Business strategy
Date: October 2002
No 1 .
Give the importance of environment analysis so far a
strategy is concerned
In this context what is the particular significance of
the SWOT analysis?
What are the weaknesses of the SWOT and how
can they be overcome?
.
Once an organization has specified its objectives, it has to begin with its current situation to devise a strategic plan to reach those objectives. Changes in the external environment often present new opportunities/threats and new ways to reach the objectives.
An environmental scan is performed to identify the available opportunities. The organization must know its own capabilities and limitations in order to select the opportunities that it can pursue with a higher probability of success. The situation analysis therefore involves an analysis of both the external and internal environment.
The external environment has two aspects: the macro-environment that affects all firms and a micro-environment that affects only the firms in a particular industry.
The macro-environmental analysis includes Political, Economic, Social, and Technological factors and sometimes is referred to as a PEST analysis.
Organisation’s Environment
An important aspect of the micro-environmental analysis is the industry in which the firm operates or is considering operating.
Micro Environment.
In order to identify the :
Ø Opportunities and threats within the macro and micro environment.
Ø Strength and weaknesses within the organisation;
a SWOT ( Strength, Weakness, Opportunities, Threats) analysis is conducted for the organisation.
PEST Analysis
A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of the external macro-environment. Such external factors usually are beyond the firm's control and sometimes present themselves as threats.
Factors to be taken into consideration under PEST:
Political Analysis
· Political stability
· Risk of military invasion
· Legal framework for contract enforcement
· Intellectual property protection
· Trade regulations & tariffs
· Favoured trading partners
· Anti-trust laws
· Pricing regulations
· Taxation - tax rates and incentives
· Wage legislation - minimum wage and overtime
· Work week
· Mandatory employee benefits
· Industrial safety regulations
· Product labelling requirements etc
Economic Analysis
· Type of economic system in countries of operation
· Government intervention in the free market
· Comparative advantages of host country
· Exchange rates & stability of host country currency
· Efficiency of financial markets
· Infrastructure quality
· Skill level of workforce
· Labour costs
·