Analysing External

and Internal
Environment
By : Dr Subra

Ecological

Societal
MICRO ENVIRONMENT

INTERNAL ENVIRON.
Customers

Legal

Resources Audit
Financial Audit
Functional Audit
Supply chain Audit
Competitors HR Audit
Operations Audit
Distributors

Political

Social

Economic
Suppliers

Technologi
cal

Why analysing is important

Making sense of the diversity e.g when entering a

new country, state, city or town.
To proactively respond to change- constantly
emerging new virtual experiences- rise of social
networking systems e.g Blogs, Pinterest,
Facebook, Instagram, Email, Hangouts, SMS,chat
sites,Twitter, etc.
To stay abreast of the influence of the global villageconverging connectivity of the knowledge economy.

Efficient use managerial skills not to oversimplify but look at strategic issues.

Optimise on limited finance Finance is always

limited.
Exploit time effectively

Strategically to stay focus inter and intrainternationally HR, Finance, Production,

External partners etc
Be proactively SMARTER (Specific, Measurable,
Achievable, Realistic , Timed, Extendable and
Rewarding)

Even though it is important why is it seldom

undertaken:

Lack of desired skills

Lack of top management support

Too expensive and time consuming

PESTEL FACTORS
Other stakeholders
-Corporate Governance
-Transparency issues

Political
Economic factors

Societal Marketing
factors

Legal factors

Social &
Cultural factors

Technological factors
Ecological factors

Political factors
Political structures
Government stability
Employment legislation
Foreign trade

Economic factors

Country life cycle

State of economy
Investment incentive

Social & Cultural factors

Demographic structure
Lifestyles
Social mobility

Technological factors
- Patterns and speed of
technological change
- PLC and technological impact
- Rise of new technology
- Level of technology (high or
low tech)
Ecological

factors

- Consumerism

- Green marketing awareness

- Carbon emission regulations

Legal factors

Human right
Employment Law
Business Laws, eg Trade description
copyright, Trade Mark, Patent
Religious Laws
Laws on Halal product

Societal Marketing factors

Consumerism culture
Ethical Marketing awareness
Power of NGOs

Other stakeholders
-

Community
Religious group
Associations

Opportunities to enhance the profitability and

growth of the company

An opportunity is a chance for company growth

or progress due to a favourable change in the
business environment:
Possible opportunities

Emerging customer needs

Quality variant / improvement
Expanding global market
Vertical integration

Possible questions on opportunities

What is the distinct opportunity that can
offer your company further growth and
profitability
Why is it an opportunity
Can you align your internal strength to
exploit the opportunity

Threat to avert or minimise its impact on the

profitability and growth of the company

Threat is a factor in your companys external

environment that possess a danger
Possible threat

Entry of competition
Changing demographic/shifting demand
Emergence of cheaper technologies
Regulatory requirement

Possible questions on threats

What is the threat that can affect your
business growth and profitability
Where is the threat coming from
Why is it a threat
What needs to be done to manage the
threat

Opportunities and threats

By examining opportunities, you can discover

untapped markets and new products,
technologies, or identify potential avenues for
diversification
By examining threat, you can identify unfavourable
market shifts or changes in technology, and can
go on to create a defensive posture aimed at
preserving your competitive position

MICRO ANALYSIS..Michael Porters 5-Forces on the

state of competition
Barriers to entry eg new players
(High, Medium, Low)
High, Medium, Low
Power of Suppliers
eg. Distributors
Suppliers
(High, Medium, Low)

Industry
Rivalry

Power of Buyers eg
customers
(High, Medium, Low)

Threat of substitutes eg cheap replaceable product

(High, Medium, Low)

Buyer Power
- This relates to the bargaining powers of customers.
- If buyers are united Buyers power is High
Not united Buyers power is Low
- If too many suppliers Buyers power is High

Supplier Power

- When few suppliers sell to a large customer. Sellers

power is High.
- Example : Oil companies

Barriers to Entry
- This relates to the extent new competitors can
enter the market. If cost of entry is Low, then threat
of new entrants is High.

Threat of Substitutes
- Increase use of email has affected the traditional
mail .eg electronic security system in place of security
guards

Industry Rivalry
- It depends of the number and size of competitors,
level of exit barriers, industry life cycle and cost of
investment.

Barriers
To Entry

Economies of scale
Product
differentiation
High capital
requirement
High switching cost
No access to
distribution channel
Government policy
Expected retaliation

SUPPLIER
POWER
Who are likely
to be powerful, exert
power by :
Threatening to raise
price or quality
Threaten to cut
supply

Supply industry is
dominated by a few firm
Supplier products have
few substitutes
Existing buyer is not
important customer to
supplier
Suppliers product is an
important input to buyers
product
Supplier product have high
switching cost
Supplier pose credible
threat of forward
integration

BUYER POWER
Who are likely to be
powerful because
they are united :
Bargain down price
Force higher quality
Play firms off each
other

Buyer concentrated to a
few relative to seller sales
Buyer buys huge forms
a significant portion of
supplier sales
Products are
undifferentiated
Buyer face low switching
cost
Buyer pose threat of
backward integration
Quality not an issue
Buyer have full
information

THREAT OF SUBSTITUTES

Product with similar

function, limit the price
firms can charge

e.g. Electronic security

system in place of
security guards
e.g. Email instead
of snail mail

Intense rivalry often plays out in the following ways :

Jockey for strategic position

Use price competition
Advertising battles
Increase service warranties
Make new products in rapid succession

Possible outcomes
Price competition makes the entire industry
worse off
Advertising battles, may increase the demand, but
can be costly to smaller firms

Cutthroat competition is more likely to

occur when :

There are many equally balanced competitors

Slow growth industry
High fixed cost
High storage cost
Lack of differentiation or switching cost
Capacity added in large increment
Diverse competition
High strategic stake
High exit barriers

Assumptions
oWhat assumption do our
competition hold about the
future of the industry and themselves

Current Strategy
oDoes our current strategy support
changes in the competitive
environment

Future Objectives
How do we rate our goals compared to
our competitors goals

Capabilities
How about our capabilities compared to
our competition

Response
What will our competitors
do in the future
Where do we have a
competitive advantage
How will it change our
relationship
with our competitors

CURRENT STRATEGY
How are we currently competing
Does this strategy support changes
in the competitive structure to create
a positive sum game or zero sum game

What is competitor doing

What can the competitor
do

FUTURE OBJECTIVES
How are our goals compared to our
competition
Where do you see yourself in the future
What is the attitude towards risks

What will drive the

competition

ASSUMPTIONS
Do we assume the future to be
volatile/stable
What assumptions do our competitors
hold about the industry and themselves

What does the competitor believe about

itself and the industry eg going to be
more attractive, more challenging or is it
going to transform

CAPABILITIES

What are the

competitors strength
and weakness
How are our capabilities
compared to our
competitors
What are the
competitors capabilities

RESPONSE
What will be the competition
doing in the future
Where do we have a
competitive advantage
How will it change our
relationship with competitors

The Five Competitive Forces That Shape Strategy.mp4

Amazon Internal-External Analysis.mp4

Consumer Behaviour analysis: Possible questions

Who are your primary, secondary and tertiary target market

What are their personal, social, cultural, psychological
characteristics
Where are they located and how can we gain access to them
How are they most likely to respond to your product
Why are we attracted to them and why are they attracted to
us.
Do we have the resources well aligned to manage them
efficiently
In what way will they impact on growth, market share and
profitability in the short, medium and long term

CUSTOMER BEHAVIOUR ANALYSIS

Why you need to understand customers Personal, Social,
Cultural and Psychological characteristics

Contributors of bottom line.

Build and reinforce loyalty can ward-off competition
Provides opportunities for profit expansion and
market growth (line and depth extension)
To this end, you need to understand customers
varying needs and their perception of risks.

Customer Expected Needs

(Wanting a economy car)

Stated Needs
Their
needs
are
wide &
varied

Real Needs
Unstated Needs
Delight Needs
Secret Needs

want a budget car

low operating cost
Low cost after sales service
any free gifts
eg. 1 year free service
seen by friends as savvy and
smart buyer eg choice of
metalic colours

RISKS
Their perception towards risks is equally large
1.
2.
3.
4.
5.

Performance risks
Physical risks
Ego risks
Timing risks
Finance risks

Factors influencing Consumer Behaviour

PESTEL

Cultural
factors

Social
factors

Personal
factors

Psychological
factors

Buyer

plus
Existing
Marketing
Mix
4Ps,7 Ps
or 9Ps

Culture
Sub-culture
Social class

Reference
groups
Family
lifestyle
Roles &
status

Age
Occupation
Economic
situation
Personality
Self concept

Motivation
Perception
Learning
Beliefs &
values

Initiator
Influencers
Decider
Buyer
User

LEVEL OF INVOLVEMENT MODEL

Level of Involvement
Low
Significant

Differences
Between
Brand

Not
Significant

High

Variety seeking
Products
eg. Coke,
Chocolate

Complex Products
eg. Cars
Computers

Habitual Product
eg. Rice, Sugar

Dissonance
reducing product
eg. Furniture set
Funeral plot

Types of Decision Making Process

LIMITED
Decision Making
Process

Problem recognition

EXTENDED
Decision Making
Process

Problem recognition

HABITUAL
Decision Making
Process

Problem recognition

Information search
Evaluation

eg: Habitual product

Evaluation
Purchase
eg: Variety seeking
product

Purchase

Purchase
Post - Purchase
Cognitive
consonance

Cognitive
dissonance

eg: Complex and dissonance

reducing product

Do all consumers go through the 5 stages:

Answer : No
Depending on:
1.
2.
3.
4.
5.
6.

Type of product
Type of customer eg. rich and poor
Depending on price of product eg. expensive, cheap
Depending on voice factors eg. peer group influence
Power of brand image
Depending on rational, emotional purchase
or likeable (impulse)
Depending on the type of culture eg. Western culture
Vs Eastern culture.

Organisational Buyer Behaviour

Government Market

3 types
Organisational
market

Commercial Market

Institutional Market
School, Hospital, Prison

Characteristics of Business Market

a) Market structure and demand
- Few but larger buyers
- Customers more geographically located
- Buyers demand is more derived demand
- Demand is inelastic not drastically affected by price changes,
at least in the short run.
- Fluctuatation mostly based on global demand and supply.
b) Decision Making Unit (DMU)
- Involves a group of key decision makers from different depts
- More professional and rational in their thinking
c) Decision Making Process
- More complex
- More formal
- Building relationship is an important component

Factors that influence Organisational

Buyer Behaviour
External factors
Environmental factors PESTEL plus
customer and competitors, distributors and suppliers

Organisational influences
Organisational climate
a)
Status - size of company
economic status (leader, challenger or

follower)
culture of the organisation

b)

Goals - its strategic direction market penetration

or market development- differentiation or cost
leader ( profit maximisation, increase market share,
consolidate)

c)

Structure - who is what - authority

- work flow how a quotation flows

d)

Buying Technology - buy bulk or JIT or via a

out-sourced company

Buyer Centre Influence

User

Influencer

e.g.
Purchasing
Production executive
supervisor

Buyer

Decider

Purchasing
manager

Director
supply chain

Gatekeeper
Secretary

Interpersonal Interaction
Behaviour
professional or easy going
Relationship
formal, casual
Group process
leadership
management by consensus or
autocratic
Individual Participant Influence
Personality
Motivation
Attitude

Types of Purchase

- Straight rebuy
- Modified rebuy
New Task

Organisational Decision Making Process

Problem Recognition
General Need Description (determining the general need)
Product Specification
Search for Potential Supplier
Proposal Solicitation (Evaluation of Supplier)
Selection of Supplier
Establishment of Order Routine (ask for formal
quotation P.O)
Review and Feedback

Internal Analysis (Internal Audit)

AIM:
- assist in the development analysis, planning, implementation & control and MAXIMISE
PROFITABILITY
- provides a basis for developing a SMARTER approach
TO BE SUCCESFUL:
Audit should be
- need top management support
comprehensive,
- managerial skills and funds
systematic, independent
must need be allocated
& periodic
- management must take a long
term perspective

The marketing environment that directly impact the

organisation business market, customer, competition,
distribution, dealers (Agents) and supplier and
PROFITABILITY
Marketing
Strategy
Audit

Marketing
Productivity
Audit

Audit
Marketing Function Audit
within and between HR,
Finance, Production &
External Partners

Marketing
Organisation
Audit
Marketing
Systems Audit

Purposes
1) Highlight strength and weakness
2) Assist in developing a pro-active culture

Audit assists in focusing strategically on the

Internal & External factors
Strength & Weakness Internal
Opportunities & Threat External
Identify the Opportunities gap
Strength gap
Weakness gap
Threat gap
Build on your Strength & Opportunities
Same time continuously work to eliminate your
Weakness and Threats