-image of self-concept; the way they see
themselves and believe they are seen by the others.
 Culture, Beliefs, and Tradition
The characteristics and knowledge of a particular group of people,
encompassing language, religion, cuisine, social habits, music and arts.
 Natural Factors
Events, that encompasses all living and non-living things occurring naturally,
meaning the interaction of all living species, climate, weather, and natural
resources that affect human survival and economic activity.
1.3 Political, Governmental, and Legal Forces
 Local state and federal laws, regulatory agencies, and special-interest groups
can have a major impact on the strategies of small, large, for-profit, and non-
profit organizations.
 Federal state, local, and foreign governments are major regulators,
deregulators, subsidizers, employers, and customers of organizations, political,
government, and legal factors therefore can represent key opportunities or
threats for both small and large organizations.
1.4 Technological Forces
 The Internet has changed the very nature of opportunities and threats by
altering the life cycle of products, increasing the speed of distribution, creating
new products and services, erasing limitations of traditional geographic
markets, and changing the historical trade-off between production
standardization and flexibility.
Examples of Technological Forces

 Airlines – many airlines now offer wireless technology in flight.

 Automotive – vehicles are becoming wireless.
 Banking – visa sends text message alerts after unusual transactions.
 Education – many secondary (and even college) students may use smartphones
for math because research shows this to be greatly helpful.
 Energy – smart meters now provide power on demand in your home or
business.
 Health Care – patients use mobile devices to monitor their own health, such as
calories consumed.
 Hotels – days inn sends daily specials and coupons to hotel guests via text
messages.
 Market Research – cellphone respondents provide more honest answers,
perhaps they are away from eavesdropping ears.
 Politics – President Obama won the election party by mobilizing Facebook and
MySpace users, revolutionizing political campaigns, Obama announced his vice
president selection of Joe Biden by a text message.
 Publishing – eBooks are increasingly available.

MICRO ENVIRONMENT
Actors close to the company affect its ability to serve the customers. These have a
much more direct impact on a business environment
1.5 Competitive Forces
 Collecting and evaluating the information on competitors is essential for
successful strategy formulation.
 Identifying major competitors is not always easy because many firms have
divisions that complete in different industries.
INTERNAL FACTORS

 It is not possible in a strategic management text to review in depth all the

material presented in courses such as marketing, finance, accounting,
management, management information systems, and production/operations;
there are many subareas within these functions, such as customer service,
warranties, advertising, packaging, and pricing under marketing.
2.1 Strategy & Culture
Organizational Culture

 This can be defined as a pattern of behavior that has been developed by an

organization as it learns to cope with its problem of external adaptation and
internal integration, and that has worked well enough to be considered valid
and to be taught to new members as the correct way to perceive, think, and
feel.
Possible Aspects of an Organization Culture

 Strong work ethic; arrive early and leave late

 High ethical beliefs; clear code of business ethics followed
 Formal dress; shirt and tie expected
 Informal dress; many casual dress days
 Socialize together outside of work.
 Do not question the supervisor’s decision
 Encourage whistle-blowing
 Be health conscious; have a wellness program
 Allow substantial working from home
 Encourage creativity/innovation open-mindedness
 Support women and minorities; no glass ceiling
 Be highly socially responsible; be philanthropic
 Have numerous meetings
 Have a participative management style
 Preserve the natural environment; have a sustainability program
Cultural Products

 Include values, beliefs, rites, rituals, ceremonies, myths, stories, legends, sagas,
language, metaphors, symbols, heroes, and heroines. These products or
dimensions are levers that strategists can use to influence and direct strategy
formulations, implementation, and evaluation activities.
Management

 The functions of management consist of five basic activities: planning,

organizing, motivating, staffing, and controlling.
Management Functions Described

 Planning – consists of all those managerial activities related to preparing for the
future.
 Organizing – includes all those managerial activities that result in a structure
of task and authority relationships.
 Motivating – involves efforts directed toward shaping human behavior.
 Staffing – activities are centered on personal or human resource management.
 Controlling – refers to all those managerial activities directed toward ensuring
that actual results are consistent with planned results.
Marketing

 Marketing can be described as the process of defining, anticipating, creating,

and fulfilling customers’ needs and wants for products and services.
Customer Analysis

 Administering customer surveys, analyzing consumer information, evaluating

market positioning strategies, developing customer profiles, and determining
optimal market segmentation strategies.
Selling

 Includes many marketing activities, such as advertising, sales promotion,

publicity, personal selling, sales force management, customer relations, and
dealer relations.
Product and service planning

 This includes activities such as test marketing; product and brand positioning;
devising warranties; packaging; determining product options, features, style,
and quality; deleting old products; and providing for customer service.
Pricing

 Five major stakeholders affect pricing decisions ; consumers, governments,

suppliers, distributors, and competitors. Sometimes an organization will pursue
a forward integration strategy primarily to gain better control over prices
charged to consumers.
Distribution

 Includes warehousing, distribution channels, distribution coverage, retail site

locations, sales territories, inventory levels and location, transportation carriers,
wholesaling, and retailing.
Marketing research

 Is the systematic gathering, recording, and analyzing of data about problems

relating to the marketing of goods and services.
Cost/Benefit Analysis

 The seventh function of marketing is cost/benefit analysis, which involves

assessing the cost, benefits, and risks associated with marketing decisions.
Three steps are required to perform a cost/benefit/ analysis:

 Compute the total costs associated with a decision.

 Estimate the total benefits from the decision.
 Compare the total costs with the total benefits.
Finance/Accounting

 Financial condition is often considered the single best measure of a firm’s

competitive position and overall attractiveness to investors.
SWOT ANALYSIS FOR ORGANIZATIONAL SUCCESS
History of SWOT Analysis

 SWOT Analysis technique was found by Albert Humphrey who led a research
project at Stanford University in the 1960s and 1970s.
 He used the data from Fortune 500 companies to identify why corporate
planning failed.
 His research identified a number of key areas that were critical to corporate
planning and the tool used to explore each of the critical areas was called SOFT
analysis.
 Albert Humphrey and the original research team used the following categories;
“What is good in the present is SATISFACTORY; good in the future is an
OPPORTUNITY; bad in the present is a FAULT and bad in the future is a
THREAT.”
 In 1964, at a conference the F in “SOFT” was changed to a W, and thus, the
emergence of “SWOT” Analysis as we know it today came into existence.
What is SWOT Analysis?

 SWOT Analysis technique was found by Albert Humphrey who led a research
project at Stanford University in the 1960s and 1970s.
 SWOT stands for; STRENGTHS, WEAKNESSES, OPPORTUNITIES, THREATS
 SWOT Analysis enables a group/individual to handle everyday problems and
look at traditional strategies from a new perspective.
 SWOT Analysis is a planning tool used to understand, Strengths, Weaknesses,
Opportunities, and Threats involved in a project/business.
 It is used as the framework for organizing and using data and information
gained from situation analysis of the internal and external environment.
STRENGTHS

 Characteristics of the business or team that give it an advantage over others in

the industry.
 Positive, tangible, and intangible attributes, internal to an organization.
 Beneficial aspects of the organization or the capabilities of an organization,
which include human competencies, process capabilities, financial resources,
products and services, customer goodwill and brand loyalty.
Some of the examples of organizational strengths are as follows:

 Abundant financial resources

 Established brand name
 Economics of scale
 Lower production costs
 Superior management
 Excellent marketing skills
 Good supply chain distribution
  Great employee commitment
WEAKNESSES

 Characteristics that place the organization at a disadvantage relative to others.

 Detract the organization from its ability to attain the core goal and influence its
growth.
 Factors which do not meet the standards set in the organization.
Some of the examples of organizational weaknesses are as follows:

 Limited financial resources

 Low R & D budget
 Narrow product line
 Weak supply chain distribution
 Higher production costs
 Obsolete or Out-of-date products/technology
 Poor market image
 Poor marketing skills
 Weak management skills
 Under-trained employees
OPPORTUNITIES

 Chances to make greater profits in the environment.

 External attractive factors that represent the reason for an organization to exist
and develop.
 Condition of the environment that benefits the organization in planning and
executing strategies that enable it to become more profitable.
 Organizations should be careful and recognize the opportunities and grasp
them whenever they arise. Opportunities may arise from the market,
competition, industry/government and technology.
Some of the examples of opportunities for an organization are as follows:

 Rapid market growth

 Complacent rival firms
 Changing customer needs/tastes
 New uses discovered for existing product
 Economic boom
 Government deregulation
 Decline in demand for a substitute product
THREATS

 External elements in the environment that could cause trouble for the business
 External factors, beyond and organization’s control, which could place the
organization’s mission or operation at risk.
  Conditions in the external environment that jeopardize the reliability and
profitability of the organization’s business.
 Threats compound the vulnerability when they relate to the weaknesses.
Threats are uncontrollable. When a threat comes, stability and survival can be
at stake.
Some of the examples of threats for an organization are as follows:

 Entry of foreign competitors

 Introductions of new substitute products
 Decline in product life cycle
 Changing customer needs/tastes
 New strategies adopted by rivel firms
 Increased government regulation
 Economic slowdown
OBJECTIVES OF SWOT
Strengths (based on analysis of);

 Strategies
 Restriction & Control
 Performance

Weaknesses (based on analysis of);

 Strategies
 Restriction & Control
 Performance
Opportunities (based on analysis of);

 General Environment
 Industry Environment
 Main Competitors

Threats (based on analysis of);

 General Environment
 Industry Environment
 Main Competitors
Did You Know?
SWOT analysis is useful and is not limited to only profit-seeking organizations. SWOT
analysis may be used in any decision-making situation when a desired end-state
(objective) has been defined: Hence, it can also be used for decision-making in non-
profit organizations, governmental units and for individuals. SWOT analysis may also
be used in pre-crisis planning and preventive crisis management. SWOT analysis may
also be used in creating a recommendation during a viability study/survey.
Creating Strategies
SWOT analysis on its own is meaningless unless it is backed by solid, well-defined
action plan. It works best when part of an overall strategy or in a given context or
situation. A simple strategy can be defined by using the 4As model.
The 4As model stands for:
Aim – is the Goal or objective
Assess – is the SWOT review itself
Activate – identify the strengths or measures of success & use them to advantage
Apply – take action
Brainstorming
Brainstorming is an important aspect of SWOT Analysis. Brainstorming is useful in
SWOT analysis as it helps to:

 Think outside the box

 Provide varied perspective due to the group discussion
 Provide the liberty to say your mind
 Allow you to break away from traditional methods
 Create an appetite for change