Q1:L4 - The Firm and its Environment

Business Environment

• Refers to the factors or elements affecting a business organization

• may either be internal or external

Internal Environment

• are environmental factors within the company and can be controlled. It consists of organization’s owners, board of directors, regulators, physical work environment and culture; it includes strengths and weaknesses of an organization

• refers to the factors or elements within the organization which may also affect its performance, either positively or negatively.

External Environment

• are the forces and events outside the company that have the potential to influence or affect its operation. It consists of legal, physical, economic, technology, social, political culture; it includes opportunities and threats of an organization

• includes the factors anf elements outside the organization which may affect its performance, either positively or negatively

Why should organizational environment be scanned?

Organizational environment must be scanned so as to determine development and forecasts of factors that will influence organizational success. If an idea of a business or product comes into your mind and you want to determine if it is feasible or a failure, a SWOT or PESTLE analysis can be a good help.

SWOT examines both the internal and external business environment; where: 

• Strengths - refers to internal competencies possessed by an organization that will enable it to achieve its objectives.

• Weaknesses - refers to the areas that limits the organization’s overall success

• Opportunities - refers to the external trends and events that can benefit the organization in the future.

• Threats - refers to the trends and events that are potentially harmful to the organization’s present and future position.

8 STEPS TO CONDUCT A SWOT ANALYSIS 

1. Decide on the objective of your SWOT analysis

   • You should have a question or problem to solve

   • Example: deciding on a new product to introduce in the market or change a process

2. Research your business, its industry and market

   • You need to understand your business, industry and market by getting perspectives of your shareholders

3. List your business’s strengths

   • Things that are controllable by the business that may have positive impact on it

   • Examples: strengths relating to employees, financial resources, your business location, cost advantages and competitiveness.

4. List your business’s weaknesses

   • Things that are controllable by the business that may have negative impact on it

   • Examples: absence of new products or clients, staff absenteeism, a lack of intellectual property and declining market share.

5. List potential opportunities for your business

   • External factors that could have a positive impact on the business

   • Examples: new technology, training programs, partnerships, change in government

6. List potential threats for your business

   • External factors that may cause a problem to your business

   • Examples: rising unemployment, increasing competition, higher interest rates, and uncertainty of global markets

7. Establish priorities from the SWOT

   • After completing the list of strengths, weaknesses, opportunities, and threats, you may now have an overall picture of how your business is running and what issues you need to address or prioritize.

8. Develop a strategy to address issues in the SWOT 

Development Strategies

3. Fill in the POLITICAL factors

• Here are the points to take into account:

  • Government Regulations

  • Taxation

  • Trade policies

  • Import Restrictions 

4. Fill in the ECONOMIC factors

• Here are the points to take into account:

  • Interest rates

  • Unemployment rate

  • Inflation rates

  • Current economic stability

  • Purchasing power

5. Fill in the SOCIAL factors

• Here are the points to take into account:

  • Demographics data

  • Consumers trends

  • Population growth

  • Income levels

  • Consumer lifestyles 

6. Fill in the TECHNOLOGICAL factors

• Here are the points to take into account:

  • Automation

  • Artificial intelligence

  • Level of innovation

  • Cybercrimes

  • Robotics

  • Tech incentives 

7. Make a conclusion out of the 4 quadrants

• Discuss the pros (+) and cons (-) of the project looking at the macro external factors ( political, economic, social, and technological)

8. Develop a set of strategies

• Identify the threats and opportunities

• Act on your team’s findings by taking advantage of the opportunities and managing the threats as soon as possible.