Business Analysis
by Binam Ghimire
1
Learning Objectives
1. 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 and
Financial Analysis
 What do they involve ?
Business Analysis
 Business Analysis involves:
Internal Analysis – value chain, audit
External Analysis – SWOT, PESTLE & Porter’s 5
Forces Model
Competitive Advantage – Generic Strategies and
SPACE Model, Stakeholder Analysis and Choices
 This session will focus on External Analysis (Internal
Analysis: Self study)
SWOT
PESTLE
Porter’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 – Political
Tension in the Middle East may impact on supply and
hence price
Tension between neighbouring countries may affect
supply, e.g. Russia and Ukraine
Tax will affect price
What did you come up
with ?
 E Economic
Volatility in the price of oil
Exchange rate risk (oil is priced in $)
Cost of petrol and its impact on demand
 Social
The rise of the car from luxury to necessity
Move to green and/or alternative fuel
 Technology
Development of alternative energy due to….?
 Environmental
BP Oil Spill
 Legal
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 Analysis
The 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 ?
Porter’s 5 Forces Model
Threat of
new entrants
Bargaining
power of
suppliers
Again, consider the Oil
Sector
Rivalry among
Existing firms
Threat from
Substitutes
Bargaining
Power of
consumers
•
•
•
•
•
•
•
•
•
Capital requirements
Product differentiation
Switching costs
Access to distribution channels
Access to raw materials
Intellectual property
Competitive response
Government regulation
Economies of scale
Bargaining
power of
Suppliers
•
•
•
•
•
•
•
Size of purchases
Undifferentiated product
Per cent of cost
Low margins (buyer)
Threat of forward integration
Impact on quality
Price performance is high
Threat from
new entrants
•
•
•
•
•
Size of purchases
Differentiation in product
Few substitutes
A few big suppliers
Threat of backward integration
Intensity of Rivalry
• Growth rate of market
• Relative size of rivals
• Capacity increases in large
increments
• Exit barriers are high
• Switching costs
• Profitability
Threat of
Substitute
products
Bargaining
power of
Customers
• Degree of differentiation
• Technological innovation
• Price performance relationships
Evaluation of the Five Force
Model
ADVANTAGES
 Identifies drivers of
competitive behaviour.
 Indicates trends in
profitability.
 Highlights strategies to
alter industry structure.
 Can be used to
compare attractiveness
of different sectors.
DISADVANTAGES
 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.
Market analysis for
strategy
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*:
 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
* These two issues overlap, i.e. the better able you are to compete, the more attractive the market
Information sources
Obviously, the available sources are many
and varied but key ones include:
 Basic market data
 Mintel
 Keynote
 Datamonitor/Marketline
 Census data
 Basic competitor information
 Hoovers online
 Fame
 Corporate web sites
Summary
 SWOT
Strengths, 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
Porter’s 5 Forces Model
Threat of
new entrants
Bargaining
power of
suppliers
Rivalry among
Existing firms
Threat from
Substitutes
Bargaining
Power of
consumers
Summary

SWOT

PESTLE

PORTER’S FIVE FORCES