Introduction

Welcome to week 2 of the course. Last week, we looked at business planning and how ideas are formed. By now, you should all have developed some ideas for a new business venture and will have had time to reflect on how the idea could be developed.

An important step in the assessment of the feasibility of the idea is understanding the environment in which a business operates. This includes the micro and macro environments.

The micro refers to forces that are either within the company itself or the industry concerning the company. For example, a business might need to know about its competitors, developments within its industry or the areas within the company where it needs to make improvements.

The macro refers to the general environment that is not directly relevant to the business, but can still influence business activity. For example, a business might want to understand different social trends or lifestyle habits of a local population. They might also want to identify any legislation that is likely to have an impact on the business.

In order to organise the analysis of the micro and macro environments, we will look at three different tools that can be of great assistance. These are the SWOT analysis, Porter’s five forces analysis and the PESTEL analysis. The SWOT and Porter’s five forces are concerned with the micro environment, whilst the PESTEL investigates the macro environment.

The SWOT analysis explores the strengths and weaknesses of a business and tries to understand the opportunities and threats that may exist for that business. It can be a useful planning tool for managers and can help identify areas where the company can look to improve.

Porter’s five forces look at the competitive situation of a particular industry. The five forces examine the negotiating power of customers (buyers) and suppliers (sellers). In addition, the model seeks to understand the ease of access to a market for new competitors, whether there are any barriers to entry and the threat of alternative products or services. Finally, it assesses the level of competitive rivalry within the industry by exploring factors such as the number of competitors and the market share of each competitor.

The PESTEL analysis examines how broader environmental factors that are largely outside of the control of a business can have an impact on how it operates. For example, interest rates and their impact on loan repayments, technological infrastructure improvements impacting the supply chain, changes in societal values that could affect what a business decides to sell.

Each of these three tools will be discussed separately this week. Learners will have the opportunity to understand the tools in more detail and see how they work in practice. This will be followed up with an opportunity to apply the tools in a practical manner.

The situation audit is an important part of the assessment, so what you learn this week can be directly utilised within your business plan. By the end of this week, you should look to complete a situation audit relevant to the industry in which your proposed business will operate.