Business Environments and Sectors of the Economy

Environments and Sectors Overview

• Micro environment (internal):
  • Business has full control.
  • Known as Business Policy
• Market environment (external):
  • Business has some control.
• Macro environment (external):
  • Business has no control.
• Sectors:
  • Public / Private
  • Primary, Secondary, Tertiary

Environmental Elements

• Micro:
  • Customers, Suppliers, Competitors, Substitute products, Government, Intermediaries, New entrants
• Macro:
  • Political / (Physical) factors, Economical / (Ethical) factors, Social factors, Technological factors, Legal factors, Environmental factors (P2E2STLE)

Linking Environments

• Factors have ripple effects.
  • Example: Tax law changes impact employees and customer spending.

Adapting to Challenges

• Micro:
  • Vision, objectives, competent staff, resource use, training.
• Market:
  • Customer relationships, supplier contracts, communication, stakeholder relationships, distribution channels.
  • Lobbying: Influencing decision makers.
• Macro:
  • Awareness, technology updates, networking, power relationships.

Analyzing Business Environments

• SWOT Analysis:
  • Strengths, Weaknesses (Internal/Micro)
  • Opportunities, Threats (External/Market/Macro)
• Porter’s Five Forces:
  • Market environment: Rivalry, substitutes, new entrants, supplier power, buyer power (+ complementary products)
• P2E2STLE Analysis:
  • Macro environment

Sectors

• Public:
  • Government (service-oriented, non-profit).
• Private:
  • Individual-owned, profit-driven.
• Primary:
  • Raw material extraction (farming, fishing, mining, forestry).
• Secondary:
  • Manufacturing.
• Tertiary:
  • Selling final product/service.
  • Personal, Professional, Auxiliary services.

Environmental Scanning

• Definition:
  • Obtaining information about current and future events to asses impact on performance.

Purpose

• Identify challenges and opportunities.
• Understand change (crisis vs. trend).
• Develop flexible strategies.
• Understand impact of decisions on sustainability.

Strategic Plans

• Vision => Mission, Strategy => Implementation => Evaluation => Continuous Scanning

Conducting Environmental Scanning

• Macro: PESTLE and OT.
• Market: Porters and OT.
• Micro: SW.

SWOT Analysis Details

• S, W: Internal (tangible - resources; intangible - trademark).
• O, T: External (O adds value, T destroys).

Strengths

• Add value, give competitive advantage.
• Examples: competitive price, location, unique product (patent), business culture, brand, financing, operational efficiency.

Location Factors

• Raw material vs. finished good transport.
• Fit with neighborhood, complementary businesses.
• Customer access, parking, security.
• Future developments, competitors, trading hours.

Concepts - Strengths

• Patents: Legal protection, limits competitors.
• Skilled workforce: Productivity, fair treatment.
• Business culture: Meeting deadlines, customer confidence.
• Marketing and brand: Brand equity.
• Access to financing.
• Operational efficiency and quality.

Weaknesses

• Opportunities can turn into weaknesses if not managed properly
• Strategies to overcome weaknesses

Opportunities and Threats

• External
• Opportunities: outperform competitors
• Threats: hamper success
• Porters: Market
• PESTLE: Macro

SWOT Matrix (TOWS)

• SO: Strengths to seize opportunities.
• ST: Strengths to counter threats.
• WO: Overcome weaknesses to exploit opportunities.
• WT: Minimize weaknesses to avoid threats.

Porters Forces

• New entrants, Competitors, Buyer power, Supplier power, Substitute products, Complementary products

Markets - Porters

• Attractive: High profits, high entry barriers, low competition.
• Unattractive: Low profits, low entry barriers, high competition.

PESTLE

• Political, Physical, Economical, Environmental, Technological, Legal, Ethical
• Ripple effect between factors