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Business Analysisby Binam Ghimire

Learning Objectives1. Internal and External Analysis; 2. PESTLE Analysis - an examination of the

Legal, Economic, Political, Environmental; Social; Technological; Ethical factors and Competition.

3. SWOT Analysis - identifying and analysing Strengths, Weaknesses, Opportunities and Threats;

4. Porter's 5 Forces - Rivalry amongst Existing Competitors, New Entrants, Substitutes, Bargaining Powers of Buyers and Suppliers.

Business & Financial Analysis Introduction

As the course title suggests this course will examine:Business Analysis andFinancial Analysis

What do they involve ?

Business Analysis

Business Analysis involves:Internal Analysis – value chain, audit External Analysis – SWOT, PESTLE & Porter’s 5

Forces ModelCompetitive Advantage – Generic Strategies

and SPACE Model, Stakeholder Analysis and Choices

This session will focus on External Analysis (Internal Analysis: Self study)SWOTPESTLEPorter’s 5 Forces Model

External Analysis

SWOT PESTLE Porter’s 5 Forces Model

Spend a moment outlining what you know of each model

OK, let’s see if we agree…

SWOT Analysis

SWOT

Strengths Internal Factors

Weaknesses

Opportunities External Factors (PESTLE Analysis)

Threats

SWOT Analysis

Opportunities & Threats

PESTLE Analysis is a useful tool to help identify Opportunities & Threats facing your organisation or sector

Let us examine PESTLE Analysis…

PESTLE Analysis

PESTEL analysis is: an evaluation of broad societal trends that

affect many industries. It is intended to identify:

both current and, especially, future developments that will shape the micro-environments of each industry sector

What current and future developments will have an impact on a particular sector ?

Hint: The first one is P – Political. The second is E…

PESTLE Factors

POLITICAL ISSUES/TRENDS

ECONOMIC ISSUES/TRENDS

SOCIAL ISSUES/TRENDS

TECHNOLOGICAL ISSUES/TRENDS

ENVIRONMENTAL ISSUES/TRENDS

LEGAL ISSUES/TRENDS

PESTLE & The Oil Sector

Spend a moment listing events under each heading with reference to the Oil Sector, for example:

P – PoliticalTension in the Middle East may impact on

supply and hence priceTension between neighbouring countries may

affect supply, e.g. Russia and UkraineTax will affect price

What did you come up with ?

E EconomicVolatility in the price of oilExchange rate risk (oil is priced in $)Cost of petrol and its impact on demand

SocialThe rise of the car from luxury to necessityMove to green and/or alternative fuel

TechnologyDevelopment of alternative energy due to….?

EnvironmentalBP Oil Spill

LegalFines etc, consider the cost of the recent BP oil

spill

A good PESTLE analysis should be…. Focused on society wide trends which looks at

the impact on industry and organisation. Based on sound research of actual (not

hypothetical) issues. Supported by evidence from the research to

validate points made. Future oriented rather than merely describing the

present, i.e. it is about emerging trends that will shape the industries future.

Interpretive in nature not descriptive, i.e. don’t just state what is, but say why/how it is significant for the future of the industry and firm context.

Porter’s 5 Forces Model

Industry Sector AnalysisThe industry analysis can be done using

Porter’s 5 Forces Model.

This has two main aims:1.To understand the drivers of competitive behaviour

in the sector;2.To evaluate the long-run profit potential of the

sector;

What factors do you think drive Competitive Behaviour ?

Threat ofnew entrants

BargainingPower of

consumers

Bargainingpower ofsuppliers

Threat fromSubstitutes

Rivalry amongExisting firms

Porter’s 5 Forces Model

Again, consider the Oil Sector

Bargaining power of Suppliers

Bargainingpower of Customers

Threat ofSubstituteproducts

Threat fromnew entrants

Intensity of Rivalry

• Capital requirements• Product differentiation • Switching costs• Access to distribution

channels• Access to raw materials• Intellectual property• Competitive response• Government regulation• Economies of scale

• Degree of differentiation• Technological innovation• Price performance relationships

• Size of purchases• Undifferentiated product• Per cent of cost• Low margins (buyer)• Threat of forward integration• Impact on quality• Price performance is high

• Size of purchases• Differentiation in product• Few substitutes• A few big suppliers• Threat of backward

integration

• Growth rate of market• Relative size of rivals• Capacity increases in

large increments• Exit barriers are high• Switching costs • Profitability

Evaluation of the Five Force Model

Identifies drivers of competitive behaviour.

Indicates trends in profitability.

Highlights strategies to alter industry structure.

Can be used to compare attractiveness of different sectors.

Assumes all business relationships are competitive.

Industry convergence makes defining sectors difficult.

Five forces may not capture the whole picture of what drives an industry.

ADVANTAGES DISADVANTAGES

Market analysis for strategy

Market attractiveness Is entry into the market compatible with our strategic

objectives? Competitive advantage

What relative (better) or absolute (unique) advantages do we bring to the market that satisfy customer needs better than competitors?

The GEC Matrix examines these issues

Market analysis for strategy purposes is not simply about customer segments, their needs and numbers as in marketing.

Strategists are concerned with broader criteria relating to*:

* These two issues overlap, i.e. the better able you are to compete, the more attractive the market

Information sources

Basic market data Mintel Keynote Datamonitor/Marketline Census data

Basic competitor information Hoovers online Fame Corporate web sites

Obviously, the available sources are many and varied but key ones include:

Summary

SWOTStrengths, Weaknesses – Internal Factors Opportunities & Threats – External Factors

(PESTLE Analysis)

Porter’s 5 Forces Model – Competitive Behaviour/ Industry Sector Analysis

Can you remember what PESTLE stands for and what the 5 Forces are ?

PESTLE Factors

POLITICAL ISSUES/TRENDS

ECONOMIC ISSUES/TRENDS

SOCIAL ISSUES/TRENDS

TECHNOLOGICAL ISSUES/TRENDS

ENVIRONMENTAL ISSUES/TRENDS

LEGAL ISSUES/TRENDS

Threat ofnew entrants

BargainingPower of

consumers

Bargainingpower ofsuppliers

Threat fromSubstitutes

Rivalry amongExisting firms

Porter’s 5 Forces Model

Summary

SWOT

PESTLE

PORTER’S FIVE FORCES