Business Environments Flashcards
What are the 3 business environments? How much control does one have in each, and what analysis system would one use for each?
Macro: no control; PPEESTLE
micro: Full control; SWOT/TOWS
market: Little/no control; Porter’s 6 Forces
What are Porter’s six forces?
- threat of supplementary products
- threat of competition
- threat of complimentary products
- threat of new entrance in the market
- power of the supplier
- power of the buyer
What is competitive advantage?
How the business has an edge in the market over competitions and enables the business to exploit the advantage to sell more, attract more customers and reduce expenses, thus generating more profit.
The business should create a unique selling point (USP) that sets their products apart from those of their competitors. For example, at MrPrice sport you can buy both sports clothes and sports equipment at the same store.
What should a business do when conducting an environmental scan on the market environment?
- Identify issues that need to be addressed
- Look at opportunities and threats in the market environment
What are the internal business functions (within Micro environment)
- purchasing
- production
- human capital/resources (HR)
- financial
- public relations (PR)
- administrative function
- general management
- marketing
The Pestle analysis explores…?
The:
- physical
- political
- environmental
- ethical
- social
- technological
- legal, and
- economic factors
Define ‘ environmental scanning.’
The process of obtaining information about possible current and future events that may have an impact on the performance of the business (making use of the S and W to overcome T and W in SWOT/TOWS). It is done to ensure that the business is ready for developments in the internal and external environments by adapting timeously to realign resources (especially as resources becoming scarce). This is done in order to take advantage of opportunities and overcome threats.
What is the purpose of environmental scanning?
- to identify possible challenges/opportunities
- adjust existing plans to deal with factors or events
- to develop contingency plans and strategies
- important in order to gain a better understanding of the nature of changes in the external environment and the pace these changes take.
- helps business to respond quickly to crises and opportunities
Crisis vs trend?
Crisis: quick/unexpected change that the business did not anticipate and probably doesn’t have a contingency plan to deal with.
Trend: Changes that occur over a period of time, business is forewarned and can adapt its current strategies to default with changes taking place and adapt more easily.
The internal and external environment are each made up of what?
External - market and macro environments
Internal - micro environment
Give examples of a tangible vs intangible hypothetical strength of a business.
Tangible: for example, a well functioning till system
Intangible: for example, a positive reputation of a business
What are a business’s strengths?
Tangible/intangible factors that add value to the performance of a businesses and give the business a competitive advantage within the marketplace when compared to competitors. The business should develop strategies which will enable it to use its strengths to overcome weaknesses and threats and to take advantage of opportunities.
Give examples of strengths in a business.
- competitive pricing
- good location and clean store
- unique product(s): patents (know-how)
- workers skill
- business culture
- good marketing and brand
- operational efficiency
- employee skills/motivation/morale/attitude
-strength of management team
What is a competitive price?
When the business sells the product or service at a better price than competitors, thus differentiating itself within the market. Consumers may be price conscious and will usually prefer a more reasonably priced product.
Expand on location as a factor that can determine the success of businesses.
- Some businesses depend on impulse purchases (such as socks/hair accessories/cosmetics). These businesses need a lot of foot traffic (e.g MrP in Cavendish)
- The location needs to be easily accessible to the target market. The business needs to pay close attention to the demographics for the target market when choosing the location. E.g, age/income/gender
- Manufacturing businesses (e.g, a factory) - business must consider transport (is it better to transport raw materials or finished products, for example?).
- Transportation of finished products: if the business wishes to transport finish products they must establish a business close to the target market. (E.g. WW Clothing in Cavendish). In the clothing industry, because clothes aren’t perishable, it’s generally better to be close ot the target market rather than the raw materials.
- Transportation of raw materials: (usually within the food industry where stuff can go bad)
- better to have the business close to the raw material site (e.g. sheep = wool in the Karoo - It could be more beneficial for the business to transport the wool into the cities. Or, distribution centres close to harbours if importing clothing.)
What should a business consider when choosing a location?
- The business must fit into the area. Don’t establish a nail salon in an industrial park.
- Proximity of complimentary businesses (e.g, having a sports shop (MRP Sports) near an indoor sports facility)
- Easy access to the business
- Security - customers must feel safe
- Future developments in the area?
- Trading hours of malls (for example - increased shopping hours would increase sales)
- Surrounding businesses… are there competitors nearby (can be good or bad thing - good because it encourages innovation, bad because losing customers)?
What are patents?
A unique product can be offered to the target market - a patent is registered by the business to give it legal exclusivity to produce a product in a certain manner. It’s a strength for the business and limit competitors from entering the business.
What is product differentiation and why is it useful?
Product differentiation describes when a business makes their product different to their competitors and thus creates competitive advantage. They can do this by creating a unique selling point (USP).
E.g: selling a shirt in 5 different colours and cuts, etc
Why is a skilled workforce a strength for any business?
If employees know how to perform, there is less wastage and improved productivity.
How can a business attract skilled and motivated workers?
- paying a fair salary
- treating employees in a fair manner
What is business culture? Why is it important?
Business culture describes the way things are done in a business. Can be the biggest strength or weakness of a business, increasing or decreasing motivation within it respectively.
In order to have a positive business culture and increase overall productivity and motivation in the business, the business must:
- foster a culture of meeting deadlines
- Strong CSR culture (relating to CSR and the 3 P’s, People/Planet/Profit)
- a corporate culture of life long learning (pertaining to fast changes in tech for example)
- culture of honesty
Is brand equity tangible or intangible?
Intangible
How can good marketing and a strong brand help a business?
- people will have a positive association with the business
- leads to higher sales, reduces marketing costs, allows business to charge more for their products/services
What is operational efficiency?
Minimum input —> maximum output
Why should a business try to be an efficient as possible?
The more efficient the business = less wastage = more profit
Why is good quality important for a business in the market?
Differentiates the business from its competitors, enabling greater profits.
What can happen to factors that are considered strengths if they are not managed correctly?
They can become weaknesses, that may debilitate the businesses if not addressed.
What is an opportunity?
External forces which present the business with the chance to outperform competitors, especially if the competitor is weak in a particular area. Opportunities could include:
- offering a better product (perhaps more trendy/higher quality)
- getting products to consumers sooner than competitors (convenience)
- having access to larger markets (larger market = more products sold)
When analysing opportunities, consider P6F’s and PESTLE elements.
Give an example of a business turning a weakness or threat into a strength.
Threat/weakness: loadshedding
—> turning into opportunity…
—> investing in solar power
—> selling electricity back to Eskom using excess solar panel energy
What is a threat?
External factors that could hamper the success or growth of the business. The business must put contingency plans in place in order to deal with these factors. It is important that the business assess the impact opportunities and threats can have on the business, and deal with them quickly with effective strategies in place to address them.
Use PESTLE analysis in macro environment, and P6F’s in market environment.
Discuss the inter connectivity of SWOT elements.
SWOT matrix is used by businesses to develop business strategies (contingency plans/trend analysis/risk strategies etc). The business will try to link different elements.
What must one list in order to perform a SWOT analysis?
- the specific strengths that add great value to the business or give the business a competitive advantage
- the areas where the business is weak and how this hampers the progress/success of the business
-the external opportunities for the business - external threats the business is/might be facing.
Where does the value of a SWOT analysis lie?
In how the business uses the information that it has given them.
What is a PESTLE analysis?
A tool used to understand the macro environment. It gives the business an overview of the impact from different elements in the macro environment. PESTLE helps to align the business to forces of change and by adapting to those change, businesses can take advantages of them and is therefore more likely to be successful due to competitive advantage. PESTLE gives businesses an idea of the immediate influences its 8 factors could have on the business, and help the business consider what the future would hold in terms of each element. Each factor could potentially threaten the business . The business may use it as an opportunity to create or strengthen the competitive advantage.
Discuss political factors as a factor under a PESTLE analysis.
- Important in relation to the local political situation of the country (e.g, South Africa is in economic recession = slow economic growth) and the political situation of other countries the business may operate in (for example, the war in Ukraine/USA elections/war in Gaza).
- Closely related to legal factors - such as the political party running the country making the laws and determining what is acceptable/allowed.
What factors should be considered when reviewing the political factors that may impact a business?
- likelihood of government interference in the economic functioning of a country and business - free market vs socialism vs communism for example
- degree of political stability (e.g. previously this year, due to oncoming elections, markets on the Joburg Securities Exchange have temporarily withdrawn until the results of elections)
- degree of media freedom / freedom of speech (may be used to criticise political parties in a country when they are guilty of corruption).
- Attitude of different political parties (for example, local banking and mining sectors would have to watch out for parties that want that sector to be nationalised… business should look at views of other political parties since they may potentially shape the future political orientation of the country).
- process followed when government tenders are allocated if the business is interested in tendering for government contracts
What does BBBEE stand for?
Broad Based Black Economic Empowerment
What is economic recession?
Slow economic growth.
What economic elements should a business consider when conducting a PESTLE analysis?
- economic growth and development rates (SA is in a recession at the moment)
- inflation rates (the higher the inflation rate, the lower the purchasing power of the monetary unit)
- interest rates (11.75% Prime rate as of 3/7/2024)
- exchange rates (when the rand is weaker, imports cost SA more, when the rand is stronger exports make SA more money)
- unemployment rates (high in South Africa - 30 percent in Q1 2024)
- taxes (e.g. income tax, VAT, import duties)
