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What are the key values or benefits of external environment
analysis, and according to you how to apply this analysis to a
business organization?
The external environment of the business
The external environment of annenterprise is a setnof factors, forces, and binding
conditions outsidenthe enterprise that affectnthe existence,noperation, and performance of the enterprise.
The external environment is divided into the macro environment and the industry environment, as follows: 1. Macro environment
The macro environment is anset of factors that affect strategicndecisions and the
longtermnsurvival of an enterprise, including four basicnenvironmental groups: (i)
economic environment; (ii) political-legalnenvironment; (iii) socio-cultural environment; lOMoAR cPSD| 46560390
(iv) technologicalnenvironment; Depending onnthe type and field of operationnof the
business, it isnalso affected by many factorsnof the natural environment,ndemographics,
and internationalnenvironment.
The first is theneconomic environment. The existencenand success of businesses
depend largely on the economicnenvironment, which is composed of three factors:
economicnconditions, economicnpolicies, and economicnsystem. Example: A business
usesnexternal analysis tondetermine the likelihood of an economic downturn in the
comingnmonths. Because of this, they decided to reduce the quantity of products
purchased from a wholesalencompany in anticipation of a slowdown innbusiness.
Second is thenpolitical-legal environment, which also has andecisive legal influence on
businessnoperations. The stability of political factors also affectsnbusiness activities to a
large extent, either creating opportunities or creatingnchallenges. For example: A
business reviews its production process andncompares it with currentnlabor laws that
protectnworkers' rights. They realized that their currentnpractices allowednfactory
employees to come within 3 feet ofndangerous equipment, while current lawnrequired
employees to stay 8 feet awaynfrom dangerous machinery. They modified their practices
so factory workers could performntheir job duties while maintainingnthe required distance.
Third, is the socio-cultural environment, aspectsnthat form thensocio-cultural
environmentnhave a strong influence onnbusiness activities suchnas concepts ofnethics, aesthetics,nand lifestyle,...
Fourth is the technological environment, including the technicalnmethods appliednby
businesses to produce their goods andnprovide services.
Finally, market demographicsnhelp businesses determine whether their currentnproducts
and marketingntactics meet thenneeds of their targetnaudience. Example: A draft beer
company identified its targetnaudience asnmiddle-aged in their 40s, but afternconducting
an externalnanalysis of the marketndemographics, they discoverednthat more than 40%
of sales came from young people in their 20s and 30s. They run an alternativenmarketing
campaign tonattract both types ofncustomers 2. Industry environment
Industrynenvironment is the businessnenvironment in which thenenterprise is operating;
includesna set of factors thatndirectly affect thenbusinessnand are also influencednby the
business. In particular, customers; suppliers; and competitorsnare the factorsnthat
directly and most stronglynaffect a business's industrynenvironment. •
Customersnare individuals andnorganizations that havena need for the
productsnand servicesnprovided by a business. The relationship between customers and
businesses is a reciprocal relationship. lOMoAR cPSD| 46560390 •
Suppliers are individual businesses capable of producing input factors in
theproduction and service provision cycle of businesses. The quantity and quality of
suppliers will affect the quality and price of the products made. •
A business's competitors include currentndirect competitors andnpotential
competitors. Current competitors are businesses in the same marketnsegment that have
an equally strongnposition. Potential competitorsnare businesses that are not currently
competing but stillnhave the abilitynto compete in thenfuture.
Benefits of external analytics
Conducting external analytics can bring many benefits to a business organization. Here are a few common benefits:
1. Encourage business growth in new areas
External analytics can benefit organizations by encouraging them to run their companies
proactively. For example, if a cosmetics company sees a skincare trend among young
people, this may help them decide to expand their business model to include selling
skincare products suitable for each skin type.
2. Helps predict and adapt to change
External analytics help businesses adapt to potential industry changes that could save
their business. For example, a company providing online sales livestream services
changed the way they approached and introduced their products to comply with TikTok's
new regulations. This helps them know that they have a professional and thorough service.
3. Create opportunities to surpass competitors
Performing external analysis can help organizations identify factors they can improve or
change to make a difference. For example, a spa company determines that they offer the
same customer care solutions as their competitors: marketing products and loyalty
programs... However, they can surpass their competitors. Maintain customer base by
hiring skilled personnel, the ability to understand customer needs, and clean, modern care facilities. lOMoAR cPSD| 46560390