BUSINESS

ENVIRONMENTS
Analysis and Strategies…
 Tool Environment

Value Chain Analysis and Resource Micro

based analysis
Balanced Scorecard Micro

SWOT analysis and Environmental All

Scanning
Porters 6 forces model Market
The Three
Environments PESTLE Macro
:
• External Environment presents unlimited and ever changing demands –
out of managements control.
• External factors can affect the internal environment – business must
adapt.
• Internal factors can also affect the external environment eg strike –
influence the economy, employing or retrenching can contribute to the
employment statistics.
• Internal environment within control – own problems- limited resources-
need to build on strengths and protect weaknesses – competitive
advantage. (describes how the business has the edge in the market or
over competitors, local or international. If the business has a
competitive advantage, it enables the business to exploit this
advantage to sell more, to attract more customers or to reduce
expenses, thus generating more profit.)
• Different techniques and tools applied to gather and analyse info
relating to environments
Environmental Scanning:

DEFINITION:
BENEFITS OF SCANNING:
Entrepreneurs
• Identifies threats before they become a problem
must be
• Identifies gaps and opportunities in the market
constantly in
• Keeps an eye on competitors
touch with the
• Develop strategies to protect the business.
world around
them to remain
successful.
the MICRO
environment:
What is the Micro environment?

• The MICRO environment is the INTERNAL environment of the actual

business itself.
• Business owners and managers have FULL control over this
environment.

MICRO

Market

Macro
Components of the Micro
Environment (BUSINESS POLICY)

• Vision
• Mission
• Objectives
• Strategy
• Structure
• Culture
• Resources
• Business Functions
• Guidelines for setting Business Policies
• Strategies as Tools
• Types of Business Strategies
1. The Vision
Statement:

• The DREAM of the business

• Inspires and reminds
stakeholders of what's
important to the business
• Bridges the gap between
present and future
2. The Mission
Statement:
• Sets the business apart from other
similar businesses.
• Includes: market, product or services
provided, differentiating qualities as
well as CSR and environmental
concerns. – 3Ps Profit, planet,
people
• May include organisational values
e.g. integrity
• Starting point for any major strategic
initiative and helps establish
common org. goals
• Should not be unchangeable –
revised when internal and external
environments change.
3. Business Objectives :

• Long term and short term goals.

• Must be measurable i.e. compare actual
performance with projected goals.
• LONG TERM: improve ROI; maintaining or
improving market share; employee development;
CSR
• SHORT TERM: depends on current business
situation i.e. improve marketing campaigns to
enhance consumer awareness.
4. Choice of Strategy:

• Based on competitive advantage that

was identified micro, market, macro
analysis.
• Could be a combination of corporate/
generic strategies
• Corporate strategy is a plan for the
entire organization
• Generic strategies are frameworks that
help businesses compete to obtain and
sustain a competitive advantage.
5. Structure of the organisation:

Organisational structure
depends on:

- Number of levels of
management. Top Board of
directors; CEO
- Range of Control
- Number of workers under
supervision
Middle Department
managers
- Authority
- Right given to person makes
decisions Lower Supervisors; floor
- Responsibility managers
- Duty a person has to carry out
- Accountability
- Able to give reasons why decisions
or actions taken
Line and Staff organisational structure:
Networking or
Virtual structures:

• Require fewer middle managers

• Employees can work from home
• Utilises technology – access to information from experts
via blogs or business related chat rooms.
• Improve flow of communication
• Allows businesses to keep on top of changes and trends in
society as communication is made easier.
6. Culture of the business:

• Values and attitudes that are shared in the

organisation
• Shared beliefs that motivate people to act
in a certain manner
• Businesses incorporate values they
subscribe to in a Value Statement – forms
part of strategic plan
• Values could include: courage; respect,
accountability; integrity; humanity.
7. Resources in the business:

• Physical: Assets,
• Financial: Capital
• Human: Employees skills - focus on Performance
Management systems
 General Management
Overall running.
Direction
Organise resources

Finance
Public Relations Control money
Image of company Budgeting
Funds

Administrative Management Human Resources

Record keeping Functions Employ right people

8. Business
Functions:
Marketing
Purchasing Understand needs and
wants
Provision of raw materials
All activities in getting
product to consumer

Production/operations
Assembling
 GENERAL MANAGEMENT: Develop a
culture of
quality
Establishing the Efficient management
business mission Planning

Strategy
and vision development
Provides the
business with
and
direction
implementation

Accurate
Effective allocation and
Decision Making organisation of
resources
Top
management

Develop
Discipline
Controls
Efficient
Communication
business
policies and
goals to
Motivate the Good Leadership
achieve
workforce Skills
business
purpose.
HUMAN RESOURCES:
• Organise training programmes
• Help functional managers and employees understand improving quality not just
production dpt.
• Priority
• Develop and implement the organisation structure
• Promote goals of org.
• Must understand relationship exists between diff. departments in org. and how
actions will impact on others efforts to improve quality.
• Efficient feedback systems: 360’ feedback
• Performance appraisals in place
• Functional managers reminded of importance- feedback to staff
• Feedback – peers, customers, subordinates
• Motivation for employees EFFICIENT
• Improved- improved performance MANPOWER
• Extrinsic factors- incentive bonuses, praise, recognition, appreciation PLANNING
• Create a task environment COULD
• Enable employees to perform at desired level ENSURE
OPTIMAL
EFFICIENCY
 FINANCIAL MANAGEMENT:
4 main objectives of the financial function – maximise profits, increase
profitability, ensure liquidity and remain solvent
1. Financial tools – how business performing
1. Draft financial statements : Income Statement, Balance sheet, Cash
Flow statements
2. Budgeting
3. Ratio’s
Reward system – aligned with values promoted by org.

1. Liquidity Ratios

1. Current Capital Ratio 2. Acid Test Ratio

Current Assets: Current Liabilities Current Assets – inventory : Current
2:1 (industry specific) Liabilities
Too High – too much cash in bank, 1:1 (industry specific)
credit given easily, too much stock Inventory eliminated – least liquid of
Too Low – Risk liabilities may not current assets (most difficult to convert to
be paid from current assets cash)
3. Average Debtors Collection Period 4. Average Creditors payment period
Debtors 365 Creditors x 365
Credit Sales x 1 Credit Purchases 1
• Compare to credit terms to check • Compare to payment terms allowed
efficiency of collection policy by creditors
• Calculate average months x 12 (not • Ideal – longer creditors payment
365) term than debtors collection term
• Longer it takes to collect from debtors • Improve financial performance –
– more working capital business will creditors used to finance business
require – bigger possibility of bad • If Creditors payment period too long
debts – financial losses experienced by
suppliers – impact negatively

5. Rate of inventory turnover

Cost of sales
Average Inventory
• Faster the turnover the better
financial performance of business –
converting stock into cash quickly
Net profit % (profit margin):

Net Profit x 100

Turnover

• Indication of profit earned from each rand of turnover (sales)

• To improve financial performance of org. ratio can be increased by reducing
expenses/ negotiating better prices with suppliers
ROI /Profitability:
Net Profit x 100
Own Capital

• Measures ability of business to generate a profit with the capital invested

• Own capital in co = Ordinary Share Capital + Preference Share capital + Share
premium + Retained Income
• Higher ROI – More satisfied shareholders
• Should be compared to other forms of investment when deciding success of
investment

Why is this ratio important to investors? How does junk status affect this ratio?
Tool to strategic decision-making, guiding management to achieve goals, measures
profitability, optimize resource allocation and evaluate performance.
Junk status – government may not have enough money to pay back what it has
borrowed.
Reduces the ROI
Increasing the cost of borrowing – pay higher interest rates
Solvency Ratio:
Total Assets : Total Liabilities

• Opposite- insolvent – bankrupt – business more debt than assets it owns

• Business can have liquidity problems without being bankrupt (large
amounts of fixed assets – too little cash)
• Norm 2:1
 Credit sales
Advantages:
Increase turnover
Customers will return – gains goodwill and loyalty of customers
Seller will increase price, because he must wait for his money and taking the
risk of bad debts
Credit stimulates the economy
Disadvantages:
Needs more working capital – waiting for debtors to pay
Risk of bad debts – creditworthiness of customers
Admin expenses will increase
 PURCHASING:
1. Buys goods and services needed by departments.
2. Keeping purchasing costs low- best possible return on investment
3. For every R1 earned how much spent
4. Sales – Cost of Sales = Gross Profit – Expenses = Net Profit
5. Profitability – ability to make profit – keeping in mind how much capital invested

ECONOMIC PRINCIPLE:
importance of keeping purchasing price
and stock holding costs as low as
possible to maximise profit

PROFIT LEVERAGE CALCULATION

Average total assets/Average
shareholders’ equity
The higher the ratio the more earnings
PURCHASING:
How does the
supply chain
impact the food
industry?
SUPPLY CHAIN ELEMENTS:

Refers to all activities relating to the flow of goods, services and

information that come into and out of a business – creation of goods and
services to distribution to the consumers.

Procurement and Distribution of Delivery of

Producing the
transport of raw finished product finished product
finished product
materials to retailers to the consumer

What costs need to be considered at each step?

 COSTS to consider:

• 1. Raw material cost, transportation costs, import/export fees,

Storage costs (warehousing), Quality control cost, Insurance

• 2. Labour cost, Energy, water and other utilities used during

production, Equipment costs like depreciation and maintenance, the
raw materials actually used, quality control, waste management and
overheads like admin costs

• 3. Packaging costs, transportation costs, warehousing, Inventory

management, insurance

• 4. Shipping costs, Packaging for end delivery, returns management,

customer support, marketing and promotions
 PRODUCTION:
• Product Specification = good quality and improved performance.
• Materials and methods need to be of the best quality and
standardised.
• Set parameters to measure quality
• Employees: acceptable performance levels.

How is quality controlled in the service

industry?
• Service intangible asset
• Emphasizes on customer satisfaction – send
out questionnaires
• Employee performance – reward employees if
the deliver and excellent service
• Complaint handling
FACTORS THAT AFFECT
QUALITY CONTROL IN
PRODUCTION:

• Must be a system to record deviations

• Job tolerances (acceptable problems)
must be defined
• Number of inspection points required
• Number of inspections per inspection
point (samples tested at each point)
• Must balance cost of control
• Reliable and efficient inspection points to
be used
• Human Element – trained, good working
conditions.
QUALITY CONTROL IN PRODUCTION :
SAMPLING:
• Testing a few products from a batch
• If the sample is good quality the whole
batch is assumed to be good quality.
• Risk bad batch can be accepted
• More better - costs

INSPECTION:
• Usually used when goods produced
expensive
• Testing every single product produced
and compared with quality standards
• Time consuming - Increases cost
• More expensive products or where safety
is a concern.
• E.g. Car – ensuring brakes work etc.
MARKETING:
Product, price, place and promotion
Successful marketing:
• Protecting or increasing revenue (sales)
• Creating or improving brand value.
• Maintaining or expanding consumer base.
• Building goodwill
Market Research:
Important to gather information on any
variable in market environment –
feedback from consumers and suppliers
Guide managers - decisions
 PUBLIC RELATIONS:

MAINTAIN COMMUNICATION PUBLIC RELATIONS SHOULD MEASURE OF EFFICIENT CSR INITIATIVES COULD BE
WITH ALL STAKEHOLDERS. BE PROACTIVE AND NOT PUBLIC RELATIONS CAN BE TO USED AS A STRATEGY TO
REACTIVE – THROUGH ASSESS THE NUMBER OF IMPROVE PUBLIC IMAGE OF A
ENVIRONMENTAL SCANNING, COMPLAINTS ON WEBSITES BUSINESS.
PR DEPARTMENT CAN STAY LIKE HELLOPETER.
ON TOP OF TRENDS AND
CRISIS'S.

CODE OF CONDUCT AND A CODE OF

ETHICS CAN ASSIST WITH
STAKEHOLDER PERCEPTIONS…
ADMINISTRATION::

• Level of compliance to the

systems and processes that are
essential to good performance in
the business.
• Accurate record keeping and
efficient filing systems are
essential.
• Professional conduct on phones
and email are essential to good
performance.
• Compliance and evidence thereof
to labour laws.
QUALITY TECHNIQUES: BPR
Logistics Management TQM
Business
Coordinating the Total quality process
movement and storage management Reengineering
of goods to meet
customer demands Pro’s and Quality Circles
Cons Group pf workers doing the
Chart same work and meeting on
Risk regular basis to solve
Management Quality problems
Techniques
Value chain analysis
Environmental
Scanning Process of thinking to identify areas for
improvement
Benchmarking Resource based analysis
Comparing Identify resources, tangible and intangible,
performance to that the business owns. Needs to assess
other the value of each resource and identify
companies how it will be used to create value in the
business
9. Guidelines for setting Business
Policies:
• In line with the organisations main BUISNESS POLICY and MISSION
statement
• Organisational CULTURE (Supports and rewards ethical decision
making)
• Promote the interest of all STAKEHOLDERS
• BUY IN from top level management
• GOALS must be understood and realistic
Types of policies:
• Proactive : acting in responsible manner to address issues that
may present problems in future.
• Reactive : Business has to respond to events to try minimise
impact or address negative consequences
the MARKET
environment
1. Elements •
•
Customers
Suppliers
• Competitors
• NGO’s Non-governmental
organizations – non-profit entities
• Strategic Alliances – a business
agreement between two or more
companies to work together on a
project that benefits both parties eg
Adidas and Kanye West resulted in
the creation of Yeezy / Sasol and
ABSA
• Intermediaries – other businesses
that provide support activities to the
business eg banks and transport
companies
• Industry Regulators – set standards
eg SABS
• Trade Unions
• Gov. Departments
Porters Six Forces Model:
Analyses the industry in which the business operates.
1. Level of Rivalry in the market /
Power of competitors:

• Competitor Information
• Location
• Financial performance
• Products
• Patents
• Quality of products
• Brand Loyalty
• Trading hours

Strategies:
Customer loyalty programs to attract more customers
Reduces the price of certain products / services
2. Availability of Substitute Products:
NB!! Substitute products does NOT
refer to a different brand
• Indirect competitors
• Butter vs margarine
• Glasses vs contact lenses
• Sugar vs artificial sweetners
• Restaurants vs fast food
• NOT PnP vs Checkers

• Must know WHAT other products your customers

are using and WHY
• People use substitute products – Cost, Health (low
fat),convenience, availability.
• Market research essential to understand
consumers
 3. Threat of New Entrants to
Market:

• Assess future competitive threats entering the market

• Research :International Brands and their offerings
• Greater opportunity for profits – more likely will be new entrants (bottled water)
• Little competition
• Threat is diminished – barriers
• Brand loyalty
• Gov. policies
• Capital layouts
• Limited distribution channels
• Tax on imported goods

New Entrants come from 2 sources:

1. Small, entrepreneurial start ups
Not a lot of capital and unpredictable

2. Large corporates
Capital
Expertise
4. The Power of Suppliers:

• Relationship between supplier and business, the more suppliers

available the less power they have.
• Consider costs involved if supplier stock out and can’t deliver
• Loss of production
• Suffer loss- idle time
• Difficult to negotiate discounts when placing orders
• Customer goodwill may be lost if they have to go to competitors

Strategies:
• Prompt delivery of correct products and services
• Nurture relationships
• Open communication
• Prompt payment
• Regular reviews of responsibilities
• Prioritisation
5. Power of Buyers: (Incl.
intermediaries)
• The more choice the consumer has, the more power they have over the business.
• If business sells to final customer – important to know demographics, geographic profile
and segment into lifestyle
• Must use most appropriate criteria – segmenting the market and establishing target
market
• If buyer not satisfied with product or service - financial losses

Strategies:
• Keep customers happy
• Market research determine needs and wants
• Supply goods and services to fulfil needs and wants
• Provide adequate return policy – guarantees, warranties
• Look after customers – hassle-free shopping experience
• Provide choice and other value added service
6. Complimentary Goods

• Complimentary goods are goods that are used together and are dependant on
each other to work. They are “paired together”
e.g. Car and Petrol
e.g. Phone and service provider
e.g. Toy and battery
e.g. fast food and Mr Delivery
• The challenge is often that the required product (petrol / batteries and
contracts) that make the original product work are generally expensive / short
shelf life.

Strategies:
• horizontal integration - take over the supplier of the complimentary good to
control prices and availability.
• Develop products that are not dependant on complimentary goods.
the MACRO
environment:

Events in Macro environment occur:

1. TRENDS : Predictable changes –
business can plan for to some
extent. Impact and rate of change
difficult to predict.
2. CRISIS : Unexpected, unplanned-
unstable situation.
2. Events in
business
environment:

1. Trends in business
environments
2. Crisis in business
environments
3. Risk Management
Assessment Strategies
1. Trends in business
environments:

1. Try and pre-empt (take action in

order to prevent) : Environmental
scanning
2. Watch Competitors – way they
are responding to environment
may give competitive edge / give
indication of what not to do.
3. Look to more developed nations
4. Seasonal or occasional trends
2. Crisis in Business
Environment:

• Part of every business life cycle

• Contingency plans
• 2 possible strategies used
• RISK MANAGEMENT
ASSESSMENT STRATEGY
• DECISION TREE STRATEGY
Risk Management Assessment
Strategies:

1. Core issue in the King Code

2. Business needs to decide what their risk tolerance and risk
appetite is.
3. Solid policies and strategies help manage risk
4. Large businesses may need to appoint Risk Committees to
manage this process.
5. Try to quantify risks – working through process and
pre-deciding what would happen if.
6. OHS act require employers to take precautions and make
provision for possible risks
7. Insurance companies use this technique to assess risk profile.
Risk Assessment
Plan:

1. Who would be in charge in an

emergency – Safety Officer
2. Other critical duties:
1. Demarcation of safe areas for
workers, media liaison,
switching off equipment,
safeguarding dangerous areas,
crowd control, traffic control.
2. Emergency equipment –
phones, radios, first aid
3. Escape Routes and Procedures
4. Workers – trained in
emergency procedures
Decision Trees:

• Approach Risk Management using decision

tree
• Complex decision making tool – used by
management to graphically compare
different options available
• Promote rational decision making and
clarify available options
• Possible options quantified – each decision
process calculated and value reached.
Strategies:
Strategies as Tools:

• SPECIFIC plan of action formulated to set in

motion the effective use of resources with the
aim of achieving organisational objectives.
• Defines the pattern of decision making.
• GERNERAL MANAGEMENT devise strategies
and make decisions regardless of the
environment affected.
• Responsible to control the execution of plan –
accountability
• EG- Competitors launch a new product /
advertising campaign – business will decide
internally how to react.
• Strategy directs the business
Advantages of strategies:

• Direction to the business

• Ensures consistency in decision making
• Differentiates management roles and
responsibilities
• Puts business and its role in broader
economy – involving stakeholders
• Anticipates changes (both internal and
external)
• Ensures accurate resource allocation.
 • DA PIE PIM…
Steps to • D – Define the business mission, vision
implementing a and objectives
• A – Analyse the different environments
Management
• P – Possible issues to consider when
Strategy: selecting a strategy
risk, growth, ROI, Politics, control in
the business
STRATEGY:
• I – Identify strategic options available
MERGE WITH BP
• E – Evaluate viability of each option
• P – Plan the implementation of strategy
• I – Implement strategy
• M – Monitor and Control
Types of Business Strategies:
1. Corporate strategies:

1. GROWTH STRATEGY
• Increase the market share of the business
• Focus on resources
• Could alter co. goals, processes, identify emerging trends, build
new business etc.
• Typically require R&D investments, relocation of resources,
emphasis on recruiting and retraining, innovation
• Internal growth: ORGANIC growth (new products, new markets,
consumer retention management, emphasising existing products)
• External growth (alliances, acquisitions and merges) Adjusting
business core objectives and surroundings, existing products,
markets and distribution channels
Corporate strategies:

2. DECLINE STRATEGY
• Occurs after business has experienced difficult times.
• Down sizing of the business
• Divesture strategy (selling parts of the business)
• Harvest strategy (withdrawing assets from a particular
industry)
• Liquidation strategy (business is terminated)
Corporate strategies:

3. CORPORATE COMBINATION STRATEGIES

• Joint Venture Strategy
• 1. (two businesses work together joining resources, one provides
skills, the other provides capital) Woolworths and Engen
• Usually for a specified period of time
• Each maintain own identity

• Merger Strategy (businesses combine by mutual consent) Shoprite

Checkers
• Takeover (Acquisition) (Buying a company with or without the consent of
the business)
• Full control
• Often used as part of Business Growth strategy
• Friendly – mutual agreement
• Hostile- acquiring co. continually seeks to purchase large stakes in
targeted co.until it reaches majority ownership of co.
2. Generic Strategies:

1. LOW COST STRATEGY

• Gain competitive advantage by maintaining the lowest
cost.
• Achieved:
• Increase profits by reducing costs
• Increasing market share – lower price to customer
• Lowering costs- open yourself up to competitors.
• Business that have low cost strategy have
• Sufficient capital to invest in innovation and
technology to bring costs down
• Effective logistics
• Ability to lower costs of all resources- labour,
material, facilities
Generic strategies:

2. DIFFERENTIATION STRATEGY
• Continuously modifying or adapting your product
• Features/functions/durability/brand image and
support.
Generic strategies:

3. FOCUS STRATEGY
• Identify a niche in the market (unsatisfied
need in the market)
• Develop products/services according to
that need.
3. Intensive strategies:

1. MARKET PENETRATION STRATEGY:

• No new market to explore or new product
to develop or promote.
• Gain competitive advantage (Market
Share) through better pricing, marketing
and other innovative initiatives.
• Banks offering cellphone contracts…..
Intensive strategies

2. PRODUCT DEVELOPMENT STRATEGY

• Develop new products for existing markets
• Preferred as aware of conditions and challenges of
current market
• Continuously adapt products.
Intensive strategies:

3. MARKET DEVELOPMENT STRATEGY

• Develop a new market for an existing product or
service.
• Geographical
• Adjust packaging or developing new distribution
channels
• Requires knowledge of current markets and ability to
identify gaps in market place – competitive advantage
Integration Strategies…

BACKWARD:
• The business becomes their own
supplier
• Control the quality of their supplies

FORWARD:
• The business takes over the selling
point of the product.
• Control prices and availability

HORIZONTAL:
• The business takes over a supplier or
competitor to strengthen their
position in the market
Other strategies:

• Revise business mission

• Is current mission leading to competitive advantage
• May need to revise purpose of existing
• Establish or revise objectives
• Al the milestones on the way to achieving business
vision
• Allocate resources differently
• Tangible resources – raw material, land,
equipment, buildings
• Intangible resources – skills, patents, brand name,
staff morale, reputation.