Spring 2009

Environmental analysis is a crucial step in the business planning process.

PEST analysis identifies the elements within the environment that may affect a business’s performance and that should be considered in the planning process.

These elements are often beyond the control of the entrepreneur and may be subject to high levels of uncertainty.

In this case, pest analysis can be effectively combined with scenario planning techniques to generate a vivid description of the anticipated future environment in which the business may have to operate.

Business have very limited control over Micro and Macro Environmental forces:

government economic policy attitudinal changes among consumers the development of new technology Global competition

Stable Dynamic Turbulent

Stable: characterized by Slower changing process, identifiable and

predictable Reputable relationships between consumers,

suppliers, distributors and manufacturers

Dynamic: characterized by Moderate change in the environment that may or may not be

predictable There may be some new entrants as well as some businesses

exiting Moderate Levels of merger and acquisition often arises once a highly regulated market is liberalised

Turbulent: Unpredictability and rapid change many new market entrants and experimentation with different

business models. Constantly renewing relationships between suppliers,

manufacturers, distributors and customers Generally associated with the initial and growth phases of the

product life cycle

Political, Economical, Social and technologicalIt exposes many of the possible external environmental influences on a business’s performance

Direct and indirect taxes, such as income tax and vat, influence consumer spending and market demand. Public spending by central and local government has a direct impact on the level of demand within the economy. availability of regional grants or other forms of assistance may be a deciding factor on where to locate a

business. Monetary policy and the level of interest rates will affect demand and a business’s ability to service its debts.

Exchange rate policy can have a critical effect on importers and exporters. Changes in international trade can create new export markets. For example, China becoming a member of the

World Trade Organisation, in theory at least, makes China’s huge market much more open to exporters. Competition law lays down rules on what a business can and cannot do and may be a crucial factor in the case

of a merger or acquisition. Regulation and deregulation can have a dramatic impact on the business environment and individual business

sectors. Local practices such as onerous bureaucracy or corruption can complicate business in certain markets. Education and training will have a long-term impact on a business’s ability to recruit suitably qualified staff and to compete effectively at international level.

Define Deregulation and Liberalization, onerous: BURDENSOME, difficultAntitrust Law: is the body of laws that prohibits anti-competitive behavior (monopoly) and unfair business practices. These competition laws make

illegal certain practices deemed to hurt businesses or consumers or both, or generally to violate standards of ethical behavior.  Government agencies known as competition regulators regulate antitrust laws and may also be responsible for regulating related laws dealing with consumer protection. The term "antitrust" was originally formulated to combat "business trusts," now more commonly known as cartels.

Business cycle. “Developed economies often follow a pattern known as the business cycle where periods of faster growth are followed by years of slower growth or even recession. Some sectors, such as advertising, leisure and restaurants, are more susceptible to the impact of the business cycle than others, such as the manufacturers of foodstuffs where demand is less cyclical.”

GDP vs. GNP? Gross domestic product (GDP) is defined as the "value of all final goods and services produced in a country in one yearGross National Product (GNP) is defined as the "value of all (final) goods and services produced in a country in one year by the nationals, plus income earned by its citizens abroad, minus income earned by foreigners in the country“.

Population growth Age structure Social and cultural shifts:

Attitudes towards risk-taking and entrepreneurship

Attitudes towards work and leisure will affect the demand for certain products

The role of women in the economy influences demand and supply

Level of expenditure on research and development by competitors.

Does the introduction of new technology create a new market

how might competitors utilise technology to gain competitive advantage?

Rate of adoption of new technology

“Scenarios describe different environments in which a business may have to operate and highlight trends and interactions that may characterise their development.”

“A characteristic of a good business plan is that it should “tell a story”. Scenario planning helps develop the story behind the plan and also provides the framework and narrative for a market forecast.”

1. Identify factors of high uncertainty and high impact.

2. Describe alternative behaviour patterns for those factors.

3. Select the three or four most informative scenarios.

4. Write the scenario descriptions.

ENVIRON-

MENTAL

Use evocative namesDescribe the essence of the scenario

Example on chapter 5, page 40