EXTERNAL BUSINESS

ENVIRONMENT ANALYSIS

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

Faculty of Business Administration
Academy of Economic Studies
Bucharest, Romania

Strategic

Strategic

Strategies

Strategies

Intention

Analysis

Elaboration

Implementation

Strategic management
process

Strategic Analysis
Internal
Environment
Analysis

SWOT Analysis

External
Environment
Analysis

External environment analysis

Competitional
external
environment

General external
environment

Company
Strategic
Groups

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. 510 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 competitors
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.