This section helps you to research and assess the business environment using the most common business analysis tools. In fact, environmental analysis should be continuous and feed all aspects of planning and forecasting. Every company exists in multiple environments. Your business is both affected by, and shapes, those environments.
The societal environment can be examined using the PEST analysis of the following factors: political, economic, sociocultural, and technological;
The task environment can be examined using Porter’s Five Forces analysis;
The internal factors affecting the organization; and, then
A SWOT analysis brings together the most essential external and internal environment factors that are relevant to your business.
The summary of these tools is briefly described below and links to additional resources can be found on this page. While you may not report all the elements of this analysis in your business plan, you will need to summarize the high points of your business strengths / opportunities and weaknesses / threats. Lenders, potential partners, and investors will want to be aware of the downside (worst case scenario) of your new venture.
a. Political Factors
The political arena has an influence upon the regulation of business, and the spending power of consumers and other businesses. Consider the following issues in light of your business proposal:
b. Economic Factors
Businesses and their marketing departments need to consider the state of the trading economy in the short and long-terms. You will need to look at:
c. Sociocultural Factors
For your target market and the region in which you will distribute your product, consider the following questions:
Porter’s Five (or Six) Forces Analysis
Porter’s Five Forces is a framework for industry analysis and business strategy development (Michael Porter, Harvard Business School, 1979). It works effectively for big or small businesses, and by design is generally used to analyze the micro-environment of your business. Each of the forces can be given a value of a low, medium, strong, or very strong rating and together provide a strategic ‘picture’ of your business.
The bargaining power of customers
The bargaining power of suppliers
The threat of new entrants
The threat of substitute products
Intensity of competitive rivalry
The relative power of other stakeholders
The relative power of other stakeholders is a sixth force that can be particularly relevant to obtaining resources on Crown Land, for instance, and may be relevant to your business case. is a sixth force that can be particularly relevant to obtaining resources on Crown Land, for instance, and may be relevant to your business case.
Internal Environment Analysis
People, with their knowledge, know-how, and managerial skills, are seen to be the new competitive advantage. Is your business structured in a manner that harnesses employee power, or drives it away?
How does your organization structure compare to your competitors – especially the ones that are known for their best practices in human resources management?
What is your organizational culture? Does it set you apart in the industry and lead to a competitive advantage?
What are your organizational resources in the following areas (do a size-up or examine the strengths / weaknesses):
It is important to note that opportunities and threats are often beyond the control of a business, and therefore should prompt the business to adapt, evolve, and innovate to either take advantage of the opportunity, or to mitigate the damage of the threat. Here is a chart that you can use to formulate your analysis: