Lecture 2: Introduction to the Business Environment

Stage 2 Session 1

Principles of Business

2

Overview

• Review of lecture 1• Environmental scanning – why?• SWOT analysis• PESTEL analysis• LoNGPEST analysis• Scenario Planning• When it all goes wrong ….

3

Learning outcomesof this Lecture

• To be able to define why organisations carry out environmental analysis

• To become familiar with some of the key tools that organisations use to scan the environment

• To be able to distinguish between the various tools and where they will be used most effectively

Why do organisations scan their environments?

• To be able to compete effectively• To be able to make better informed decisions• To understand where to strengthen the business• To be aware of the dynamic and changing nature of the environment they work in • To inform their overall long term and strategic planning approach• To highlight potential threats and opportunities within a timescale that enables

effective action to be taken

• Sometimes they get it wrong, as we see in the cases of Kodak, Nokia and others

The tools they use

• This lecture will concentrate on the following tools:• The SWOT analysis• The PESTEL analysis

• The LoNGPEST analysis• Scenario Planning

SWOT analysis

• Stands for:

• Can be used to analyse a business, or a business unit, or a product or service• You can even do a SWOT analysis on yourself!• A well constructed SWOT analysis can provide some clear insights into the business

and inform what areas need to be strengthened either to mitigate against potential threats or take advantage of potential opportunities

STRENGTHS WEAKNESSES OPPORTUNITIES THREATS

USUALLY INTERNAL ISSUES USUALLY EXTERNAL ISSUES

Carrying out a SWOT analysisSTRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

What are your strengths?What do you do better than others?

What unique capabilities and resources do you possess?

What do others perceive as your strengths?

What are your weaknesses?What do your competitors do better

than you?What could you improve given the

current situation?What do others perceive as your

weaknesses?

What trends or conditions may positively impact you?

What opportunities are available to you?

What trends or conditions may negatively impact you?

What are your competitors doing that may impact you?

Do you have solid financial support?What impact do your weaknesses

have on your threats?

INTE

RNAL

EX

TERN

AL

The PESTEL analysis

• Originally known as the STEP analysis, but has been extended over the years

POLITICAL ECONOMIC

TECHNOLOGICAL ENVIRONMENTAL

SOCIO –CULTURAL

LEGAL

Political

• Local or national governmental issues • Alliances and agreements between countries • Changes in government and approaches to business• Changes in regulation • Changes in employment law

Economic

• Spending• Economic growth• Exchange rates• Employment statistics• Taxation changes

Socio-cultural

• Health conscious society• Age demographics• Lifestyle changes• Fashion changes• Multi-culturalism • Religious changes

Technological

• Information and Communications technology• New Machinery• Changes in energy • Social networks

Environmental

• Green issues • Corporate Social responsibility• Attitudes towards charity • Attitudes towards waste

Legal

• New laws, repeals of old laws• Regulation again• Licensing• Driving laws• Tendency to be more litigious

Another way of looking at it Political Economi

cSocio-cultural

Technological

Local Local authorities and associations

Local economy

Local community affairs

Difficult to segregate but rise in new communicationsTechnology, social networks etc

National National government and employer bodies

Central monetary and fiscal policiesStock market

Demographic change, immigration, culture

Global Alliances and agreements or disagreements

Trading blocsWorld money markets

Global demo-graphics, cross cultural issues, religious issues

Things to consider within a PESTLE analysis

• Each of the factors must be looked at when carrying out the analysis• BUT – the situation or the context may mean that one or more factors is looked at

more deeply than the others • Not all factors are threats – some are opportunities (cf SWOT analysis)• Carrying out a PESTLE analysis is not a substitute for continual environmental

scanning – the world changes very very quickly sometimes

Scenario Planning

• Industries that use scenario planning:

• Oil and gas• Counter-espionage and terrorism• Military• Insurance• Banking

Scenario Planning is:

• A strategic planning tool used to make flexible long term plans• A way of looking at how events could shape the future• A way of identifying how significant events, the protagonists involved and the way

they act will impact on the business• A way of helping organisations decide how best to face thefuture

6 steps to Scenario Planning

www.jiscinfonet.ac.uk/tools/scenario-planning

1. SCOPINGWhat is the question you want to address?

3. BUILDING

SCENARIOS

Using your outcomes from the first two steps build your

scenarios to explore

2. TREND ANALYSIS

Consider the external forces in operation and consider the

pressures they play

4. GENERATE OPTIONS

Consider the options available within the

scenarios - innovations,

new services, projects or

opportunities

5. TEST OPTIONS

Identify and discuss potential implications

and impacts ofscenarios on the

identified options

6. ACTION PLAN

Define an action plan as a result of these

activities

Bringing it all together

• We have now looked at four key methods that businesses use to scan their environment

• In the coming seminars, we will look at two of them in more detail and you will have a chance to carry them out for yourselves

• End of Lecture