The Nature of the Business Environment Management Level
The Nature of the Business Environment Management Level – Paper E 2 Project and Relationship Management Lecture - 007 Vidya Rajawasam ACMA CGMA MBA
Business Environment We have discussed the various approaches to achieve Sustainable Competitive Advantage and Alternative Approaches strategy development in our previous lectures.
Business Environment In this lecture we will discuss the various types of different environments, their implications to business activities and various types of Environment Analysis Models
Business Environment q Different Environments Business operate in various environments. There are two main types of environments. Those are; internal environment and external environment. Each type of environment exerts various types of influence on the organization.
Business Environment q Different Environments There are three forms of basic influence on an organizations. - Opportunities & Threats - Examples of Opportunities; growth in consumer demand, new technological developments etc…
Business Environment q Different Environments There are three forms of basic influence on an organizations. - Opportunities & Threats - Examples of Threats; trade union action, new legislation affecting the business operations.
Business Environment q Different Environments There are three forms of basic influence on an organizations. - Human resources Main source of organizational resources obtained from the environment. The resource has a significant influence in running the business organization.
Business Environment q Different Environments There are three forms of basic influence on an organizations. - Pressure groups: - These are interested parties who have direct interest in organizational activities. - Examples of Pressure groups; general public, government bodies, action groups such as Greenpeace
Business Environment q Different Environments There should be strategies to handle the environmental influences. The strategies should either fit with or cope with it’s environment. The organization does not operate in isolation and therefore it should continually scan environment to develop new strategies.
Business Environment q Different Environments There are several ways where an organization can react to its environment. They are; § Do nothing – where the influence is insignificant or short term. § Monitor the environment – carefully monitor changes occurring in the environment. No need to respond immediately.
Business Environment q Different Environments There are several ways where an organization can react to its environment. They are; § Increase its flexibility – organization may respond to the influences by having contingency plans and product/market developments. § Plan major strategic changes – organization identifies that the situation is important and urgent action is required.
Business Environment q Implications of Different Environments Different environments exhibit different characteristics. These characteristics affects development of strategies for an organization. § Stable and unchanging environment – focuses on past decisions and results and attempts are made to rectify past mistakes. Tactical planning is more important compared to strategic planning.
Business Environment q Implications of Different Environments § Stable with minor Fluctuations : Where the environment is subject to cyclical and seasonal fluctuations with fairly stable structure.
Business Environment q Implications of Different Environments § Generally Changing / Predictable manner: Where the environment is changing into something new in a predictable manner. With the recognition of change, the organization can begin to make the necessary changes to its goals, strategic direction, organization structure and systems.
Business Environment q Implications of Different Environments Rapidly Changing / Unpredictable manner: Basically the organization operates in a unpredictable and highly turbulent environment. There is little room for strategic planning.
Business Environment q Implications of Different Environments Rapidly Changing / Unpredictable manner: Recent issues faced by NHS is a good example with rapidly changing medical technology, availability of private medical care, new government policies etc. .
Business Environment q Strategies adopted in response to changes in environment. Air Line Industry : This industry has changed dramatically within the last decade with increase in competition. Different air lines have adopted different strategies to deal with the environment changes.
Business Environment q Strategies adopted in response to changes in environment. Air Line Industry : § Integration – Air France and KLM , Lufthansa and Swissair. § New routes and new services – flat beds, massage facilities and showers in first class.
Business Environment q Strategies adopted in response to changes in environment. Air Line Industry : § Cost cutting – BA has outsourced its ticketing administration to India. § Better Branding – Service differences with low cost carriers.
Business Environment q Strategies adopted in response to changes in environment. Retail outlet Industry : The Marks & Spence and Sainsbury's are constantly struggling to make the right decisions.
Business Environment q Strategies adopted in response to changes in environment. Retail outlet Industry : They regularly change their planning tactics based on the opportunities presented to them by changing consumer behavior and increasing pressure from competitors.
Business Environment q Strategies adopted in response to changes in environment. Retail outlet Industry : Examples of Consumer behavior New Fashion trends , new health issues
Business Environment q Strategies adopted in response to changes in environment. Retail outlet Industry : Examples of increasing competition Waitrose , Tesco , Asda , Next, Gap
Business Environment Review MCQs Examples of external environmental influences are ? a. b. c. d. Change of senior management Changes in government policy Changes in Consumer behavior New Technological developments
Business Environment Review MCQs Examples of external environmental influences are ? a. b. c. d. Change of senior management Changes in government policy Changes in Consumer behavior New Technological developments
Business Environment Review MCQs The true statement/s with reference to an organization reacting to environmental changes? a. Do nothing approach b. Plan major strategic changes c. Contingency planning d. Change the board of directors
Business Environment Review MCQs The true statement/s with reference to an organization reacting to environmental changes? a. Do nothing approach b. Plan major strategic changes c. Contingency planning d. Change the board of directors
Business Environment q Environmental analysis We have discussed the internal analysis which is part of the corporate appraisal (SWOT) process. The second element of the SWOT analysis process is external analysis, which focuses on analysis of opportunities and threats in the external environment.
Business Environment q Environmental analysis The external analysis / external appraisal scans the external environment for factors affecting the organization’s current and future activities.
Business Environment q Environmental analysis The external analysis can be carried out at different levels. The macro level – General environment Analyzed through - PESTEL The micro level – Operating / industry environment Analyzed through – Porter’s five forces.
Business Environment q Environmental analysis
Business Environment q Macro Environmental analysis The macro environment consists of factors that cannot be directly controlled by the organization itself. The related factors are; Social , legal , economic, political , technological and ecological
Business Environment q Macro Environmental analysis PESTEL analysis This analysis divides the business environment into several variants that can influence organization’s activities. The variants are; Political , Social , Economic , technological , legal and ecological/environmental.
Business Environment q Macro Environmental analysis The Political influences; There can be many changes and events occurring in the general environment that can affect an organization. Examples; Changes in government legislation, policies , changes to import duties and Taxation.
Business Environment q Macro Environmental analysis The economic influences; There can be many changes and events happening in the general economic environment. Examples; Growth in GDP (Gross Domestic Product), changes in consumer income & expenditure and population growth.
Business Environment q Macro Environmental analysis The Social influences; The social influences include cultural , social and demographic factors. Examples; • Attitudes, beliefs and values of the people. • Changes in lifestyles, education and health. • Age profiles.
Business Environment q Macro Environmental analysis The technological influences; The changes in new product development, improvements in processing methods, new supply chain improvements. Examples; • E commerce , M commerce applications.
Business Environment q Macro Environmental analysis The legal influences; The changes laws and regulations affecting business organizations. Examples; • Patents , Sale of goods, working regulations, pollution, Health & Safety Standards and industrial standards.
Business Environment q Macro Environmental analysis The ecological / environmental influences; Focuses on environmental impact of organizational activities. Examples; • Discharging waste and harmful material to the environment which can cause pollution.
Business Environment q Macro Environmental analysis Lo. NGPEST analysis; Another variation of PESTEL analysis which focuses on Local, National and Global levels. • Lo refers to the local level in which the organization operate. • N refers to the home country which the organization operates.
Business Environment q Macro Environmental analysis Lo. NGPEST analysis; • G represents the global level in which the organization operate, which is outside the local and national levels. • In practice, what is important is that the organization should be aware of business environment which it operates.
Business Environment Review MCQs What is not part of PESTEL analysis? a. b. c. d. Cultural influences Technological advances Finance influences Legal influences
Business Environment Review MCQs What is not part of PESTEL analysis? a. b. c. d. Cultural influences Technological advances Finance influences Legal influences
Business Environment Review MCQs The PESTEL analysis is focuses on analyzing ? a. b. c. d. External General Environment Internal environment. Operational / industry environment Non of the above.
Business Environment Review MCQs The PESTEL analysis is focuses on analyzing? a. b. c. d. External General Environment Internal environment. Operational / industry environment Non of the above.
Competitive Advantage Lecture Summary We have discussed the § Different Business environment § Environmental influences affecting organizations § Analysis tools for analyzing environments
The Nature of the Business Environment Management Level – Paper E 2 Project and Relationship Management Lecture - 007 Vidya Rajawasam ACMA CGMA MBA
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