In our last video we spent some time discussing the general environment.
As the first type of external environment that influences a business, the general environment
includes the economy, as well as technological, sociocultural, and political/legal trends
that indirectly affect all businesses.
For a more in-depth discussion of the general environment you can access Episode 145 The
General Environment using the link at the top of your screen.
In this video we're going to spend some time reviewing the second external environment,
the specific environment.
While the general environment includes factors that indirectly affect all businesses, the
specific environment includes those factors that directly affect how a business operates.
Components of a businesses specific environment include customers, competitors, suppliers,
industry regulations, and advocacy groups.
Evaluation of these areas provides business managers with a more accurate understanding
of the opportunities and threats to their business.
The first component of a businesses specific environment are their customers.
Without a sufficient customer base, businesses would fail to sell enough goods and services
to cover their operating expenses.
As a result, it's important that businesses scan their specific environments for changes
related to the wants and needs of their customers.
This can be accomplished in two different ways.
The first is referred to as reactive customer monitoring.
Under reactive customer monitoring, issues and other trends related to customers are
addressed as they arise or reactively.
Practically, this can be accomplished through customer service surveys, post-purchase follow-up
calls, online forums, and even corporate Facebook pages.
Responding quickly to customer complaints can allow the business to maintain goodwill
with its customers and increase the chances of continuing the relationship.
In addition to engaging in reactive customer monitoring, businesses can also employ proactive
customer monitoring.
Unlike reactive customer monitoring, proactive customer monitoring involves identifying customer
issues and needs before they actually occur.
This may seem a little bit like trying to predict the future, but recent improvements
in technology have allowed businesses the opportunity to transform piles of data into
useful information.
For example, Target is able to analyze consumer purchase behavior to accurately predict whether
or not a female customer is pregnant, and if so, how far along she is.
This allows Target the opportunity to send promotional offers unique to that customer
and drive up sales.
Now maybe this is a little intrusive depending upon your position, but Target is certainly
being proactive at identifying the needs of their customers.
The list of businesses that utilize data to identify customer needs isn't unique to Target
alone, as many businesses are looking to better cater to the needs and wants of their customers
The second component to a businesses specific environment are competitors.
Competitors include businesses that operate in the same industry and sell similar goods
and services.
So by this definition, competitors of Target would include Walmart, Costco, and even Kmart.
But also remember that indirect competitors should also be assessed as they serve as possible
threats.
Because these businesses cater to similar customers, they need to accurately evaluate
the actions of their competitors and determine their strengths and weaknesses.
This is referred to as a competitive analysis, and is critically important if a business
intends to adapt to the actions of its competitors and ensure that they're doing a better job
of satisfying customer needs.
Retailers like Macy's, Walmart, and others are looking for ways to adapt to Amazon's
dominant presence in the arena of online shopping.
Instead of building a vast network of distribution centers to mirror Amazon's operations, Macy's
is attempting to leverage its vast network of brick and mortar locations to fill online
orders.
Orders submitted through macys.com are routed to the closest store, where a Macy's employee
grabs the item off the store shelves, packages it, and gets it ready for shipping.
Although the impact of such actions is yet to be determined, they represent the ability
of business manager to evaluate competitors and look for possible opportunities for their
own businesses.
The next component consists of suppliers.
Suppliers are companies that provide the inputs that other companies need to produce outputs.
These inputs can take the form of actual materials like cotton and lumber, human resources like
IT support, as well as financial resources.
In this area, the important thing for business managers to evaluate is how dependent they
are on a particular supplier for resources.
Companies that have a high amount of supplier dependence are reliant on their suppliers
for certain resources.
For example, suppliers may be limited in number, resulting in somewhat of a monopoly for the
supplier.
The problem is being overly dependent on a supplier can put the business at risk to pay
higher prices since they have really no viable alternative.
Also, if operational issues occur with the supplier the business is at greater risk to
incur disruptions of its own.
In addition to being overly dependent on a supplier, businesses can be overly dependent
on a buyer, which is referred to as buyer dependence.
This often is caused due to a limited number of buyers in a market.
Take for example the businesses that contracted with the U.S. federal government for various
services.
During the partial government shutdown in October, many of these businesses were forced
to furlough and even layoff employees because so much of their revenue was derived from
the U.S. federal government.
The fourth component of a businesses specific environment is industry regulation.
You're probably thinking that this sounds a little redundant, given the general environment
already encompasses regulation in the political and legal component.
The difference between these two, is that the political and legal component to the general
environment includes changes and trends that affect all businesses.
In the specific environment, we're looking solely at regulation changes that impact businesses
in specific industries.
Take for example the Securities and Exchange Commission, commonly referred to as the SEC.
Businesses that offer brokerage services that allow consumers to purchase different securities
must consider the regulations imposed by the SEC as a part of their specific environment.
However businesses that are not involved in the area may care very little about the actions
taken by the SEC.
The fifth and final component of the specific environment are advocacy groups.
Advocacy groups include groups of individuals who join together to influence business practices
in certain areas.
Advocacy groups of significant in number, and are present in areas such as gun control,
environmental preservation, and consumer privacy.
Just recently the Federal Communications Commission, or FCC, proposed that airline passengers be
allowed to utilize cell phones on flights as the technology posed no risk to the aircraft.
While it appeared that we would eventually get the opportunity to make phone calls via
our cell phones on flights, several advocacy groups spoke out about the concerns associated
with such activity.
Everyone from pilots organizations, to flight attendants, to concerned consumers spoke out
vehemently about the use of cell phones on airplanes.
After all, who really wants to be stuck on a four hour flight next to someone talking
loudly on their cell phone.
While evaluating this area, business managers need to determine whether or not the actions
that they take can produce backlash from certain groups.
Although it's impossible to appease everyone, managers should at least ensure that a majority
of stakeholders are agreeable to actions so that they don't tarnish the image of the company.
Together these five components make up a businesses specific environment.
And by thoroughly evaluating their specific environment, business managers can put themselves
in a position to capitalize on changes or trends.
Failure to do so, can threaten a businesses ability to compete effectively in their market.
Now that we've discussed both areas of external environments, our next video will be devoted
to actually evaluating the ever changing environments that businesses operate within.
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Thanks for watching.