Chapter 1, Business Environment, Francis Cherunilam

WHAT

IS THE PRIMARY JOB OF

AN

ENTERPRENEUR
OR

A MANAGER???????
DECISION MAKING (IN CONTEXT OF THE FACED SITUATION)

OBJECTIVE OF THE CHAPTER To understand the importance of

analyzing the BUSINESS ENVIRONMENT in the process of DECISION MAKING while on a strategic position in an organization / as an enterpreneur

BUSINESS ENVIRONMENT

Internal Environment

External Environment

Micro Environment

Macro Environment

Internal Environment
Value System Missions & Objectives Management Structure & Nature Internal Power Relationship (support to the top management by employees, share holders) Human Resource Quality, Ethics (Kalaa Raksha, Bill Gates) Company Image & Brand Equity

External Environment (MICRO ENVIRONMENT)

Suppliers Buyers Competitors - Generic Competition - Product Form Competition - Brand Competition

Marketing Intermediaries Publics (Media, NGOs, etc.)

External Environment (MACRO ENVIRONMENT)

Political / Government Environment Legal Environment Demographic Environment Socio-cultural Environment Technological / Natural Environment Global Environment

BUSINESS ENVIRONMENT ANALYSIS IS USED IN VARIOUS DECISION-MAKING MODELS

MICHAEL PORTERS 5 FORCES MODEL PEST MODEL & EXTENDED PEST MODEL SWOT ANALYSIS

Michael Porters 5 forces model

THREATS OF ENTRY- ENTRY BARRIERS

Government Policy Economies of Scale Favorable positioning Product differentiation & Brand loyalty Monopoly elements Capital Requirements

Rivalry Among Existing Competitors No. of firms & their relative market shares
State of Growth of Industry Indivisibility of Capacity Augmentation (Production happens only in huge lots whether or not needed) Product Standardization Switching costs Exit Barriers Diverse Competitors (unpredictable) Expected Retaliation

THREAT OF SUBSTITUTES
Substitute Performance Buyers psyche towards the product Price performance alternative Whether or not the substitute belong to a firm with huge and diverse capacity

Buyers & their Bargaining Power

Volume of Purchase and it as a share of total sales Importance to the buyer (Branded apparels v/s. medicines) Standardization/differentiation of product in todays golbalized world Potential for backward integration by Buyer (Tanti) Extent of Buyers information

Suppliers and their Bargaining Power

Concentration & Domination in the supplier industry Importance of the product to the buyer (i.e. we) Importance of the buyer to the supplier Extent of the substitutability of the product Switching costs of Suppliers Potential for forward integration by suppliers

STRATEGIC GROUPS
A Strategic group is the group of firms in an industry following the same or similar strategy along the strategic dimension- Michael Porter Recognizing your own strategic group Decisions related to shifting from one strategic group to another

PEST Model

PEST POLITICAL Analysis

ecological/environmental issues current legislation in home market future legislation European / international legislation regulatory bodies and processes government policies government term and change trading policies funding, grants and initiatives home market lobbying / pressure groups international pressure groups wars and conflict

ECONOMIC situation in home economy & home economy trends overseas economies and trends general taxation issues taxation specific to product / services Seasonality / weather issues market and trade cycles specific industry factors market routes and distribution trends Customer / end-user drivers interest and exchange rates international trade/monetary issues

SOCIAL lifestyle trends demographics consumer attitudes and opinions media views law changes affecting social factors brand, company, technology image consumer buying patterns fashion and role models major events and influences buying access and trends ethnic/religious factors advertising and publicity ethical issues

PEST Analysis

TECHNOLOGICAL competing technology development research funding associated/dependent technologies replacement technology/solutions maturity of technology manufacturing maturity and capacity information and communications consumer buying mechanisms/technology technology legislation innovation potential technology access, licencing, patents intellectual property issues global communications

EXTENDED PEST

Extended variations of PEST (eg., PESTELI and STEEP, etc) include other factors, such as Environmental, Ethical, Legal or Legislative, etc., however in most situations you will find that these 'additional' factors are actually contributory causes or detailed perspectives which then manifest or take effect in the form of one or several of the original four main PEST factors

SWOT ANALYSIS

THANKS.