EXTERNAL BUSINESS

ENVIRONMENT ANALYSIS

Prof.Dr.Dr.Dr.H.C. Constantin Bratianu

Faculty of Business Administration

Academy of Economic Studies

Bucharest, Romania

Strategic

Intention

Strategic

Analysis

Strategies

Elaboration

Strategies

Implementation

Strategic management

process

Strategic Analysis

Internal

Environment

Analysis

External

Environment

Analysis

SWOT Analysis

External environment analysis

Company

Strategic

Groups

Competitional

external

environment

General external

environment

General external environment

• Generic forces:

- demography

- politics

- legislation

- economics

- culture

- education

These forces have a slow/very slow variation in time, but

integrating any of them over a long period of time (i.e. 5-

10 yrs) there could be significant effects

DEMOGRAPHY (I)

• Aging population. It is a recognized phenomenon in

USA and Europe. For instance, projections show that by

the year 2025, nearly 20% of the American population

will be 65 or older.

• It is a good news for drugstores since older people buy

about 7 times more than younger people drugs for their

health.

• It is also a good news for travel companies since retired

people have time to travel and enjoy trips to other

countries.

• However, aging means for large companies an

important number of people to retire about the same

time, which implies loosing knowledge.

DEMOGRAPHY (II)

• Rising level of affluence in some emergent economies.

• That means good business for the car industries, pets

providers, and restaurants.

• People with more money would prefer to go for lunch

and dinner at traditional restaurants rather to fast food

restaurants.

• Shift in the geographic population dynamics. In Europe,

millions of people from the former socialist countries

left for Italy, Spain, France, Germany, Sweden and

Norway to find jobs and better living conditions.

• In USA, during the 1990s there was a significant growth

of population in the West and South, especially in the

Hispanic population, with many consequences for the

business development.

DEMOGRAPHY (III)

• Changes in the ethnic composition. In Europe came

in the last decade many people from African and

Asian countries.

• They brought with them new type of needs as

consumers, and new type of skills as human

resources.

• Changes in the spectrum of religions. In the last

decade in Europe came many people of Islamic

religion. That brought changes in the food industry

and textile and fashion industry, in the cities where

these communities became significant.

POLITICAL FORCES

• Politics is important since it changes the business

environment through governmental strategies and

policies.

• For instance, liberal parties try to stimulate economical

development focusing on economic performances

rather than on social needs.

• Social democrat parties try to use the benefits of a well

developed economy to improve re-distribution of the

social wealth, focusing on social needs.

• Governments can also promote development of the

country industry, or to ignore it in favour of the foreign

industry.

• In Romania, unfortunately there are no strategies and

policies to stimulate development of our own industry.

LEGISLATION

• Legislation. This is a powerful force.

• Legislation acts directly by promoting or forbidden

different type of businesses, or indirectly through the

system of taxation.

• For instance, when Romania entered the European

Union, the legislation concerning the environment

protection changed completely becoming very tough.

• Now, the European Union policy to reduce more the

atmosphere pollution leads to a legislation that

stimulates development of solar, wind and biomass

energy production by comparison with coal power

plants.

• Thus, clean energy industry became a big business.

TECHNOLOGY FORCE (I)

• Technology is a very powerful force being able to

stimulate or to inhibit business development.

• IT penetration allows the use of internet and mobile

technology.

• For instance, in 2013 Romania had most internet users

in the South East Europe. There were more than 8.8 M

users, with the following composition:

- 50.16% men, being on average 31 h/week online

- 49.84% women, being on average 22 h/week online

• Most popular websites:

- Google – 86%

- Facebook – 80%

- Yahoo – 68%

TECHNOLOGY FORCE (II)

• All of these statistics on the present situation and

trends help evaluating the online advertising (i.e.

quantity, quality and distribution on websites).

• Internet use contributes directly to the development

of online commerce, online training, online banking

etc.

• Statistics concerning internet users on categories of

age and gender is important also for strategic

evaluation of business development.

• Important is know that IT penetration must be

considered together with IT education in family,

schools and universities.

Anticipation

Scanning

Monitoring

Competitive

intelligence

Events

anticipation

ENVIRONMENTAL SCANNING

• Environmental scanning involves a continuous

search of the business environment to identify

changes in the last time, changes that may impact a

certain field of business.

• Environmental scanning also tries to identify trends

of new business projects.

• For instance, if you are in the online business you

might be interested to identify new players in this

field and their business force, or new legislation able

to stimulate that kind of business, or new statistics

to show the trends in the field.

ENVIRONMENTAL MONITORING

• Environmental monitoring tracks the evolutions of the

identified trends or new trends in a business field.

• Some trends may decay and they are not of interest,

but some trends may increase and they become the

focus of monitoring.

• Also, monitoring is done frequently for knowing the

dynamics of some indicators important for business:

- In the hotel industry: number of tourists going to a

certain destination (i.e. resort area) in a specific period

like Christmas or Easter, number of hotel rooms in a

certain price category available, booked, etc.

- In the car industry, new models, design,

performances, fuel economy, prices etc.

COMPETITIVE INTELLIGENCE (I)

• Competitive intelligence mean to gather data and

information about competitors and business

environment and to interpret them.

• Done properly, competitive intelligence helps a

company avoid surprises by anticipating competitor’s

moves and decreasing response time.

• There are many companies specialized in competitive

intelligence that gather data and information for most

important competitors in a certain business field and

process them producing synthetic reports.

• Also, banks produce business reports on different

topics which can be used as competitive intelligence

sources.

COMPETITIVE INTELLIGENCE (II)

• Competitive intelligence is:

- Gathering data and information about competitors and

processing them to improve decision making.

- Data and information should be publicly available.

- A tool to help managers in identifying more easily both

opportunities and threats, such that they can be

prepared in advance for them.

- A means to deliver reasonable assessments. They are

very useful in decision making.

- A way of life. If competitive intelligence is used

currently and properly in a company, then it may

become a way of doing business for all the employees,

not only for those working in the strategic department.

COMPETITIVE INTELLIGENCE (III)

• Competitive intelligence is not:

- Spying. Spying implies illegal or unethical activities.

Companies which try to use it may end up in a court.

- A crystal ball. Competitive intelligence offers data and

information about competitors and some synthetic

ideas about their business trend, but it cannot predict

the future of their business.

- A job for only one smart person. A CEO may appoint a

person to be in charge with competitive intelligence, but

that does not mean that it will be used only by that

person.

- Database search. For competitive intelligence the task

is not only to search for data, but to process and

interpret it.

EVENTS ANTICIPATION (I)

• The basic idea of general environment analysis is to

develop the capability of events anticipation.

• There are two extreme approaches that should be

avoided:

- Future cannot be predicted. Most important business

events and technological breakthrough could have been

not anticipated (e.g. transistors, chips, personal

computers, iphone, ipad)

- Future events can be predicted if enough data and

information is available. Thus, today is a tendency for

big data gathering and processing.

• There should be chosen a in between position, that

future events can be anticipated with some

probabilities.

EVENTS ANTICIPATION (II)

• In 1977 a fatal error has been made by Digital

Equipment Corp. Kenneth Olsen, then president of this

corporation announced that: “There is no reason for

individuals to have a computer in their homes”. The

explosion of personal computers in 1977 was not easy

to detect unless a change in paradigm could have been

made.

• More recently, a business report delivered by McKinsey

in 1980s predicted that in USA would be less than 1

million cellular users by the year 2000. Actually there

were more than 100 millions !

• Nassim Taleb in his The Black Swan book shows that

revolutionary events are hard to be anticipated.