CHAPTER 3 01 The importance of

MANAGING environment analysis

BUSINESS 02 External analysis

ENVIRONMENT 03 Internal analysis

 Omnipotent View
the view that managers are
directly responsible for an
VIEW OF organization’s success or failure.

MANAGEMENT
Symbolic View
the view that much of an
organization’s success or failure
is due to external forces outside
managers’ control.
What happens…
Components of Business Environment
 v Is the broad environmental context
in which a firm’s industry is
situated.
v Includes strategically relevant
EXTERNAL
ENVIRONMENT components over which the firm
General Environment/Macro- has no direct control.
Environment
ü General economic conditions
ü Immediate industry and
competitive environment
 Political-Legal
v Government type and stability
v Freedom of the press, rule of law and
levels of bureaucracy and corruption
EXTERNAL v Regulation and de-regulation trends
ENVIRONMENT v Social and employment legislation
General Environment/Macro-
v Tax policy, and trade and tariff controls
Environment
v Environmental & consumer-protection
legislation
v Likely changes in the political environment
 Economic
v Stage of a business cycle
v Current and projected economic growth,
inflation and interest rates

EXTERNAL v Unemployment and supply of labor, labor costs

ENVIRONMENT v Levels of disposable income and income

General Environment/Macro- distribution

Environment v Impact of globalization
v Likely impact of technological or other changes
on the economy
v Likely changes in the economic environment
 Socio-cultural
v Cultural aspects, health consciousness,
population growth rate, age distribution.
v Organizational culture, attitudes to work,
management style, staff attitudes.
EXTERNAL
v Education, occupations, earning capacity, living
ENVIRONMENT
standards.
General Environment/Macro-
Environment v Ethical issues, diversity, immigration/emigration,
ethnic/religious factors.
v Media views, law changes affecting social
factors, trends, advertisements, publicity.
v Demographics: age, gender, race, family size.
 DEMOGRAPHIC
FORCES
ü Outcomes of change in, or
changing attitudes toward, the
characteristics of a population,
such as age, gender, ethnic
origin, race, sexual orientation,
and social class
 Technological
v Maturity of technology, competing technological
developments, research funding, technology
legislation.
v Information technology, internet, global and local
EXTERNAL communications.
ENVIRONMENT v Technology access, licensing, patents, potential
General Environment/Macro- innovation, replacement technology/solutions,
Environment
inventions, research, intellectual property issues,
advances in manufacturing.
v Transportation, energy uses/sources/fuels,
associated/dependent technologies, rates of
obsolescence, waste removal/recycling.
 Global
v Economic recession/integration
v War, terrorism
v Tensions between countries
EXTERNAL v Emerging Economies
ENVIRONMENT
v MNC expansions
General Environment/Macro-
Environment v Global advancements in technologies
and telecommunications
v Global Marketing & Distribution Channels
v International Strategic Alliances
 ü Don’t just list environmental factors;
derive implications for the industry
ü Focus on the key drivers of change
ü Focus is on future impact of
KEY ASPECTS OF
environmental factors
PESTLE
ü Consider the combined effect of
ANALYSIS
factors
ü Factors would be different from
country to country
 v To identify the main structural
features of an industry that
influence competition and –
therefore – profitability =>
EXTERNAL
ENVIRONMENT understand how an industry
Industry/Task Environment structure drives the level of
/Micro-Environment
competiton within the industry,
which determines the level of its
profitability
 Michael
Porter’s five
forces (1980)
Common Weapons for Competing with Rivals
 v The External Environment Analysis
(Macro-environment + Industry
analysis) provides the basis for
identifying many of the Opportunities
EXTERNAL
and Threats for the SWOT Analysis.
ENVIRONMENT
v Whereas, Strengths and Weaknesses
are considered INTERNAL to the
organisation, Opportunities and
Threats are EXTERNAL.
 INTERNAL
ENVIRONMENT
 v “...The resource-based view emphasizes
the internal capabilities of the
organisation in formulating strategy to

INTERNAL achieve a sustainable competitive

advantage.” A Henry, pp. 126
ENVIRONMENT v Strategic capability is based on the
Strategic Capability resources available to the organisation and
The Resource-Based View of
the competencies it develops in order to
Strategy (RBV)
make use of the resources (Chief Advocates:
Hamel & Prahalad(1990); Rumelt(1991);
Barney(1991); Grant(1991)).
 Resource
Is a productive input or competitive
asset that is owned or controlled by a
RESOURCES AND company (e.g., a fleet of oil tankers).

CAPABILITY
Capability
Is the capacity of a firm to perform some
activity proficiently (e.g., superior skills
in marketing). It is a “firm’s capacity to
deploy resources for a desired end
result”.
36
Source: Based on the discussion in Michael E. Porter, Competitive Advantage (New York: Free Press, 1985), pp. 37–43.
Source: Based on the discussion in Michael E. Porter, Competitive Advantage (New York: Free Press, 1985), pp. 37–43.
40
41
 THE
COMPETENCY
FRAMEWORK
 THRESHOLD RESOURCES – “needed to play”
v Those resources that an organisation needs to
have in order to meet the minimum requirements
of its customers
THE v For example, an airline needs more than a fleet

COMPETENCY of planes, it will also need all the supporting

structure, including landing and fly-over rights
FRAMEWORK DISTINCTIVE RESOURCES – “needed to win”
Resources v “...those resources that critically underpin
competitive advantage and that others cannot
easily imitate or obtain.”
v For example, a strong brand name or reputation
 THRESHOLD COMPETENCIES – “needed to play”
v Those minimum competences an organisation requires
in order to ensure that resources are deployed
efficiently enough to meet minimum customer

THE requirements
v For example, an airline will need to ensure its

COMPETENCY operations conform to minimum safety standards

DISTINCTIVE (CORE) COMPETENCIES - “needed to
FRAMEWORK win”
Capabilities/Compentencies v “...the linked set of skills, activities and resources that,
together, deliver customer value, differentiate a
business from its competitors and, potentially, can be
extended or developed .”
v For example, a high level of marketing expertise
 v A system of shared meanings and common
beliefs held by organizational members that
determines, in a large degree, how they act

INTERNAL towards each other.

v “The way we do things around here.”:
ENVIRONMENT Values, symbols, rituals, myths, and
Organisational Culture practices
v Implications:
ü Culture is a perception.
ü Culture is shared.
ü Culture is descriptive.
Organisational Culture
 üStakeholders - any
constituencies in the
organization’s
environment that are
MANAGING
affected by an
STAKEHOLDERS organization’s
decisions and actions.
Organisational Stakeholders
BMC Introduction