Unit 3: Scanning The Business Environment Flashcards
- Identify and describe the tools to scan the business environment (PEST) - Evaluate the competitive landscape (Porter's five forces) - Describe tools to assess an organization (SWOT)
what is an environmental scan
- An assessment of the business environment
- See what factors could impact the growth and success of an organization in achieving its goals (both domestically & globally)
what are stakeholders
Individuals or entities that have an interest or stake in what they do (ex. Customers, suppliers, employees, banks, government, union)
what are the different tools that can be used to scan the business environment
- PEST
- Porter’s 5 forces
- SWOT
what is PEST analysis
Political, Economical, Social, and Technical factors that could impact how organizations achieve their goals
how can the government impact the business environment
Through laws, taxes, and trade relationships
what type of economic system does canada have & why does it matter
- canada has a mixed economic system
- The type of economic systems suggests how the factors of production are managed
what are factors of production
Things like land, labour, capital, entrepreneurship, and knowledge
what are the 3 levels of government in canada
- federal government
- provincial government
- municipal government
what is the role of the federal government
- Oversees Canada’s overall economic performance and issues that can impact citizens
- Role in international trade relations, nation’s banking and monetary system, national defence, and immigration
what is the role of the provincial governments
- Watches over issues that impact citizens within a province
- Role in regulation of trade and commerce, employment standards, health care, and education
what is the role of the municipal governments
- Oversee issues that impact cities, towns, and districts
- Role in water, sewage, garbage collection, roads/sidewalks & public transportation
what are laws & regulations
- Created by the legislative branch of government
- Can impact the business environment & designed & evolved overtime to protect consumers & businesses
what are examples of how laws & regulations protect consumers & businesses
Ex. Legislation to protect consumers from spams (Anti-Spam Legislation (CASL))
Ex. Help promote fair competition and protect consumers to support a competitive and innovative marketplaces (Competition Act that prevents mergers to keep healthy competition (no monopolization))
what is deregulation
Removal of some laws & regulations to allow for more competition
what is fiscal policy
How the government keeps the economy stable through increases & decreases in both taxes and government spending
why does deregulation happen
Allows more competition and choices for consumers
what are examples of taxes for businesses
- Corporate income tax
- Others (ex. Property tax, tariffs on imported goods, sales tax)
what are ways government spends money
- Taxes are spent to support Canadian economy (especially during economic downturns)
- Through job creation, infrastructure development, new/improved services for Canadians
what are examples of how can taxes encourage or discourage behaviour
Ex. to discourage smoking; tax on cigarettes, to discourage becoming unhealthy through sugary goods causing in increase in free health care costs (encourages healthy behaviour); increase in tax on sugary goods
Ex. to encourage behaviour; tax relief for businesses if they participate in encouraging growth & innovation by doing things like hiring co-op students
why do countries want low corporate taxes
- If businesses have more money (from lower taxes), they can invest in technology, people, or new products/services
- Can help grow the economy and increase productivity
what is national debt
Accumulation of government deficits overtime
what is the impact of high national debts
- High debt can create economic instability
- Debts need to be managed and paid back with interest
- Interest rates keep rising
- Governments are spending more to pay back debts instead of initiatives to stimulate the economy
what are the thoughts behind trade relationships
- What relationships are made for lower barriers to trade?
- Is the country protecting their domestic producers, or are they open to foreign competition?
- Can affect the difficulty level to conduct business
what does it mean to look at the political environment (PEST analysis)
looking at the role of the government & what they do that impacts the business environemnt
what does it mean to look at the economic environment (PEST analysis)
looking at the economy and how it can affect the business environment
what is microeconomics
- Studies decisions made by individuals and businesses within the economy
- Looks at things like supply, demand, and allocation of scarce resources
what is macroeconomics
- Studies what can impact an economy as a whole
- Looks at employment levels, interest rates, inflation, and Gross Domestic Product (GDP)
- Looks at the role of government; how their policies on international trade impacts the economy
what does low economic growth + high unemployment levels =
reduced consumer spending, which causes reduced overall sales & profit, which could = changes in production levels/finding ways to reduce costs like reducing the workforce
what is an unemployment rate
measured as a % of people who are unemployed out of the total labour force (only people who are actively seeking work or working, not retired people)
what does higher economic growth =
low unemployment + increase in spending
what are business cycles
Help predict the rise and fall in economic activity over time (each cycle can vary in terms of time and severity)
what is the trough in the business cycle
The lowest point of economic activity
what does the business cycle typically look like
gdp on the y-axis
time on the x-axis
goes from: trough, recovery, expansion, peak, contraction
what is the recovery phase in the business cycle
When economic activity begins to rise again with increased demand for goods & services
what is the expansion phase in the business cycle
A rise in economic activity where products & services are sold, jobs are created, & demand continues to grow (can be slow & steady, or a boom)
what is the peak in the business cycle
When the economy reaches its highest point, triggering the end of the expansionary phase
what is the contraction phase in the business cycle
- When economic activity starts to decline, a decrease in demand & profits for companies
- Can result in a recession, or even worse, a depression
what is recession
A period where there are two or more consecutive quarters of decline in GDP
what is a depression
severe form of recession, with a longer period of declining economic activity leading to higher unemployment levels
why is it important to know where you are in a business cycle
Knowing where you are in the cycle can impact business decisions
Ex. if economic activity is declining, how will it change the company’s marketing decisions, like change its pricing or promotional strategies?
what is monetary policy
Set of actions that controls a nation’s overall money supply to achieve economic growth
how does the bank of canada control monetary policy to manage the money supply & interest rates
- Keep inflation low, stable, and predictable
- Manage the complex financial system
- Preserve the value of our money (and protecting from counterfeit, ensuring confidence in our currency)
what is inflation
- The rise in price of goods and services over time
- Can be measured by looking at the CPI
- Reduces the purchasing power of money
what is the consumer price index (CPI)
Compares the change in prices for a range of commonly purchased goods (ex. food, housing, clothing, transportation, recreation, etc.)
what % does canada want to keep its inflation rates at
2%
how does canada plan to keep the inflation rate at 2%
- They do this by adjusting interest rates
- The Bank of Canada sets a benchmark interest rate
what is a benchmark interest rate
The rate at which the Bank of Canada loan money to major financial institutions (ex. banks)
what does benchmark interest rates do
- When the rate is low, banks are encouraged to borrow more = more money for individuals and businesses to borrow
- These banks set their lending rates based off the benchmark interest rate
- When interests are low, consumers would borrow more
- When interests are high, consumers save
what is the bank of canada
- a special type of Crown corporation
- Operate independently, separate from the political process
- Want to help the economy without political influence
what does the bank of Canada do
- Conducts research on what’s happening in Canada & international economic environment (scanning the business environment)
- Interest rate announcements – 8 times a year
- Raise, lower, or maintain interest rates to heat up or cool down the economy
what is gross domestic product (GDP)
- Looks at the total value of final goods and services produced within a country in a year
- This is for goods & services created by Canadian and international companies within our borders
why does GDP matter
- It is used to measured economic and social progress for a country
- GDP growth is desirable
what is GDP per capita
Looks at the GDP per person in that country
what does it mean to look at the social environment (PEST analysis)
looking at how demographics and public opinion can impact the business decisions & practices
what are demographic trends that are looked at
age, education, income, diversity
what trends are you looking for when you look at the age demographic
- What’s the average age (how old is the majority of the population)?
- What’s the impact on consumer spending & demand?
how can targeting baby boomers be beneficial
- they are a significant population group
- Now are all retiring, and have money to spend on travel, recreation, and amenities, or on their children and grandchildren
- Can be a target for products/services they will directly use (target them to buy goods/services for their family & friends)
what trends are you looking for in terms of education
- Higher education levels
- More appropriate skills needed to enter the workforce
- Higher education suggests higher economic growth potential
- Educated workers can be more productive and innovative
what trends are you looking for in terms of income
- Growing middle class
- Examine the domestic middle class as a potential target market
- Examine emerging economies like the BRICS countries
- How will you market to the growing middle class that are earning more disposable income
- More disposable income = more spending power
what trends are you looking for in terms of diversity
- Diversifying the workforce
- More potential to bring in diverse perspectives, talents, and skills
- How to better understand diverse and changing consumer needs
what are the changing social attitudes
- What is the public’s opinion about the company
- What are the attitudes/views on employment conditions and the environment
- Role of companies in society
- In the position where they have wealth and influence, how can they “do good”
- How can they incorporate social responsibility and sustainability
what does it mean to look at the technological environment (PEST analysis)
the use of technology and the benefits of it within business environments
what is triple bottom line reporting
Reports on performance with social, environmental, and economic factors (aka People, Planet, Profit)
how does technology affect the way we work
- The increase in use of electronics, equipment, and telecommunications
- Very convenient to work, connect with people (colleagues) from all around the world
- Software and automated systems to process/assess large volumes of data
how does technology affect the way we work on the factory floor
the automation of processes, use of computer-aided design in manufacturing (reducing operating costs while increasing productivity)
how will technology affect the future of work
replacement of low-skilled jobs with automation and AI; creation of new high-skilled jobs
how does technology help businesses connect with customers
- Online presence of businesses
- Using social media or hosting websites with integrated customer relationship management systems
- Are small businesses using social media effectively for better engagement with customers
- Have customized relationships with consumers through data analytics
ex. amazon recommending you on what to purchase, or reminding you to complete a purchase
what should companies be aware of when working with large amounts of customer data
- should be aware of challenges when managing all of this customer data
- Strengthening cybersecurity practices to protect their systems, networks, and programs from online digital attacks, especially if they have sensitive information about their consumers
what are current/future competitors in the industry that you should be aware of
- Stores that were originally not in your industry, enter your industry and become your competitor
- Can others replicate your product?
- How many choices do customers have between what you offer compared to competitors?
what are current/future competitors based on location that you should be aware of
can globalization increase the number of competitors
what are potential disruptions to an industry
- What are the changes of retail experience
- Less foot traffic in malls, how can we increase that?
- More activities & events in person
what are porter’s five forces
- current competitors (existing rivalry)
- potential competitors (threat of new entrants)
- substitutes
- bargaining power of suppliers
- bargaining power of buyers
what does porter’s 5 forces do
assess the attractiveness of an industry a business wants to operate in
what is assessed when looking at current competitors (porter’s five forces)
- How many competitors are there?
- Who are they?
- What do they offer?
- What resources do they have?
- If they have more resources than you, it would be more difficult to get started
what is assessed when looking at potential competitors (porter’s five forces)
- Are there barriers to entry (what makes it hard to get into the market)
- Existing dominance in the marketplace (do they have strong brand awareness/loyalty)
- Capital requirements (high capital costs to start up and enter the industry)
- Laws and regulations (governments policies can encourage or discourage a company from entering the market. Things like patents can protect existing companies)
- Economies of scale (existing companies with large production lines spare less expense on operating costs vs. a newer small company; can’t compete due to higher costs, which end up moving to the consumers)
what is assessed when looking at substitutes (porter’s five forces)
- Switching costs (how easy is it for customers to switch based on monetary or psychological factors)
- Strength of incumbent companies and their influence on buyers (ex. Apple making it harder for customers to switch out of their Apple ecosystem)
- Adapting to changing technologies to survive (ex. Newspapers switching to online subscriptions)
what is assessed when looking at bargaining power of suppliers (porter’s five forces)
- Supply and demand of resources impacts the bargaining power of suppliers
- Higher power if there’s only one or few suppliers (can ask for more money, and not be as innovative)
what is assessed when looking at bargaining power of buyers (porter’s five forces)
- Higher power if they have multiple supplier options
- Industry is more attractive if bargaining power is low
what are some considerations for using porter’s five forces
- Companies can understand where they are in the industry, and what challenges they may face now or in the future
- Useful for new or existing companies
- New entrants can understand the competitive environment they are entering, how to differentiate themselves
- Existing companies can assess their competition and maintain competitive advantage
- There are limitations to this tool
- More on current power relationships
- May not be able to recognize disruptions if the industry is changing fast
- Should use other analysis like PEST with this tool
what is SWOT analysis
- An assessment of the Strengths, Weaknesses, Opportunities, and Threats of an organization
- SWOT looks at a company internally and externally
what does SWOT look at when it looks at the internal part of the company
- looks at the strengths & weaknesses
- Internal perspective examines what can be controlled and managed within the company
- Tangible resources (ex. Financial, physical assets, human resources)
- Intangible resources (ex. knowledge/skills, strength of leadership, relationships, reputation)
what are examples of strengths for a business (SWOT)
- Being a dominant play in the market (strong brand awareness through advertising)
- Having a well-respected and proven management team
- Have cost advantages
what are examples of weaknesses for a business (SWOT)
- Having a lack of awareness of the marketplace
- Dated facilities or equipment
- A management team without the depth/talent required
what does SWOT look at when it looks at the external part of the company
- the opportunities & threats
- Looks at factors that companies can’t really control but will need to respond to (can be identified with PEST or Porter’s five forces)
what are examples of opportunities for a business (SWOT)
- Changing consumer demand (due to preferences, disposable income, evolving buyer needs)
- Evolving government policies (ex. Deregulation or lower taxes for businesses)
- Reduced trade barriers; allowing entry to international markets
what are examples of threats for a business (SWOT)
- Changing economic conditions (ex. recession)
- Competitor introducing a substitute product
- Regulatory requirements that are costly to comply with
- Entry of foreign competitors
what should companies focus on after a SWOT analysis
- Capitalize on their strengths
- Improve their areas of weakness
- Take advantage of opportunities
- Mitigate any threats
