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