Business environment

• Prof. Keith Davis defines business environment

as, “the aggregate of all conditions events and
influences that surround and affect it.”
• These surroundings are constantly changing
and uncertain.
 Business environment
• Unilever recently sued Proctor & Gamble
(P&G) over that company’s corporate
espionage activities to obtain the secrets of its
Unilever hair-care business.
• After spending $3 million to establish a team
to find out about competitors in the domestic
hair care industry, P&G allegedly took roughly
eighty documents from garbage bins outside
Unilever’s hair-care brands such as Therma
Silk, Suave, Salon Selective and Finesse
 Business environment
Classification of a Firm’s Environment
• The total environment can be classified into two
broad categories
1. Internal environment
2. External environment
• The internal environment includes the goals and
value system, the hierarchical authority structure,
the technological equipment and processes, the
social groups and teams, the management
groups, organizational climate and culture, etc.
 Business environment
• The external environment can be classified
into two segments.
1. Macro environment or Mega environment
2. Micro environment or task environment
 Business environment
Macro Environment
• The major constituents of mega environment
are PEST or STEP (P refers to Politico-legal
environment, E-Economic environment, S-
Socio-cultural environment and T-
Technological environment) or PESTEL
(Political, environmental, socio-cultural,
technological, economic and legal).
 Business environment
Micro Environment
Microenvironment includes employees,
shareholders, creditors, suppliers, customers
and financial institutions, regulatory
organizations, channels of distribution, and
special interest groups like consumer
associations, and community organizations.
 Micro Environment
• Micro Environment has a substantial impact on
an organization’s current business. Consequently,
developments in microenvironment become the
dominant preoccupation of the management for
strategic decisions.
• To avoid obsolescence and promote innovation, a
firm must be aware of technological changes that
might influence its industry.
• Creative technological adoptions can improve
manufacturing and marketing techniques.
 Business environment
• The change in the environment is caused by the businesses
themselves.
• Such theory was proposed by Joseph Schumpeter,
introducing the contemporary popular term „creative
destruction”. „As a result of creative destruction, the
existing products and production methods are destroyed
and replaced by new ones”.
• Such process can never lead to permanent equilibrium in
an economic system, since there will always be new
entrepreneurs who will disrupt the existing equilibrium. It
also follows from this theory that full competition is
impossible because businesses are constantly willing to
disrupt the competitive environment and to enter a state of
no competition. T
 Business environment
• The desire of organizations to control the
elements of surrounding environment is
directly related to the intention to reduce risks
to the results of the organization’s
performance, and ensures the future
predictability of the organization’s actions.
• Managers of organizations are constantly
dealing with the desire to manage the
external environment and the inability to
control it.
 Business environment
• Key change drivers for this part of
environment, are the changes in the
behaviour of competitors, suppliers, labour
market and target audience. The basic tools
for managing such environment is advertising,
public relations, long-term cooperation with
the most important partners, the so-called
„partnering”, mergers, takeovers, joint
ventures, preemptive tactics as regards
competitors, innovation.
 Business environment
• One of the objectives for organizational strategy
is to match the opportunities offered by the
external environment with the organization’s
internal resources and capacities. It can be based
on the PESTEL model, by complementing it with
the additional information which would enable
the organization to structure the information
obtained as better suited for its strategy-building
needs, that is, setting the alternative strategies
and their corresponding objectives.
 Environmental scanning
• Environmental scanning refers to possession
and utilization of information about
occasions, patterns, trends, and relationships
within an organization’s internal and external
environment.
• Environmental scanning is a process that
systematically surveys and interprets relevant
data to identify external opportunities and
threats.
 Environmental scanning
• It helps the managers to decide the future
path of the organization.
• Scanning must identify the threats and
opportunities existing in the environment.
• While strategy formulation, an organization
must take advantage of the opportunities and
minimize the threats. A threat for one
organization may be an opportunity for
another.
 Environmental scanning
• Environment scanning helps the signals of
potential changes in the environment. It also
detects the changes that are already under way.
It normally reveals ambiguous, incomplete, or
unconnected data and information. It involves a
detailed and micro study of the environment.
 Environmental scanning
• it is also called the X-ray of the environment. The
environment uncertainty, complexity and
dynamism are studies to assess the trend of
environment.
• It is the base of environment analysis. It is
normally done when there is high level of
uncertainty in the environment. It is a continuous
process.
• It also helps to evaluate the long term strategic
plan that will be aligned with future business
conditions.
 Environment scanning
Environmental scanning may be done in two ways as
mentioned below:
Centralized scanning:
• If some specific environmental components are only
analyzed, it is called centralized scanning. Under this, the
important components which are likely to exert
considerable impact to the business are only analyzed.
• For example, if economic conditions are only studies, it is
termed as centralized scanning. Since specific components
are only scanned, this is economical. Likewise, it helps to
save time as well. However, it is not a comprehensive
method due to the study of specific components only.
Comprehensive scanning:
• "If all the components of environment are analyzed in a
detailed and micro way, it is called comprehensive
environmental scanning."
 Importance of Environmental Scanning
• Signals threats:
• It provides an early signal of threats, which can be defused or
minimized if recognized well in advance.
• Customer needs:
• It signals an organization to the changing needs and requirements of
the customers.
• Capitalize opportunities:
• It helps an organization capitalize opportunities earlier than the
competitors.
• Qualitative information:
• It provides a base of objective qualitative information about the
environment that can be utilized for strategic management.
• Intellectual simulation:
• It provides intellectual stimulation to managers in their decision
making.
• Image:
• It improves the image of the organization as being sensitive and
responsive to its environment.
• Process of Environmental Analysis:
 Kinds of environmental scanning

• Ad-hoc scanning - Short term, infrequent

examinations usually initiated by a crisis
• Regular scanning - Studies done on a regular
schedule (e.g. once a year)
• Continuous scanning (also called continuous
learning) - continuous structured data
collection and processing on a broad range of
environmental factors
 Process of Environmental Scanning
The following process is adopted for environmental
scanning.
• Study the forces and Nature of the Environment:
• Determine the sources of Information
• Determine the Approach of Environmental
scanning: Systematic approach, Ad-hoc Approach
and Processed form approach
• Scan and Assess the Trend
 Process of Environmental Scanning:
The following process is adopted for environmental scanning

Study the forces and Nature of the Environment:

• In the first step of environmental scanning, the forces of the
environment that have got significant beafring in the growth
and development of the business should be identified.
• They may be political, economic, sociology-cultural,
technological, legal, physical environment and global
components.
• After this, the nature of the environmental components is
studied. The nature of environment may be simple or
complex. It may also be stable or volatile.
• The nature of the environment affects a firm's ability to
predict the future. Some business may be operating in
simple environment and others in complex. When there is a
high level of uncertainty and complexity in the environment,
environmental scanning becomes more critical.
 Process of Environmental Scanning
Determine the sources of Information:
• After studying the process and nature of the environment, the sources of collecting information from the environment should be determined. There are different sources through which information on business environment may be collected.

They are as follows:

• Secondary sources:
Newspapers, book, research articles, industrial and trade publications,
government publication, and annual report of the competitors.
• Mass media:
Radio, TV and Internet.
• Internal sources:
Internal reports, management information system, data network, and
employee.
• External agencies:
Consumers, marketing intermediaries and suppliers.
• Formal studies:
Formal research and study by employee, research agencies, and
educational institutions.
Spying and surveillance of the competitors.
 Process of Environmental Scanning
Determine the Approach of Environmental scanning:
• After determining the sources of information the approach of environmental analysis should be determined. There are mainly three approaches to environmental
scanning. They are:
Systematic approach:
• The information regarding market and customer, government
Under this approach, a systematic method is adopted for environmental scanning.

policy, economic and social aspects are continuously collected. In other

words, the environment is monitored in a regular way. The timeliness and relevance of such information
enhances the decision making capacity of the management.

Ad-hoc Approach:
• Under this, specific environmental components are only analyzed through
survey and study.
• Ad-hoc approach is useful for collecting information for specific project,
evaluating the strategic alternative or formulating new strategies. It is not a
continuous process.
Processed form approach:
• Under this, the information collected from internal and external sources are
used after processing them.
• Normally, the information obtained from secondary sources are processed
and used as per the requirements of the business.
 Scan and Assess the Trend:
• This is the final step of environmental
scanning process.
• It involves a detailed and micro study of the
environment to identify the early signals of
potential changes in the environment.
• It also detects changes that are already under
way and shows the trend of the environment.
• The trend should be assessed in terms of
opportunities and threats.
 Techniques/Methods of Environmental scanning
• There are different techniques/methods of
environmental scanning.
• Executive opinion method
• Expert opinion method
• Delphi method
• Extrapolating method
• Historical analogy
• Intuitive reasoning
• Scenario building
• Cross-impact matrix
 Techniques/Methods of Environmental scanning
• Executive opinion method:
It is also called executive judgement method. Under
this environment is forecasted on the basis of
opinion and views of top executives. A panel is
formed consisting of these executives.
• Expert opinion method:
Under this environment forecasting is based an
opinion of outside experts or specialist. The experts
have better knowledge about market conditions
and customer taste and preferences. This method is
similar to executive opinion method. However, it
uses external experts.
 Techniques/Methods of Environmental scanning:
• Delphi method:
This method is extension of expert opinion method. It
involves forming a panel of experts and questioning each
member of the panel about the future environmental trend.
Later, the responses and summarized and returned to the
members for assessment. This process continues till the
acceptable consensus is achieved.
• Extrapolating method:
Under this method, the past information is used to predict
the future. Different methods used to extrapolate the future
are time series, trend analysis and regression analysis.
• Historical analogy:
Under this, the environmental trends are analyzed with the
help of other trends which are parallel to historical trend.
 Techniques/Methods of Environmental scanning
• Intuitive reasoning:
Rational and unbiased intuition is used for environmental
scanning. Environmental dynamics are guessed individual
judgement. Reliability of this method is questionable.
• Scenario building:
Scenarios are the pictures of possible future. They are built
on the basis of time ordered sequence of events that have
logical cause and effect relationship with each other.
Scenarios are built to address future contingencies.
• Cross-impact matrix:
Under this, environmental forecasts through various
methods are combined to form and integrated and
consistent description of future. Cross impact matrix is used
to assess the internal consistency of the forecasts.
 SWOT Analysis
• SWOT analysis means analysing strengths,
weaknesses, opportunities and it is a useful
strategic planning tool
And
• is based on the assumption that if managers
carefully review internal strengths and
weaknesses and external threat and
opportunities, a useful strategy for ensuring
organisational success can be formulated.
 SWOT Analysis
• It is a simple technique for getting a quick
overview of a strategic situation so that such
strategies can be formulated as to produce a
good between the company’s internal
competencies (strength and weaknesses) and
environment (opportunities and threats).
 Strength
• A “strength” is a positive characteristic that
gives a company an important capability. It is
an important organisational resource which
enhances a company, competitive position.
 Strengths
• Some of the internal strengths of an organisation
are:
1. Distinctive competence in key areas
2. Manufacturing efficiency
3. Skilled workforce Adequate financial resources
Superior image and reputation
4. Economies of scale
5. Superior technological skills
6. Insulation from strong competitive pressures
7. Product or service differentiation
8. Proprietary technology.
 Weakness
• A “weakness” is a condition or a characteristic
which puts the company at disadvantage.
• Weaknesses make the organisation vulnerable to
competitive pressures.
• These are competitive liabilities and strategic
managers must evaluate their impact on the
organisation’s strategic position when
formulating strategic policies and plans.
• Weaknesses require a close scrutiny because
some of them can prove to be fatal.
 Weakness
• Some of the weaknesses to be reviewed are:
1. No clear strategic direction
2. Outdated facilities
3. Lack of innovation is Complacency
4. Poor research and developmental programmes
5. Lack of management vision, depth and skills
6. Inability to raise capital
7. Weaker distribution network
8. Obsolete technology
9. Low employee morale
10. Poor track record in implementing strategy
11. Too narrow a product line
12. Poor market image
13. Higher overall unit costs relative to competition.
 Opportunity
• An “opportunity” is considered as a favourable
circumstance which can be utilised for beneficial
purposes.
• it is offered by outside environment and the
management can decide as to how to make the
best use of it.
• Such an opportunity may be the result of a
favourable change in any one or more of the
elements that constitute the external
environment.
 Opportunity
• Some of the opportunities are:
1. Strong economy
2. Possible new markets
3. Emerging new technologies
4. Complacency among competing organisations
5. Vertical or horizontal integration
6. Expansion of product line to meet broader range
of customer needs
 Threat
• A “threat” is a characteristic of the external
environment which is hostile to the
organisation.
• Management should anticipate such possible
threats and prepare its strategies in such a
manner that any such threat is neutralised.
 Threat
Some of the elements that can pose a threat are:
1. Entry of lower cost foreign competitors Cheaper
technology adopted by rivals
2. Rising sales of substitute products
3. Shortages of resources
4. Changing buyer needs and preferences
5. Recession in economy
6. Adverse shifts in trade policies of foreign
governments
7. Adverse demographic changes
 Aim of SWOT analysis
• To help decision makers share and compare
ideas.
• To bring a clearer common purpose and
understanding of factors for success.
• To organize the important factors linked to
success and failure in the business world.
• To help individual or organization to
understand their strengths and weaknesses.
 key steps in conducting a SWOT analysis
1. Brainstorming lists of strengths, weaknesses, opportunities
and threats
2. Take the laundry-list of ideas within each category and
reduce them to the top 5 to 10 ideas (per category).
3. Review each category separately and discuss each of these
ideas and the potential implications to the organization.
4. Look at the internal strengths and weaknesses of the
organization and see how they relate to the opportunities and
threats external to the organization.
5. The final step is to look at the following areas:
a. Those factors that represent both strengths of the
organization and opportunities in the external environment.
This represents a potential area for growth.
b. Those factors that represent weaknesses of the
organization and threats in the external environment. This
represents an area that needs to be addressed.
 5C Analysis
• 5C Analysis is a marketing framework to analyze the
environment in which a company operates.
• It can provide insight into the key drivers of success, as well
as the risk exposure to various environmental factors.
• Situation Analysis 5C is a comprehensive analysis of
capturing all relevant information and factors (internal and
external) that affect the present and future situation of the
Organization.
• Using situation analysis organization collects information
about their strengths and weaknesses, opportunities and
threats.
• The 5Cs are Company, Collaborators, Customers,
Competitors, and Context.
 Company
• What does my business do? What are we selling?
What unique position do we have in the
marketplace? How do people think of my
company? What are my strengths and
weaknesses? Where do we want to be in the
future?
• Using your strengths and weaknesses from your
SWOT analysis is a great way to get started here.
Most importantly, be honest with yourself when
thinking about your company. And once you get
these questions hammered out, ask “How do these
answers make me feel?”
 Collaborators
• Who am I working with to make my business
operate? Who is my shipping provider? Who is
helping me process credit cards? Who is
providing my shopping cart software? Who
handles my inventory/warehouse operations?
What partners am I currently working with?
• Your collaborators are key to your efficiency
and bottom line. Take a look at each partner
to see how you can grow and foster
relationships. Also, do some research to see if
there are more teammates you can pull in.
 Customers
• Who is my target audience? Who is currently
purchasing from me? Who do I want coming
to my store? How do my customers behave?
What is important to their purchasing
decision? What type of people are buying and
not buying?
• These questions are extremely important in
guiding your communications strategy – once
you know who you’re talking to and what they
want to hear, you can effectively create
content to spark their interest.
 Competitors
• Who are my primary competitors? Are there
any substitutes for my products? Are there any
emerging businesses that might impact me?
What are their strengths and weaknesses?
How do customers think of other companies?
• Answering these questions allows you to
position your brand. In other words, you can
identify your uniqueness and leverage that as
a sales tool. Additionally, you’re better aware
of what others are doing and can make
adjustments to your business plan.
 Climate
• What’s going on in the industry? Are there new technologies or
trends that will impact me? Are there any new laws or regulations
in the works I need to know of? How is the current economic
situation affecting customers’ buying behavior?
• This analysis point is much like the opportunities and threats
section of your SWOT analysis – a way to gauge your external
environment. Again, study the level of control you have over each
and then create a plan on how to address potential changes in
business climate.
• Now that you’ve taken a look at each piece of the puzzle, put
everything together to see how things interact. While you may not
be able to create action items for each point, awareness is half the
battle. Using this framework will help you set benchmarks for the
future and give you a sustainable plan for adjustment, growth and
success.
 Apple
• 1. Company

• Apple offers different technological, electronic devices to make peoples life easier and
simpler.
• It is one of the most important companies with a strong image around the community and
other companies, it is popular and recognized by the public.
• It counts with 35 years of experience, being founded in 1970.
• It looks for the best-in-class employees in every role.
• It has values such as responsibility, empathy for customers, achievement, innovation,
individual performance, team spirit, quality, excellence etc.
• Apple is committed to bringing the best personal computing experience to students,
educators, creative professionals and consumers around the world through its innovative
hardware, software and internet offerings.
• Apple has a large product line that includes: Laptops (MacBook Air, MacBook Pro, iMac),
iPod's (iPod Touch, iPod Nano, iPod Classic, iPod Shuffle), iPhone (in its different models: 4,
4S, 5 etc.), iPad's (in its different models) and softwares like the OS X Mountain Lion.
 2. Collaborators

• In the Apple collaborators we can include

diverse companies that support the service of
internet, calls and text messages for Apple's
product: iPhone. These companies are: AT&T,
Spirit, Verizon, Telcel, Iusacell, etc. Depending
on the country the different collaborators that
can intervene.
 3. Customers

• Apple counts with a huge market because it has different products that satisfy the
different necessities of its users.
• The benefits that customers seek are tangible because Apple offers diverse
products, but in the case of softwares these are intangible.
• Apple offers high quality and excellence in all of its products.
• The retail channel are the different stores around the world and even online
stores.
• The consumer can get information form the website, the different stores and in
some cases from brochures.
• The buying process can be online or directly in a store of your country. It normally
can be in cash or in credit/ debit cards.
• The frequency of purchase is high, the products are seller all over the year, and
each year there is a new model or software of each.
• Trends do influence Apple, but in many cases it is Apple the one that sets the
trends/fashions.
 4. Competitors

• There are competitors that through the years have become more
potential and direct for Apple. (Examples: Samsung, Microsoft)

• SWOT

• Strengths- It is a device that provides many services, phone,

messages, internet, music etc.
• Weaknesses- The screen is fragile, it can crash, isn't water resistant
and in some countries the price is expensive.
• Opportunities- It is multi-task it can be used in many areas, schools,
businesses and personal.
• Threats- The growing use of other softwares, systems and
platforms, like androids or blackberries.
 5. Climate or context

• Apple must follow and comply rules and regulations of the different
governments where they have stores.
• They must pay taxes and get building permissions fort their stores.
• The Economic environment is important because from it depends
somehow the price that the product will have. These environment
in México is good, having as a fact that the country is likable to
doing business easily, however we know that the taxes in México
are still high and so this does't helps so much, still there are good
opportunities of business in México. Markets are growing and
establishing in México because the country has lower
transportation costs, speed of access to the marketplace, low
inventory costs, ease of administrative coordination etc.
• Apple counts with the best employees advances in all technological
ways, to keep updated.
 PESTLE Analysis
• PESTLE is a strategic planning tool used to
evaluate the impact of political , economic, social,
technological , environmental and legal factors
might have on a project.
• PESTLE Analysis is an analytical tool for strategic
business planning.
• It involves an organization considering the
external environment before starting a project.
• It is a good way of ensuring one has captured all
potential risks and issues .
• PESTLE is a strategic framework for understanding
external influences on a business or on any
project .
 PESTLE Analysis
• PESTLE stands for –
• P= POLITICAL
• E= ECONOMIC
• S= SOCIAL
• T=TECHNOLOGICAL
• L= LEGAL
• E=ENVIRONMENTAL
 PESTLE Analysis
Political:
• These factors determine the extent to which a
government may influence the economy or a
certain industry.
• [For example] a government may impose a new
tax or duty due to which entire revenue
generating structures of organizations might
change.
• Political factors include tax policies, Fiscal policy,
trade tariffs etc. that a government may levy
around the fiscal year and it may affect the
business environment (economic environment) to
a great extent
 PESTLE Analysis
• Economic:
• These factors are determinants of an economy’s
performance that directly impacts a company and
have resonating long term effects.
• [For example] a rise in the inflation rate of any
economy would affect the way companies’ price
their products and services. Adding to that, it
would affect the purchasing power of a consumer
and change demand/supply models for that
economy.
• Economic factors include inflation rate, interest
rates, foreign exchange rates, economic growth
patterns etc.
 PESTLE Analysis
Social:
• The sociological factor takes into consideration all events
that affect the market and community socially.
• Thus, the advantages and disadvantages to the people of
the area in which the project is taking place also need to be
considered.
• These events include cultural expectations, norms,
population dynamics, healthy consciousness, career
altitudes, global warming, etc.
• These factors scrutinize the social environment of the
market, and gauge determinants like cultural trends,
demographics, population analytics etc.
• An example for this can be buying trends for Western
countries like the US where there is high demand during
the Holiday season.
 PESTLE Analysis
Technological:
• These factors pertain to innovations in technology that may
affect the operations of the industry and the market
favorably or unfavorably.
• This refers to automation, research and development and
the amount of technological awareness that a market
possesses.
• This factor takes into consideration all events that affect
technology. Since technology often becomes outdated
within a few months after it is launched, it is important to
consider this.
• This factor could also take into consideration all barriers to
entry in certain markets and changes to financial decisions
 PESTLE Analysis
Legal :
• This factor takes into consideration all legal aspects like
employment, quotas, taxation, resources, imports and
exports, etc.
• These factors have both external and internal sides. There
are certain laws that affect the business environment in a
certain country while there are certain policies that
companies maintain for themselves.
• Legal analysis takes into account both of these angles and
then charts out the strategies in light of these legislations.
For example, consumer laws, safety standards, labor laws
etc.
 PESTLE Analysis
Environmental:
• These factors include all those that influence or
are determined by the surrounding environment.
• Factors of a business environmental analysis
include but are not limited to climate, weather,
geographical location, global changes in climate,
environmental offsets , ground conditions,
ground contamination, nearby water sources, etc.
 The advantages of using the PESTLE
tool
• The tool is simple and easy to understand and use.
• The tool helps understand the business environment
better.
• The tool encourages the development of strategic
thinking.
• The tool helps reduce the effect of future business
threats.
• Can help an organisation to anticipate future
difficulties and take action to avoid or minimize their
effect.
• The tool enables projects to spot new opportunities
and exploit them effectively
 The process……
1. Brainstorm and list key issues that are outside
the organization's control.
2. Broadly identify the implications of each issue.
3. Rate its relative importance to the organization
(e.g. critical, extensive, important, significant,
moderate, or insignificant).
4. Rate the likelihood of it occurring (e.g. certainty,
extremely likely, likely, potential, remote
possibility, or will not transpire).
5. Briefly consider the implications if the issue did
occur.
 This illusion helps illustrate how important it is to consider your relative
position against your competitors. Your company can look bigger and further
ahead compared to smaller competitors and can look unreasonably smaller
and behind when compared to larger competitors.
 Competitive Analysis

Identifying your competitors and

evaluating their strategies to determine
their strengths and weaknesses relative to
those of your own product or service
 Competitive Analysis
• With this evaluation, you can establish what
makes the product or service unique--and
therefore what attributes you play up in order
to attract target market.
• Evaluate competitors by placing them in
strategic groups according to how directly
they compete for a share of the customer's
use.
 Competitive Analysis
• For each competitor, list their product or
service, its profitability, growth pattern,
marketing objectives and assumptions,
current and past strategies, organizational and
cost structure, strengths and weaknesses, and
size (in sales) of the competitor's business
• The most critical part of kicking off a
competitive analysis is choosing the right
competitors to analyze. Otherwise, you will
spend tons of time on competitive research
with very limited insight to show for it.
 Competitive Analysis
• Who are your competitors?
• What products or services do they sell?
• What is each competitor's market share?
• What are their past strategies?
• What are their current strategies?
• What type of media are used to market their products or services?
• How many hours per week do they purchase to advertise through
the media used in this market?
• What are each competitor's strengths and weaknesses?
• What potential threats do your competitors pose?
• What potential opportunities do they make available for you?
CONDUCTING AND PREPARING YOUR
COMPETITIVE ANALYSIS
• Conducting and preparing your competitive
analysis will follow these steps
• Conduct Research
• Gather Competitive Information
• Analyze Competitive Information
• Determine Your Own Competitive Position
 Competitive Analysis
• Conduct Research
• Professional marketing research, such as
focus groups and questionnaires, can
provide you with valuable information
about your competition.
• While a marketing research firm can save
you time and legwork, it can be quite
expensive and simply not a possibility for
new and growing businesses.
 Competitive Analysis
 Who are my top three competitors?
 On what basis am I able to compete?
 What is the range of products and services they offer?
 Are their products or services aimed at satisfying similar target
markets?
 Are my competitors profitable?
 Are they expanding? Scaling down?
 How long have they been in business?
 What are their positive attributes in the eyes of customers?
 What are their negative attributes in the eyes of customers?
 How do current customers view us compared to the competition?
 How can I distinguish my company from my competitors?
 Competitive Analysis
• Do they have a competitive advantage; if so, what is it?
• What is their marketing strategy?
• What is their promotional strategy?
• What are their pricing structures?
• Do they operate in the same geographic area?
• Have there been any changes in their targeted market segments?
• What is their size? Revenues?
• What is their percentage of market share?
• What is their total sales volume?
• What is their growth rate?
• How do they rate on:
• customer service?
• quality of product/service?
• hours of operations?
• pricing, incentives?
• employees?
• resources?
 Competitive Analysis
Gather Competitive Information
• Secondary sources of information are
recommended as an excellent starting
point for developing a competitive and
industry analysis. Secondary sources
include information developed for a
specific purpose but subsequently made
available for public access and thus
alternative uses.
 Competitive Analysis
• Advertising Not only does advertising copy tell you a competitor's
price and other product information, it provides an indication of
your competitor's entire promotional program and budget.
• Sales Brochures Sales brochures provide a wealth of product
information
• Newspaper and Magazine Articles Articles in newspapers and
magazines are a source of information you can use to get an idea of
what your competitor is planning for the future, how their
organization is run, and what new product information or
innovations they have
• Reference Books and Databases The publications listed in this
section are available at most public and college libraries that have
business resources
• Annual Reports
• Sales Force Your sales staff probably has more access to
competitive information than anyone else in your organization
• Direct Observation
 Competitive Analysis
Analyze Competitive Information
• Once you've gathered all of the competitive
data you have been able to locate, it's
analysis time.
• Analyze to determine product information,
market share, marketing strategies, and to
identify your competition's strengths and
weaknesses.
• Make a list of product features and benefits in
order of importance, and prepare a table to
show whether or not each of your competitors
fulfill them
 Competitive Analysis
• Determine Your Competitive Position in the
Marketplace
• By now it should be fairly clear to you if you are a:
 market leader,
 one of several followers,
 or new to your marketplace.
• Once you have identified and analyzed your
competition, and understand your competitive
position
• Identify and discuss key areas of competitive
advantage and disadvantage. Review the
competitive environment for your product or
service. Comment on both similar and substitute
products or services.
 Competitive Analysis
• Summarize the major problems and
opportunities facing your firm which may require
action. Issues which should be considered include
types of market penetration, distribution
coverage, product line needs, price revisions
and/or cost reductions.
• Integrate your analysis of the competition with
demographic analysis of your market to develop
and implement a marketing strategy that will
strengthen your market position
 Internal Analysis
• It is an exercise to list a firm’s resources,
strengths, and weaknesses.
• An understanding of a firm’s resources is a
prerequisite to formulation of strategy;
Internal environment focuses on the firm’s
capabilities and core competencies, which can
be identified and understood by using
concepts of value chain and core
competencies.
 Internal Analysis
• Resources and capabilities can take many
different forms.
• Literally anything an organization possesses
can be considered a resource. Examples
include financial resources, plants, equipment,
technology, reputation, brands and
organizational expertise.
 VRIO Analysis
• In order to lead to a sustainable competitive
advantage a resource or capability should be
Valuable, Rare, Inimitable (including non-
substitutable), and Organized.
• This VRIO framework is the foundation for
internal analysis
 VRIO Analysis
Valuable.
• A resource is valuable if it helps the organization
meet an external threat or exploit an opportunity.
• One good way to think about valuable resources
is to ask how they help the company.
• Common competitive foundations for firms are
efficiency, quality, customer responsiveness, and
innovation.
• If a resource helps bring about any one of these
four things then it is valuable
 VRIO Analysis
Rare.
• A resource is rare simply if it is not widely
possessed by other competitors.

• Of the criteria this is probably the easiest to judge. For example, Coke's
brand name is valuable but most of Coke's competitors (Pepsi, 7 Up, RC)
also have widely recognized brand names as well, making it not that rare.
Of course, Coke’s brand may be the most recognized, but that makes it
more valuable not more rare in this case.
 VRIO Analysis
Inimitable.
• A resource is inimitable and non-substitutable
if it is difficult for another firm to acquire it or
a substitute something else in its place.
• This is probably the toughest criteria to
examine because given enough time and
money almost ANY resource can be imitated.
• Even patents only last 17 years and can be invented around in even less time. Therefore, one way to think
about this is to compare how long you think it will take for competitors to imitate or substitute something
else for that resource and compare it to the useful life of the product.
 VRIO Analysis
Organized
• A resource is organized if the firm is able to actually
use it.
• Generally, organization is frequently neglected by
strategy because it often deals with the inner workings
of firm management.
• The good news is that rarely are firms not organized to
exploit their valuable resources. However, if you
analysis does turn up a valuable, rare, and inimitable
resource that the firm is not taking advantage of, then
this should probably be your number one
recommendation!
 Value Chain
• A value chain is a graphical representation of a
firm that splits it up into each of its
component functions, e.g. R&D, production,
and marketing, and tracks how inputs move
through these functions on their way to
becoming an output.
• Each function of the firm can be a potential
source of VRIO resources. By analyzing each
function individually you are less likely to miss
important resources
 Value Chain
• Value Chain Shows how a product moves from
the raw-material stage to the final customer.
• To be a source of competitive advantage, a
resource or capability must allow the firm:
To perform an activity in a manner that is
superior to the way competitors perform it, or
To perform a value-creating activity that
competitors cannot complete
The value chain model
 Value Chain Analysis
• Allows the firm to understand the parts of its
operations that create value and those that do
not.
Primary activities involved with:
• A product’s physical creation
• A product’s sale and distribution to buyers
• The product’s service after the sale
Support Activities
• Provide the assistance necessary for the primary
activities to take place.
 Primary Activities
• Inbound Logistics
Activities, such as materials handling, warehousing, and inventory control, used to receive,
store, and disseminate inputs to a product.
• Operations
Activities necessary to convert the inputs provided by inbound logistics into final product
form. Machining, packaging, assembly, and equipment maintenance are examples of
operations activities.
• Outbound Logistics
Activities involved with collecting, storing, and physically distributing the final product to
customers. Examples of these activities include finished goods warehousing, materials
handling, and order processing.
• Marketing and Sales
Activities completed to provide means through which customers can purchase products
and to induce them to do so. To effectively market and sell products, firms develop
advertising and promotional campaigns, select appropriate distribution channels, and
select, develop, and support their sales force.
• Service
Activities designed to enhance or maintain a product’s value. Firms engage in a range of
service related activities, including installation, repair, training, and adjustment. Each
activity should be examined relative to competitors’ abilities. Accordingly, firms rate each
activity as superior, equivalent, or inferior.
 Support Activities
Procurement
• Activities completed to purchase the inputs needed to produce a firm’s
products. Purchased inputs include items fully consumed during the
manufacture of products (e.g., raw materials and supplies, as well as fixed
assets—machinery, laboratory equipment, office equipment, and buildings).
Technological Development
• Activities completed to improve a firm’s product and the processes used to
manufacture it. Technological development takes many forms, such as process
equipment, basic research and product design, and servicing procedures.
Human Resource Management
• Activities involved with recruiting, hiring, training, developing, and
compensating all personnel. Firm Infrastructure Firm infrastructure includes
activities such as general management, planning, finance, accounting, legal
support, and governmental relations that are required to support the work of
the entire value chain.
Infrastructure
• Through its infrastructure, the firm strives to effectively and consistently identify
external opportunities and threats, identify resources and capabilities, and
support core competencies. Each activity should be examined relative to
competitors’ abilities. Accordingly, firms rate each activity as superior,
equivalent, or inferior.
 Cautions and Reminders
• Never take for granted that core competencies
will continue to provide a source of competitive
advantage.
•All core competencies have the potential to
become core rigidities—former core competencies
that now generate inertia and stifle innovation.
•Determining what the firm can do through
continuous and effective analyses of its internal
environment will increase the likelihood of long-
term competitive success.