Business Environments
Macro Environment
Forms part of external environment that business has no control over.
Environmental scan
Identify factors that may impact business and then adjust plans or develop new ones to deal with
factors. When an environmental scan is used in macro, the process is applied:
• Business scan macro environment to identify issues that need to be addressed
• SWOT can be used but only OT
• Pestle can also be used
Opportunities and Threats
These are external which business has no control over
Opportunities present the business with the chance to outperform competitors
Threats are external factors that could hamper the success or growth of the business and
therefore business must have contingency plan in place.
PEESTLE analysis
Each letter represents a factor in macro environment that could threaten business or could
provide business with opportunity
POLITICAL FACTORS
This factor is important in relation to local political situation of country, political situation of other
countries and world politics.
• Political and legal are often closely connected as political party running country will make laws
• For example: Political ties with other countries as this may in uence trade agreements
ECONOMIC FACTORS
This a ects business and needs to be analysed to see what impact is
• Economic growth and developed rates in country
• In ation rates - in ation is signi cant increase in general price level
• Interest rates - rate at which people or business borrow money from bank
• Exchange rates ie strength of local currency vs currencies of other countries
• High unemployment rates
ETHICAL FACTORS
• Principles and values that determine if decisions and actions are acceptable
• Provides a guideline to evaluate how to act in right way when faced with an issue
CSR - pro t or for community
Fair Trade - respect and transparency in business dealings and acknowledging that one party will
not attempt to exploit the other
SOCIO-ECONOMIC/SOCIAL FACTORS
Impact that social trends have on economy and role players in economy. Business has to adapt to
changes in social trends.
• Average age of population, life expectancy
• Unemployment rates
• Education issues
• Crime
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, TECHNOLOGICAL FACTORS
Equipment the business uses to buy or make, advertise or sell products
• Automation of di erent processes
• Advances in online money transfers
• Online shopping
LEGAL FACTORS
All laws that impact business
• Laws that protect environment from exploitation and pollution
• Criminal justice that protect business against rip o s
• Occupational Health and Security Act
PHYSICAL ENVIRONMENT FACTORS
If one thinks of growing awareness to protect the environment and to prevent negative
consequences such as global warming and changes in weather patterns
Market Environment
Any place where goods and services are brought and sold. An environmental scan and
OT of SWOT can be used as well as:
Porter’s 6 Forces
Tool used to analyse the market environment
POWER OF CURRENT COMPETITORS
- By identifying areas where competitors are achieving success it can be indicator of threat to
business requiring implementation of tactic to avoid losses
Business needs to develop strategies to improve and outperform competitors. Factors when
business is compared with competitors that require reviewing:
• Size and nancial resources of business
• Market share
• Quality of products
• Consumer brand loyalty
• Pricing of products and services
• Convenience of location and distribution channels
POWER OF NEW ENTRANTS
Existing business must see potential new business as threat to pro t and market share therefore
build barriers:
• Business may register for patent to deter a potential new business from selling similar
• A tax on imported goods is a deterrent the government imposes on certain industries to protect
local market from cheap mass produced goods from overseas
• capital, trademarks, laws, customer loyalty Power of substitute product
POWER OF SUBSTITUTE PRODUCTS
• Substitute product is a di ered product that satis es same need eg glasses vs contact lenses
• Threat when buyer is able to nd substitute product at better price or quality.
• Increasing availability of substitute products generates more indirect competitors which a
business must consider in order to outperform the competition
POWER OF SUPPLIERS
In order to be successful, business depends on supplier to provide good quality when needed
and to deliver correct quantity at right price and place.
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,• Large suppliers supply their product to large number of wholesalers and retailers, if supplier
sells to competitor at lower price or provides stock to competitor when there is limited available,
business is in weaker position thus less successful therefore business must develop and
maintain good relationships with suppliers
Possible costs associated with unavailability of stock:
• No material thus manufacturer cannot produce
• No material, the machines and labor cannot be utilised to their full capacity because production
or selling process will grind to halt
• Administrative and opportunity cost are incurred when dealing with a stocky
• Customer goodwill may be lost if they have to go to competitors
POWER OF BUYERS
When retailer decides to sell to consumer, the following aspects:
• What type of product/service
• Is consumer brand loyal or is the consumer prepared to swap brands if they can get better deal
• Price sensitivity - pay more for better quality or delivery
• Snob value or image associated with product may in uence consumer to purchase. Some
consumers do not y low cost airline as meal is excluded from airfare. Business has to know
who target market is and then focus on group of consumers to satisfy needs.
POWER OF COMPLEMENTARY PRODUCTS
Complementary product is product where the use of one product is interrelated with use of
another product. They go hand in hand with each other eg bread and butter
Micro environment
• Environmental scan - look at internal departments in business
• SWOT analysis - review internal departments in business
• Resource-based analysis - consider both tangible and intangible resources and how
they are utilised in organisation
• Value-chain analysis - examine the value created or not in chain of activities performed
Business functions
PURCHASING FUNCTION
Buys goods and services needed by departments in business ie
- goods bought for own use
- goods bought to resell
- goods brought for processing ( our and meat to make pies)
• Ensure the best possible ROI - capital is invested in business and in return, aims to make pro t.
Cost of goods must be kept as low as possible
• Orders placed and con rmed to ensure delivery occurs - when delivery occurs, check quality
and quantity
• Develop a system to control inventory to maintain optimum stock levels
• Integrating backwards in distribution role means business takes over role of supplier thus gain
control over material needed
Supply chain management (Under PF)
• Includes all activities that are perform to deliver right product to right customer at right time and
place and most reasonable cost
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, • Refer to sourcing, processing, manufacturing, transporting, storing and distributing products
(from raw material till nal consumer)
• Oversee ow of materials and information from supplier to their nal customer
• The more e ective the control of material is, the less capital has to be invested
• E ective SCM requires information is accurately shared in network of businesses that buy from
and sell to each other
• Businesses expect their suppliers to make sure that they are acting ethical
PRODUCTION FUNCTION
Combination of FOP to provide right product at right place and time in quantity demanded and
priced consumer prepared to pay - natural resources, labour, capital and entrepreneurial skill
• Create utility of form to transform raw materials into product that can be used to satisfy needs
• Continuous product design is important to satisfy needs of consumers. Production and
marketing should combine e orts to design product and packaging in ways that attract
Automation is a situation where activities were performed by hand and are now perfumed by
machines
Advantages
- Lower labour costs as fewer labourers needed
- More machines enable faster production time
- Higher quality products because fewer mistakes
- Remaining workers may need retraining and skills development - higher wages therefore
advantage to workers
Disadvantages
- High capital investment
- Workers su er job loss
- Division of labour means monotonous job thus worker dissatisfaction
- Additional cost to retrain workers to use machines
Quality control
• Important especially during production phase because management wants to guarantee that
good quality product to retailers and customers
Quality in uenced by:
• standard of raw materials
• calibre of labour
• reliance of machines
• stable working conditions
• Dependable and e cient methods should be used to perform QC: Batch testing - one sample
may not be perfect while the others are. Inspection - product is tested and compared with QC
standards
Advantages
- Continuous QC helps eliminate problems in production process thereby reduce productions
costs by eliminating sub-standard products
- QC help encourage workers to deliver products of high standard
- QC can serve as basis for remunerations. If good quality items produced, rewarded
- Retailers will be con dent if receiving good quality products thus higher turnover for them.
Issues:
- QC control issues. External factors eg power outage
- Expensive changes in technology that cannot be avoided
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Macro Environment
Forms part of external environment that business has no control over.
Environmental scan
Identify factors that may impact business and then adjust plans or develop new ones to deal with
factors. When an environmental scan is used in macro, the process is applied:
• Business scan macro environment to identify issues that need to be addressed
• SWOT can be used but only OT
• Pestle can also be used
Opportunities and Threats
These are external which business has no control over
Opportunities present the business with the chance to outperform competitors
Threats are external factors that could hamper the success or growth of the business and
therefore business must have contingency plan in place.
PEESTLE analysis
Each letter represents a factor in macro environment that could threaten business or could
provide business with opportunity
POLITICAL FACTORS
This factor is important in relation to local political situation of country, political situation of other
countries and world politics.
• Political and legal are often closely connected as political party running country will make laws
• For example: Political ties with other countries as this may in uence trade agreements
ECONOMIC FACTORS
This a ects business and needs to be analysed to see what impact is
• Economic growth and developed rates in country
• In ation rates - in ation is signi cant increase in general price level
• Interest rates - rate at which people or business borrow money from bank
• Exchange rates ie strength of local currency vs currencies of other countries
• High unemployment rates
ETHICAL FACTORS
• Principles and values that determine if decisions and actions are acceptable
• Provides a guideline to evaluate how to act in right way when faced with an issue
CSR - pro t or for community
Fair Trade - respect and transparency in business dealings and acknowledging that one party will
not attempt to exploit the other
SOCIO-ECONOMIC/SOCIAL FACTORS
Impact that social trends have on economy and role players in economy. Business has to adapt to
changes in social trends.
• Average age of population, life expectancy
• Unemployment rates
• Education issues
• Crime
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, TECHNOLOGICAL FACTORS
Equipment the business uses to buy or make, advertise or sell products
• Automation of di erent processes
• Advances in online money transfers
• Online shopping
LEGAL FACTORS
All laws that impact business
• Laws that protect environment from exploitation and pollution
• Criminal justice that protect business against rip o s
• Occupational Health and Security Act
PHYSICAL ENVIRONMENT FACTORS
If one thinks of growing awareness to protect the environment and to prevent negative
consequences such as global warming and changes in weather patterns
Market Environment
Any place where goods and services are brought and sold. An environmental scan and
OT of SWOT can be used as well as:
Porter’s 6 Forces
Tool used to analyse the market environment
POWER OF CURRENT COMPETITORS
- By identifying areas where competitors are achieving success it can be indicator of threat to
business requiring implementation of tactic to avoid losses
Business needs to develop strategies to improve and outperform competitors. Factors when
business is compared with competitors that require reviewing:
• Size and nancial resources of business
• Market share
• Quality of products
• Consumer brand loyalty
• Pricing of products and services
• Convenience of location and distribution channels
POWER OF NEW ENTRANTS
Existing business must see potential new business as threat to pro t and market share therefore
build barriers:
• Business may register for patent to deter a potential new business from selling similar
• A tax on imported goods is a deterrent the government imposes on certain industries to protect
local market from cheap mass produced goods from overseas
• capital, trademarks, laws, customer loyalty Power of substitute product
POWER OF SUBSTITUTE PRODUCTS
• Substitute product is a di ered product that satis es same need eg glasses vs contact lenses
• Threat when buyer is able to nd substitute product at better price or quality.
• Increasing availability of substitute products generates more indirect competitors which a
business must consider in order to outperform the competition
POWER OF SUPPLIERS
In order to be successful, business depends on supplier to provide good quality when needed
and to deliver correct quantity at right price and place.
fi ff ff fi fiff fi
,• Large suppliers supply their product to large number of wholesalers and retailers, if supplier
sells to competitor at lower price or provides stock to competitor when there is limited available,
business is in weaker position thus less successful therefore business must develop and
maintain good relationships with suppliers
Possible costs associated with unavailability of stock:
• No material thus manufacturer cannot produce
• No material, the machines and labor cannot be utilised to their full capacity because production
or selling process will grind to halt
• Administrative and opportunity cost are incurred when dealing with a stocky
• Customer goodwill may be lost if they have to go to competitors
POWER OF BUYERS
When retailer decides to sell to consumer, the following aspects:
• What type of product/service
• Is consumer brand loyal or is the consumer prepared to swap brands if they can get better deal
• Price sensitivity - pay more for better quality or delivery
• Snob value or image associated with product may in uence consumer to purchase. Some
consumers do not y low cost airline as meal is excluded from airfare. Business has to know
who target market is and then focus on group of consumers to satisfy needs.
POWER OF COMPLEMENTARY PRODUCTS
Complementary product is product where the use of one product is interrelated with use of
another product. They go hand in hand with each other eg bread and butter
Micro environment
• Environmental scan - look at internal departments in business
• SWOT analysis - review internal departments in business
• Resource-based analysis - consider both tangible and intangible resources and how
they are utilised in organisation
• Value-chain analysis - examine the value created or not in chain of activities performed
Business functions
PURCHASING FUNCTION
Buys goods and services needed by departments in business ie
- goods bought for own use
- goods bought to resell
- goods brought for processing ( our and meat to make pies)
• Ensure the best possible ROI - capital is invested in business and in return, aims to make pro t.
Cost of goods must be kept as low as possible
• Orders placed and con rmed to ensure delivery occurs - when delivery occurs, check quality
and quantity
• Develop a system to control inventory to maintain optimum stock levels
• Integrating backwards in distribution role means business takes over role of supplier thus gain
control over material needed
Supply chain management (Under PF)
• Includes all activities that are perform to deliver right product to right customer at right time and
place and most reasonable cost
fl fi fl fl fi
, • Refer to sourcing, processing, manufacturing, transporting, storing and distributing products
(from raw material till nal consumer)
• Oversee ow of materials and information from supplier to their nal customer
• The more e ective the control of material is, the less capital has to be invested
• E ective SCM requires information is accurately shared in network of businesses that buy from
and sell to each other
• Businesses expect their suppliers to make sure that they are acting ethical
PRODUCTION FUNCTION
Combination of FOP to provide right product at right place and time in quantity demanded and
priced consumer prepared to pay - natural resources, labour, capital and entrepreneurial skill
• Create utility of form to transform raw materials into product that can be used to satisfy needs
• Continuous product design is important to satisfy needs of consumers. Production and
marketing should combine e orts to design product and packaging in ways that attract
Automation is a situation where activities were performed by hand and are now perfumed by
machines
Advantages
- Lower labour costs as fewer labourers needed
- More machines enable faster production time
- Higher quality products because fewer mistakes
- Remaining workers may need retraining and skills development - higher wages therefore
advantage to workers
Disadvantages
- High capital investment
- Workers su er job loss
- Division of labour means monotonous job thus worker dissatisfaction
- Additional cost to retrain workers to use machines
Quality control
• Important especially during production phase because management wants to guarantee that
good quality product to retailers and customers
Quality in uenced by:
• standard of raw materials
• calibre of labour
• reliance of machines
• stable working conditions
• Dependable and e cient methods should be used to perform QC: Batch testing - one sample
may not be perfect while the others are. Inspection - product is tested and compared with QC
standards
Advantages
- Continuous QC helps eliminate problems in production process thereby reduce productions
costs by eliminating sub-standard products
- QC help encourage workers to deliver products of high standard
- QC can serve as basis for remunerations. If good quality items produced, rewarded
- Retailers will be con dent if receiving good quality products thus higher turnover for them.
Issues:
- QC control issues. External factors eg power outage
- Expensive changes in technology that cannot be avoided
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