The Business Industry Environment
The Business Industry Environment: Know the Business You’re In
How well do you know your business industry environment? One of the fundamentals of good management is understanding the business you are in and, the wider industry environment in which your organization operates. Knowledge of these can help you answer some vital questions, such as: what are the trends in your industry, and what changes in the wider environment present opportunities or threats to your organisation? To answer these and other questions you need to be able to study the context or your business industry.
So how do you analyze your business industry environment? The experts suggest that you use a variety of analytical tools and frameworks. There are several good reasons for using these. Firstly, they are widely used in management so, like it or not, you should try to become familiar with the language of business strategy. These tools are more than just jargon though, they provide managers with practical aids to help them become better at their jobs. They help us to make sense of complex ideas, detailed information and broader trends, which will impact on our organizations. Finally, they can help to provide insights and maybe spark our own intuitive ideas on what to do now, and what to do next. These will all help you to understand and develop a business strategy.
Underpinning any business strategy is awareness and analysis of environmental factors. One way to make sense of the business industry environment is to consider it in terms of three distinct layers. These are known as the internal environment, the sector/industry environment, and the macro environment.
The Internal Environment
This is about your own organization. Analyzing your internal environment means looking at the systems, resources, knowledge, skills and activities of your organization and its people. Taking a strategic approach to this environment means considering how all these factors can be controlled and deployed to meet opportunities in the market place, and even to shape and lead that market. This is the one environment over which the organisation as a whole has most control. Understanding and managing the internal environment can help you both shape strategy, and organise and direct resources to achieve what you want. However, to do so with any degree of success requires an understanding of the world outside, that is the external environments.
The Sector/Industry Environment
This is the external environment closest to the organisation itself. It is the business industry environment in which your organisation operates. It includes your customers/clients, suppliers and partners. It also includes competitors, those organisations that compete for your customers or offer alternative approaches to your services.
Analysis of this environment requires a good look at who your customers are and what they really want, at your competitors (and potential competitors), at your collaborators and the opportunities that these relationship present. Your findings and judgements can then be used to help you to achieve your business goals.
The Macro Environment
The broadest layer of business industry environments is often referred to as the macro-environment. This relates to political, socio-cultural, technological, eco-environmental and legal factors that impact, to a greater or lesser extent, on all organizations (see our forthcoming article on PESTLE analysis).
Analyzing and asking questions about the macro environment is another critical activity in strategic management. Is the country/region going through a boom or recession? What’s happening to unemployment? What is the impact of legislation, either local or in your target market? What are government spending targets? What about population trends in your working locations and in relation to your customers? How will these affect labour supply or your customer base? What do any of your findings mean in relation to you or your organization? Are they opportunities or threats?
Organizations don’t exist in a vacuum. Organizational environments are constantly changing and being aware of those changes is crucial for any manager. Developing an understanding of your business industry environment is the first step towards developing your strategy. Analyzing the information and intelligence you gather from this understanding is the next step you need to take, to inform your business goal setting. Find out more about business planning by reading our series on the subject, starting with Business Goal Setting: Using the F-Plan.