Environmental Scanning
Analysing the business environment
Outcomes.
• Ability to identify challenges that face business and force them to struggle
with change
• To explore the internal factors, market factors and macro factors that affect
business operations
• To indentify and explain direct and indirect factor elements of the
environment
• To identify the different stakeholders of the organisation and their varied
interests
• To articulate the advantages and disadvantages of international trade
The challenge of change
• The end of world war 2 marked the beginning of
the industrial revolution. Since then the external
environment has been undergoing continuous and
rapid changes with far reaching effects on
organisations and their management strategies
The challenge of change
• Rapid technological change e.g. mechanisation, mass
production, robotics, artificial intelligence have
revolutionalised the production processes of organisations in
different industries
The challenge of change
• Improved information processing technology (big data),
communications technology(social media) and advanced
transport systems (drones) have eliminated thousands of
middle management positions in organisations across
industries
The challenge of change cont:
• Customers too have become more complex especially with increased
product choice and access to education and communications
technology.
The challenge of change
• Globalisation has made accessibility and availability of goods
and services easier ( talk of bondaryless markets) Globalisation has condensed the trading arena tremendously
as people can order products of their choice from anywhere in
the world with orders being delivered shortly (talk of the global
village).
Challenge of change cont:
• As a way of seeking growth and survival, managers’ task is no
longer the satisfaction of stockholders goals only but other
stakeholders’ demands.
The challenge of change
• Organisations must operate like real systems which are
environmentally influenced and environmentally influencing
institutions short of that, they will sink.
The challenge of change
• The silo mentality, the era of self containment, and self
sufficiency has no room in today’s business: hence ignoring the
external environments is one of the fastest ways of going
under.
Complexities of the organisational environment by
Griffin(2008:5)
• Rapid change
• Globalisation
• Domestic competition
Complexities of the organisational environment
• Government regulation
• Internet related uncertainties
• Unexpected interruptions
• Crises
The external environment factors.
• These are factors outside an organisation that are relevant to
the organisation’s operations, often divided into direct-action
and indirect-action elements.
Direct Action Elements/Market Factors/Microeconomic factors
• Direct-action elements are elements of the
environment(external stakeholders) that directly influence an
organisation’s activities.
• Management may not have control over these factors but have
direct interest hence they endeavour to influence these factors
on a one on one basis
Market Factors
Customers.
• Customers exchange their financial value for an organisation’s
products and services.
• Customers can be individuals, institutions, government, other
firms, distributors or manufacturers.
Customers
• An organisation’s marketing strategy is shaped according to
customer type and according to market situation.
• Generally the organisation must be concerned about the
quality, availability, price of product and improved
communication and transportation to attract and retain
customers.
Customer analysis issues.
• Do you have a list and description of your customers?
• How are your customers segmented(geographically,
demographically, psychographically, or behaviourally?
• Can you confidently describe each customer segment?
Customer analysis issues
• What is the process of selecting segments you want to
concentrate on or serve?
• How are your marketing programmes for each of the selected
segments developed?
• Do you have post purchase evaluation programme your
customer segments?
Suppliers.
• Resources that the organisation uses such as inputs, services,
energy, equipment and labour are procured from suppliers.
• When ordering organisations focus on cost, quality, availability,
because these determine the cost of production and the selling
price.
Suppliers
• The power of supplier relationships becomes crucial hence the
need for efficient supply chain management(SCM) and supply
networks as well as effective inventory control systems such as
just in time(JIT).
• The aim is for the organisation to become the best cost
provider and eventually market leader or the most preferred
supplier(supplier of choice).
Special interest groups(SIGs).
• SIGs, are sometimes called pressure groups – they use the
political process to further their position on particular issue,
e.g. the controversial ban on the sale of infant formulae
manufactured by NESTLE in the developing world and the
recent banning of oil imports from Iran into RSA.
SIGs
• SIGs often get instant media attention and the fact that they
lobby the politicians to support their cause actually make them
very powerful,e.g. Consumerists and environmentalists.
• As a way of dealing with SIGs some organisations try to
negotiate while others counter lobby government(MPs) and
corruption is endemic in these processes but management of
organisations are expected by their principals to emerge the
winners.
The media.
4.
• The public’s interest in business activities is growing because of
media coverage.
• Mass communication allows extensive, immediate and
sophisticated coverage.
• Investigative journalism has exposed bad business practices.
The Paparazzi
• Because of globalisation, organisations wherever they are
located live in a fish bowl such that every action they take is
subject to media scrutiny.
• Organisations are employing Public Relations(PR) and
Marketing specialists so that they can deal with media issues in
order to limit its potential damage but to also gain mileage
from the media where possible.
Government
• Qualifies in this category as a major customer to many
organisations
• In the early days of industrialisation governments, especially
the US government adopted the doctrine of laissez-faire
• it holds that government should exert no direct effects on
business, but should limit itself to preserving laws and order,
allowing the free market to shape the economy.
Goverment
• Rampant abuse of business power emerge and the
government intervenes most of the time
• The government took the role of a watch dog and regulating
organisations to protect the public interest and to ensure
adherence to free market principles but sometimes this
becomes controversial .
Government
• Critiques of government intervention argue that regulation is
expensive and it inhibits free enterprise.
• Supporters of regulation argue that deregulation is like
returning to the law of the jungle.
• Managers of organisations are expected to deal with
controversial and sometimes contradicting industry regulations
and government’s attitude towards the protection of local
industries.
Trade unions.
• These are labour movements whose primary objective is to
protect the interests of the worker in his dealings with the
organisation(the employer).
• Thus,the hiring and negotiating skills of the organisation
determines the industrial relations climate of the company its
success too.
Trade unions
• Collective bargaining(the process of negotiating and
administering agreements between labour and management
covering wages, working conditions and other aspects of the
working environment also determine whether the company
succeeds without sit ins, sit outs, picketing and
strikes(industrial action).
Financial institutions.
• Money is one of the resources in short supply
• In one way or the other, the organisation relies of financial
institutions for support.
• Commercial banks provide depositing and withdrawal facilities
as well as short term trade finance.
Financial institutions cont:
• Building societies can fund construction projects such as
factories and warehouses.
• Insurance companies are interested in securities issues
providing cover in case of loss caused by nature or human
acts(accident cover, fire protection, embezzlement of funds
e.t.c).
Financial institutions
• Organisations must maintain good working relationships with the
financial institutions all the time in order to get good and sound
advice on time.
• But managers of financial institutions are expected to be of
unquestionable personality as slight mismanagement of customers’
money has disastrous consequences, c/o the world financial crisis,
the recent reports about Barclays scandals and both positive and
negative effects of deregulating the financial market.
Competitors.
• An organisation must always watch the actions of their
competitors(both current and potential).
• At the same time the organisation’s moves and potential moves are
being watched by its competitors and potential competitors.
• Foreign competition is difficult to analyse hence it poses more and
special challenges that local competition. (See table below which
summarises competitor analysis and customer analysis issues.)
Competitor analysis issues
• What are the competitors ‘major objectives?
• What are the competitors ‘current strategies?
• What are the competitors ‘likely future strategies?
Competitor analysis issues
• How are competitors likely to react to counter strategies?
• Do the competitors have capability to implement their
strategies?
• What technological strategies do competitors have?
Indirect Action Elements
• Indirect-action elements are external environment elements
that affect the climate in which the organisation activities take
place, but do not affect the organisation directly
• For example political factors, economic factors, socio-cultural
factors, technological factors, legal factors, and environmental
factors(ecological-mother nature)
• Often abbreviated as the PESTLE factors.
External Environmental factors
1. Political variables.
• Emanate from the political process and political climate in an
economy(political system(s) influence government policy and
determines which countries you are going to do business with
or not
• The political climate (how politics relate to business) can range
from being lenient to management to being rigorous:
Government policy can allow management freedom to act or
limit what management can do(its either supportive or
suspicious)
Political factors
• Usually there will be competition between various groups that
want to advance their own interests
• Attitudes towards deregulation and privatization
Economic factors
• General economic factors that may be relevant in an
organisation’s activities include wages, prices, inflation, tax
levels, interest rates and currency control regimes.
• The impact of national economic indicators such as income
levels, productivity, savings, unemployment rates and
international trade on an organisation are critical.
Economic factors
• Two major economic challenges are Structural change and
cyclical change.
• Structural change is experienced when there is a major shift in
relationships between different sectors of the economy and
key economic variables
• For example, the move from being an industrial economy to
being a service economy and from low income economy to
middle income economy.
Economic factors
• Economic cycles are periodic swings in general economic
activity
• For example, the rise and fall of inflation or interest rates
Social variables
• Demographic factors= are generally about the makeup of the
population
• They affect country productivity, country competitiveness,
labour supply, market size, unemployment by government and
attitude consumption behaviour of people c/o population
growth rate, aging, life expectancy, fertility rate and the sand
which generation.
Lifestyle factors
• Lifestyles are the outward manifestations of people’s attitude
and values.
• Issues to watch include, changing life styles, i.e.one parent
families, child headed families, women in leadership positions,
better education, people driving luxury cars, mushrooming of
condominiums, and attitudes towards physical fitness(diet &
gym euphoria).
Social values
• Social values refer to the way our values affect organisations and work
itself
• For example employee participation programs
• the cost of technology,
• the prevalence of informal groups in organisations brings about issue of
culture and sub-cultures both needing to be managed.
• Social values differ from country to country hence the learning of foreign
value is complex but nevertheless unavoidable.(e.g. in Japan karioka (death
from overworking)is common and a worker sticks to one employer for his
entire working life.)
• We can add things such as culture, beliefs, attitudes at different levels.
Technological variables
.
• Consideration of fast paced developments taking place in new
products and production processes( e.g. The number of new
vehicle models, cell phones, TVs etc)
• Improved technology has potential to increase product life
span but the number of new models shortens the life span of
products-implying a lot of marketing expenditure
Technology factors
• Issues to do with quality and safety imply the need to change
or upgrade production processes more frequently.
• Significant improvements have been recorded in
communications and transportation areas
• Improved technology advancement has potential to gain an
organisation a lot of competitive edge.
Legal factors
Ecological factors
SWOT Analysis
• An alternative environmental analysis model
• It focuses on both external and internal factors
• External=Opportunities and threats
• Internal =Strengths and weaknesses
SWOT ANALYSIS Model
Strengths.
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What are you good at?
What new skills does your organization have?
What can you do that others can’t?
How can you repeat a recent success?
What makes you unique?
Why do your customers come to you?
Opportunities.
 Have there be any changes in your market in your favour?
 What skills could you learn?
 What new products or services could you offer?
 Which new customer groups could you reach?
 How could you make yourself unique?
 How could your organization look like in 5-10 years?
Weaknesses
 What are you not good at?
 What skills does your organization lack?
 What can others do better than you?
 What recent failures have you had? Why?
 What customer groups are you not satisfying?
 What customers have you lost recently? Why?
Threats.
 Have there been any changes in the market which
disadvantages you?
 What are your competitors up to?
 Are your customer’s needs changing against your
interests?
 Are there any economic or political changes which
can harm you?
 Is there anything which could threaten your
organization’s existence?
INTERNAL ANALYSIS
• Key internal stakeholders are; board members, management
and employees.
• Internal environmental issues are the responsibility of
management(that is what they are employed to manage).
• Internal environmental factors are to do with company
management issues
Internal factors cont:
• How relevant are the company’s vision and mission, plans and strategies
• Capacity and capability issues
• Availability of resources and appropriate structures
• Ability to achieve goals(long term, medium term and short term)
• In the SWOT analysis model-strengths and weaknesses are about the
organisation’s internal environmental factors.
• The rest of topics discussed in this course is more about internal
environmental issues.
Opportunities and threats
• They are driven by the PESTLE factors
• Identify opportunities and take advantage while they prevail
• Anticipate and avoid threats as much as you can
International business environmental issues
• Communication challenges as a result of language barriers
• Import and export regime differences c/o. Corporate tax rates
differences in the region are, Botswana 15 % with a special rate
for manufacturing of 5% , Mauritius 15%,Lesotho 25%
manufacturing 0%, RSA 28%, SD 30% revised to 27.5% in 2013
Budget pronouncement and Namibia 34% revised to 32%.
International business environmental issues
• Role of GATT, regional blocs, international protocols e.t.c
• Developed vs developing nations
• Sustainability-exploitation of a country’s resources
• Technological and innovation gaps
Geopolitical situation
Often disrupts the supply chains of imports and exports
• Russia vs Ukraine war
• Gaza battle between Israelites and Palestinians
• DRC VS M23
• The Eswatini 2021 uprising
End of unit questions
1. Explain the differences between direct action factors and indirect
action factors.
2. What would you consider when you have been asked to do an internal
analysis for an organisation that you work for.
3. Explain the SWOT analysis concept and how it relates to PEST analysis.
Is it necessary to do both at the same time?