CH3: Environmental Analysis Flashcards
Why is environmental scanning important in business?
It helps managers detect external threats and opportunities early, so they can adjust strategies proactively and maintain competitiveness.
What are the three layers of the business environment?
Micro-environment – Internal factors like strategy, functions, and management.
Market environment – Immediate external factors such as customers, suppliers, competitors.
Macro-environment – Broad, uncontrollable external forces (e.g., economy, politics, tech).
What is the micro-environment, and how does it influence business?
It’s the internal environment, fully under management control, where decisions are made regarding strengths and weaknesses (e.g., internal processes, resource allocation).
What is the market environment, and what does it include?
It’s the layer between micro and macro, including suppliers, customers, intermediaries, competitors, and strategic partners. It acts as a buffer zone.
What defines the macro-environment?
It consists of broad, uncontrollable external factors like the economy, political conditions, and international trends, which influence strategy and risk.
How does international activity affect local businesses?
Global inflation, interest rates, exchange rates, and political developments can directly impact local costs, demand, and business viability.
What skills must managers have to operate internationally?
Cultural awareness, legal compliance, economic understanding, and adaptability to foreign business systems and management practices.
What are the four key characteristics of the business environment?
Interrelatedness – Change in one factor affects others.
Instability – Constant, unpredictable changes.
Uncertainty – Difficulty in predicting outcomes.
Complexity – Many interacting variables.
What is inflation, and what are its types?
Inflation is the ongoing increase in general price levels.
Demand-pull inflation: Demand exceeds supply.
Cost-push inflation: Rising input costs drive price increases.
How does inflation affect business decisions?
It complicates pricing, reduces purchasing power, and increases the need for tight working capital management (stock, debtors, creditors).
What is the business cycle?
A pattern of economic expansion and contraction over time. It influences consumer behavior, investment, and strategic planning.
What role does GDP play in the business cycle?
GDP is a key indicator of economic activity and helps track peaks and troughs in the cycle, guiding business strategy.
What is the impact of high interest rates on business?
Increases cost of debt.
Reduces consumer demand for financed goods.
Lowers business expansion due to expensive borrowing.
Why is unemployment a major concern for business?
It reduces consumer spending and contributes to crime and social unrest, which increases business costs and risk.
How are productivity and profitability related?
Higher productivity usually leads to greater profitability, but SA faces a gap between rising wages and stagnant productivity.
How do trade unions affect businesses in South Africa?
Strikes, violence, and wage demands disrupt operations and increase costs, making strong labor relations a priority for managers.
What is the primary driver of the technological environment?
Research and development, which leads to innovation in products, processes, and services.
How has technology changed business operations?
Through e-commerce, automated systems, labour-saving devices, and increased productivity, though sometimes at the cost of employment.
Why must businesses keep up with technological advances?
To remain competitive, meet consumer expectations, and streamline operations.
How does income distribution affect marketing strategies?
Shifts in income levels (e.g., growing Black middle class in SA) reshape market demand and influence product targeting.
What is consumerism, and how does it affect business?
Consumerism is the demand for greater corporate responsibility; businesses must protect consumers and engage with societal needs or risk public backlash.
What role does employee participation play in social responsibility?
Labour democracy promotes worker involvement in decision-making, and businesses are expected to support education, health, and well-being initiatives.
How does HIV/AIDS affect business strategy?
It impacts productivity, increases costs (healthcare, recruitment, training), and reduces the consumer base. Businesses must integrate HIV/AIDS policies into their planning.
Why is language a strategic concern in SA?
Because of its multilingual population, effective communication and marketing require language inclusivity.
What are the implications of low education levels in SA?
They limit workforce productivity and complicate the development of a strong work ethic and industrial competitiveness.
How do population growth and urbanisation affect business?
They increase market size, shift purchasing power to cities, and affect infrastructure and social planning.
Why must businesses be concerned with the ecological environment?
Because they rely on natural resources for production, and unsustainable use can lead to shortages, cost increases, and regulatory pressure.
What is a major challenge facing South Africa’s labour market?
A skills shortage, worsened by emigration of professionals; training is critical to improve productivity.
Why is the political environment difficult to manage?
Because it’s highly unpredictable, and policy changes (e.g., taxation, regulation) can dramatically impact business operations.
What role should government play in the economy?
It should create a conducive environment for business through sound policy, infrastructure, and market support.
What is the institutional environment?
It includes government and industry institutions (e.g., SARS, DTI, labour unions) that influence or support business through policy, regulation, or advocacy.
What is the function of the market environment?
It links the business to the broader macro-environment, directly influencing competitiveness and performance.
What is the role of interest groups in the market environment?
These groups (e.g., NGOs, media) can influence public opinion and pressure businesses toward more ethical and transparent practices.
Why is understanding consumers critical for businesses?
Because consumer needs, behaviours, and perceptions directly impact product demand and marketing strategy.
How do businesses gain an edge in a competitive environment?
By developing unique value propositions, adapting strategy, and innovating faster than rivals.
Why are suppliers strategic stakeholders?
Because supply chain efficiency, cost, and quality directly affect production and customer satisfaction.
Why is the labour force important in the market environment?
Because employee capabilities influence the organisation’s ability to meet objectives. Structure and systems must align with labour needs.
What is the purpose of strategic alliances?
To access expertise or resources not available internally and to exploit opportunities or reduce market threats collaboratively.
What is the micro-environment also known as?
The decision-making environment, which includes all internal elements under management’s control.
What are the key functions in the micro-environment?
Marketing, finance, production, HR, and other business functions that must operate interdependently.
Why is capital important for entrepreneurial ability?
Because it funds all operations and determines whether business goals are financially realistic and sustainable.
How do raw materials impact entrepreneurial capacity?
They directly affect production. Proper sourcing ensures the right quality and quantity to avoid disruptions.
What is the role of management skill in the micro-environment?
Skilled management drives success by effectively coordinating people, capital, and resources. Without it, even strong potential may fail.
What is the goal of environmental analysis?
To develop a corporate strategy that aligns with anticipated changes in the internal and external environments.
What are the steps of scenario development?
- Identify key factors
- Select indicators
- Analyse trends (TIA)
- Predict future outcomes
- Build scenarios
- Use scenarios for strategy
What is environmental scanning?
A systematic method of tracking external social, political, technological, and economic trends that may impact the business.
What does SWOT stand for?
Strengths (internal), Weaknesses (internal), Opportunities (external), Threats (external).
How can SWOT help decision-making?
It provides a structured framework to convert threats into opportunities and weaknesses into strengths.
What are the 4 strategic responses from environmental analysis?
- Maintenance Strategy – Stay the course
- Growth Strategy – Expand
- Combination Strategy – Mix of both
- Activity-Specific Strategy – Focus on one area (e.g., HR, production)
What does SWOT stand for?
Strengths (internal, helpful)
Weaknesses (internal, harmful)
Opportunities (external, helpful)
Threats (external, harmful)
What’s the key difference between strengths/weaknesses and opportunities/threats?
Strengths/Weaknesses are internal and can be controlled or changed.
Opportunities/Threats are external and cannot be controlled, only responded to.
Give 2 examples of internal strengths.
Talented and experienced team
Unique patents or proprietary technology
Give 2 examples of external threats.
A new competitor entering the market
Rising costs of raw materials
Why is a SWOT analysis useful for strategic planning?
It provides a clear, visual framework to assess and align internal capabilities with external conditions, guiding effective decision-making.
What determines a business’s structure and functioning?
Its ongoing interaction with the internal and external environment, including strengths, weaknesses, opportunities, and threats.
How can management stay aligned with environmental shifts?
Through environmental exploration such as scanning, SWOT analysis, and scenario planning to anticipate changes and adapt accordingly.
