Internal and external environment Flashcards
Strategic analysis/environmental scanning
An analysis and evaluation process
that businesses use to understand
their current environment.
The aim is to identify trends, gaps,
events, developments, and issues
that will impact the businesses
It is a process of gathering, analyzing, and
dispensing information for tactical or
strategic purposes.
It is monitoring and interpreting sweep of social, political, economic, ecological, and technological events to spot budding trends that could eventually impact industry
Why is environmental scanning important to a business
It helps with the identification of a number of broad factors and issues
that will have a significant impact on businesses and their plans for the
future.
Aids in anticipating changes
Answers the question, “Where are we now?”
Provides a starting point for businesses’ planning of goals, objectives,
and actions that answer the question, “Where do we want to be?”
Effective utilization of resources
Constant monitoring of resources
Analysis of competitor’s strategies and formulation of effective counter
measures.
Identification of threats and opportunities
Useful for the managers
Prediction of future
Development of broad strategies and long-term policies of the firm.
Development of action plans to deal with technological advancements
Approaches to environmental scanning
Systematic approach: Information for environmental scanning collected
systematically
Information pertaining to business and industry could
be collected
Continuously to monitor changes
Continuous updating necessary not only for strategic
management but also for operational activities
In this approach information is collected relating to
market customers ,changes in legislation government .
policy have a direct impact on organisation.
Ad Hoc approach: Organisations conduct special surveys and studies to undertake special projects, evaluate existing strategies or devise new strategies Changes and unforeseen developments may also be investigated.
Processed form approach: Information used is supplied by government agencies or private institutions Secondary data available from external and internal sources may also be used
Factors affecting environmental scanning
Factors relating to nature of environment • Complexity • Flexibility • Hostility • Diversity
Factors relating to strategists: • Age , education and experience • Motivational level • Ability to withstand pressure and strain • Interpersonal relations
Factors relating to the
Strategies
• This is master level strategy:- corporate
level strategy to achieve corporate
objective.
• Sub level strategy:-for specific purpose
and to help master strategy.
• Functional level strategy:-how the
Strategy is translated into functions like
marketing, finance, production etc.
Business environment
It refers to a set of conditions – Social, Legal, Economical, Political or Institutional that are uncontrollable in nature and affects the functioning of organization
Internal environment
The factors which can be controlled by company or Primary factors which directly affects the growth of organization e.g man, material, money, machinery and management. Types of Internal Environment 1. Value System 2. Mission & Objectives 3. Management Structure and Nature 4. Internal Power relationship 5. Human Resources 6. Company Image & Brand Equity
External environment
Those factors which are beyond the control of business
enterprise are included in external environment.
• External Environment is divided into two parts
1. Micro Environment: The environment which is close
to business and affects its capacity to work is known as
Micro Environment. It is also refers to as/Service/
Task/Operating
2. Macro Environment: It includes factors that create
opportunities and threats to business units. Following
are the elements of Macro Environment
Micro environment
Suppliers • Customers – Wholesalers – Retailers – Industries –– Foreigners • Market Intermediaries – Middleman – Marketing Agencies – Financial Intermediaries – Physical Intermediaries • Competitors • Public
Macro environment
Legal political economic social cultural technological environmental
Political
Government is responsible for providing a stable framework for
economic activity by providing;
1. Physical infrastructure (road networks)
2. Social infrastructure ( education system, law enforcement,
security)
3. Market infrastructure (enforceable contracts)
Political risks This is the risk that political factors will invalidate the strategy and perhaps severally damage the firm Example of political risks; a) Wars b) Political chaos c) Corruption d) Nationalization
Economic
It affects companies at national and international level
Economic factors include:
1. Overall growth/fall in GDP: leads to increased/decrease demand
for goods
2. Local economic trends: affect the type of industry, labour rates,
house pricing
3. Inflation: distort business decisions, wage and price inflation
4. Interest rates: the cost of borrowing and hence cashflow
5. Tax levels: Corporation tax affect how much firms can invest or
return to shareholders while income tax and VAT affect how much
consumers have to spend
6. Exchange rates: cost of imports/exports, cost of hedging
International capital markets: value of foreign currencies
7. Government policy on trade/protection: cost of barriers to trade,
effect on supplier interest
Socio-cultural
These are long-term social trends and people’s beliefs and attitudes
such as:
1. Population growth
2. Age demographics: an ageing population suggest increased
demand for healthcare services while young growing population
demand for schools, housing and creation of work
3. Geography: the concertation of population over certain
geographical areas e.g cities vs villages
Household and family structure: large families or singles family
household determine the spending pattern
5. Social structure: people with different attitudes and access to
economic resources
6. Rate of employment: Determine the disposable income of a
population and hence the trend spending i.e basic vs luxury
7. Culture and beliefs: influence the sorts of products and services
that a business can offer e.g pork products
Technological
Technology may imply equipment, technique, organization
Technology affect the overall economic growth through;
a. Increased productivity (more outputs)
b. Reduced costs
c. New type of products
Effects:
The type of products or services produced,
2. The way in which products are made (automation)
3. The way in which goods and services are sold (direct selling through internet)
4. The way in which markets are identified (analyzing of consumer behavior)
5. The means and extent of communications (social media)
6. Reorganizing work (homeworking, integration between buyers and sellers)
Environmental
The impact of business on environment is now a major concern
worldwide for both service and manufacturing companies
Issues include:
a. Consumer demand for environmentally friendly products,
b. Demand for less population
c. Greater environmental regulation (emphasis on recycling)
d. Scarcity of non-renewable resources
Legal
Legal factors affecting all companies include:
1. General legal framework: basic way of doing business, ownership
(Intellectual Property), rights and responsibilities,
2. Criminal: insider dealing, bribery, theft, industrial espionage (theft of trade
secret or confidential/valuable information for use by a competition)
3. Company law: directors and their duties, reporting requirements,
shareholders’ rights
4. Health and safety: safety procedures
5. Employment law: recognition of trade unions, minimum wage,
unfair dismissal, redundancy, equal opportunities
6. Data protection: use of customers and employees data
7. Environmental laws: pollution control, waste disposal
8. Tax law: collection of PAYE and withholding tax, sales tax (VAT), NSSF
and NHIF contributions
9. Competition law: illegality of cartels
