Business Environment Analysis and Risk Management

This report covers the internal and external environment analysis of McKinsey & Company using SWOT, VRIO, PESTEL and Porter's Five Forces analysis. It also includes a business risk assessment and action plan management. The report provides insights into the strategic requirements of business organizations and ways to manage risk-laden situations.

BUSINESS ENVIRONMENT
ANALYSIS AND RISK
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION................................................................................................................................3
TASK 1.................................................................................................................................................3
Internal environment analysis using SWOT analysis model and VRIO framework........................3
TASK 2.................................................................................................................................................6
External environment analysis using PESTEL and Porter's Five Forces analysis...........................6
TASK 3.................................................................................................................................................9
Business risk assessment and Action plan management..................................................................9
CONCLUSION...................................................................................................................................11
REFERENCES...................................................................................................................................12
Books and Journals.........................................................................................................................12

INTRODUCTION
Business environment analysis refers to a professional framework of identifying and
analyzing the strategic requirements of business organizations. Every business firm comes across
risk laden situations that need to be countered and managed. The following report will cover these
areas of environment analyses, its associated risks and ways to manage it (Maksimov and et.al.,
2020).
The chosen organization for this research study is McKinsey & Company – a global
management consultancy firm that was founded by James O. McKinsey in 1926. The firm provides
quick and efficient management counsels to numerous business institutions. The following report
will analyze McKinsey's business environment by carrying out its internal and external analysis
with suitable models. The report will also conduct a risk assessment with its management action
plan.
TASK 1
Internal environment analysis using SWOT analysis model and VRIO framework
SWOT ANALYSIS
SWOT is an acronym which stands for Strengths, Weaknesses, Opportunities, and Threats
and is used as an evaluative framework of a company's strategic position.
Strengths
The major strengths of McKinsey lie in its sustainable approach towards using its capital
and human resources. The firm has a diverse set of service portfolio that targets a wide range of
industrial sectors and segments. With its London offices set in motion, the management consulting
firm is gloablly renowned for its reputation as an operational consultant in more than 65 countries
(Dias and et.al., 2020). It has a large employee base with several expert solution providers. The
company has a client focused approach in all its business activities that fetches a substantial amount
of customer satisfaction.
Weaknesses
Lack of communication skills in conjunction with a sloppy and bad coordination among its
teams pose a tough competition for McKinsey & Company. This has led to steady increase in its

employee attritionand turnover rate which has negatively impacted the business organization. The
major source of its revenue capital is the consultancy service department that casts a shadow over
its other service sectors making them less profitable. Another of its weaknesses include the firm's
inability in creating innovative work techniques which has unfortunately resulted in an average
performance of its business functions and operations (Benzaghta and et.al., 2021). The McKinsey
organization seems to have been lagging behind its major industrial rivals in terms of its poor
investment rate in the research and development sector.
Opportunities
The major opportunities for the management consultany firm consist of focusing on its
recent acquisition of 'IncepTech' which is Budapest based digital firm. This merger seems promising
for the company as it will significantly help in its global establishment thereby gaining a good
amount of market share. This will provide a clear view of the demand and supply forces which the
consultancy group can use in the procurement and provision of its services. The automation of
technological devices and inputs can also prove beneficial and will help in a cost efficient revenue
generation (Teoli and et.al., 2019). Moreover the Big 3 Management label will solidify its
international growth.
Threats
There are some huge threats challenging the development potential of McKinsey &
Company. These include the widespread competitive presence of its big rival companies such as
Boston Consultancy, Accenture, Endava, etc. which are highly resourceful in enhancing their
business strategies as per the target market. Other pertinent threats comprise the frequent fluctuation
of the fiscal and government policies that hinder its project objectives therefore affecting the
smooth working of its business functions.
VRIO FRAMEWORK ANALYSIS
VRIO is an acronym that stands for Value, Rarity, Imitability, and Organization. It is used
for an internal assessment of an organization's sustainable resources and capabilities such as can be
seen in the context of McKinsey & Company.
VALUE
The McKinsey consultancy group has set up a long term leadership visionin order to
encounter any future challenges. This adds value to its business in the industrial segments and helps
in attracing a lot of potential consumers. In case the company strategizes the diversification of its

various services other than management counseling then it can enhance its economic capacities by
generating more revenue. It also has expertise in localized marketing. Other valuable aspects of the
company are its financial holdings, marketing tools, and operational management base (Chatzoglou
and et.al., 2018).
RARITY
If the organization's resources are not one of a kind or easily accesible then both its current
and future competitors can threaten its successful market position. These are superficial factors that
play a major role in business instability and strategy process. In such instances the McKinsey
company need to have rare and innovative solution at hand such as its employee management
method based on data driven format and positive leadership amisdt its workplace. These factors hint
at a strong competitive edge for the firm.
IMITABILITY
Businesses in the consultancy industry need to have crisis management strategy ready at
hand which allows them to become stable in tough and challenging situations. Although the
incidental rates of imitating the product ranges of McKinsey's is actually low, still there is the
gradual threta of similar production from its competitors along with the threat of substitutes. The
management consultant company has a good brand awareness that cannot be easily replicated
thereby giving itself scope for a realized sustainability factor (Geraldes and et.al.).
ORGANIZATION
Every industry requires an efficient organization at work to increase its internal stronghold
of employee performance. Organizational resources can be assessed by gauging how much a
company can exploit its available resources and whether it has an upside factor with lots of potential
or not. In this regard, the McKinsey firm's resource exploitation is quite good with time to expand
its fiscal budget. Its Human Resources team also prioritizes a knowledge driven workplace
environment.
TASK 2
External environment analysis using PESTEL and Porter's Five Forces analysis
PESTEL ANALYSIS

PESTEL stands for the Political, Economic, Sociological, Technological, Environmental,
and Legal factors that externally affect an organization. The following PESTEL analysis is done to
measure the macro-environmental landscape of McKinsey & Company.
Political Factors
The consultancy firm enjoys good global relations as per the lucrative experience that the
international treaties provide in the trading arena. Political and govenment stability offers varied
industrial resources that the company can put to good use such as conducting offshore business. The
tax based relaxations are also exercised in a profitable manner under which operational functions of
the firm can be exercised properly.
The governmental roles in this industry are adequately at work the result of which is the
regularization of market competition. This helps even the local businesses to run smoothly. At times
the firm might face insignificant trade blocks (Madsen and Grønseth, 2022).
Economic Factors
The economic factors that impact McKinsey comprise of the increasing trend of the
disposable income of its innternational consumers as compared to the USA counterpart. The firm is
constantly trying to leverage it with the use of various campaiging methods. The moderate interest
rates are a good source of loan repayments and budget developments for the business's multiple
departments such as R&D.
This leads to a qualitative consumer spending tendency which leads to the sales growth of its
products and services. Due to a good economic structure the problem of unemployment also
subsides. However, problems of high inflation hinder a sustainable competition (Fosher, 2018).
Sociological Factors
The sociological factors pertain to the changing nature of poulation demographics which
shows that a population pyramid of more young people will benefit the company's consultancy sales
growth. Herein lies the essential factor of class distinctions too portraying that the range from
medium to high class population act as good firm ambassadors and company advocates.
Other social factors such as higher educational rate among consumers is yet another
placement advantage for potential employees. Family size and purchasing structure is a contributing
sociological aspect that determines McKinsey's push and pull marketing strategies. Moreover, the
firm has a lot of CSR initiatives under its belt that ensures health consciousness (Martinez-
Contreras and et.al., 2022).
Technological Factors

The advancement of technological innovation and a sound tech infrastructure has strongly
shaped both the internal and external functions within the consultancy firm. The difficulty arises
when the production process encounters certain connectivity issues such as unreachable Internet
penetration. The company has a differentiated advantage when it comes to employing innovative
business strategies driven by technological advancements such as use of social media and consumer
data feedback channels for effective marketing and monitoring. Another one of the tech related
macro factors is the heavy investment of the firm in its research and development sector that fetches
it high competitive advantage.
Environmental Factors
The organization's production and consumption functions both are based on careful
adherence of the environmental laws such as recycling disposable products in order to mantain a
sustainable standard. Its environmental approach comprises high regulatory methods of waste
control and its associated management. The external environment of the firm consists of its inherent
connections with supply chain distributors, and transportation channels.
These are also managed in a nature friendly manner, for instance, the use of solar energy
panels, hydroelectricity, and the use of green energy production. Such an eco friendly management
supports a clean base for business production with McKinsey's recurrent investments in renewable
energy (Çitilci and Akbalık, 2020).
Legal Factors
The legal factors entail the enforcement of stringent rules and legislative regulations
concerning employee health and safety at workplace. The HR department of the McKinsey business
firm keeps in mind the country wide employment norms that need to be followed through and
through starting from the recruitment process till the time the worker leaves the company.
If these regulations are not kept in line, then the company faces disciplinary penalties. It also
conducts certain training and workshop sessions for the resuscitation of such legal reminders so as
to protect the firm to fall into haphazard practices that might lead to its infringement of laws
(Yusop, 2018).
PORTER'S FIVE FORCES ANALYSIS
The Porter's Five Forces is a business analyzing tool for identifying and assessing the
following five competitive forces which have been analyzed in the context of McKinsey
organization as given below.

Industrial Competitiveness
The competitive rivalry among the global and local industrial markets is extremely high. The
reason to it lies with the existence of some market giants like Unilever, Group Danone, etc. with
their stronghold along with high revenues. One particular market share of the food and beverages
segment involves a good amount of business variation pertaining to its cost and sales. McKinsey
leads the food and drinks sector among others invariably and that is the main reason behind it facing
a high market competition. If this gets intense then the company's ability to thrive gets undermined
(Danemo, 2018).
Threat of New Entrants
Within the industry, there are a lot of factors involved in various functions like
manufacturing, high distribution costs, patenting, qualitative expenses, licensing laws, and more.
These aspects keep the new players in the market (especially the food segment) at bay because the
incurring costs of existing market forces (demand and supply). Moreover, a lack of knowledge
pertaining to consumer needs compared to the current competitors' years long committed
experinece also challeneges the industrial newcomers. The McKinsey firm especially caters to such
a large network of product needs that the there is alwayt a low threat of new entrants (Bruijl and
Gerard, 2018).
Power of Suppliers
The suppliers play a key role in the demand and supply chain of the manufacturing and
distribution. For instance, the foods industry like many others get affected by the powerful position
of suppliers leaving it in a tight spot. But that can't be said for McKinsey & Company as it deals in
such a vast range of products and services that the suppliers rarely complain or bargain. On the
contrary the company strongly believes in maintaining good and longstanding relations with its
contractors that it goes out of way to ensure that its suppliers' needs are also taken care of.
Power of Buyers
The bargaining power of the buyers is high for this company espcially in the media and
entertainment segment due to its high level of competitors and their counter products. The
McKinsey firm can curb this disadvantage by enlarging its customer base otherwise the buyers
might indefinitely wield a high bargaining power through price determination of its media related
services. One good solution to it can be if the company sticks to price control regulation of its
buyers and provide them what they need at minimal costs. This factor that can lower the bargaining
power of its buyers.
Threat of Substitute Products

The threat of substitute products and services are excurciatingly high in this industrial
scenario. This can be seen in the market strategy used by the Nestle organization where the
manufacturers make use of boiled and pasteurized milk thereby offering healthy and flavoured
goods. In a likewise manner, the media and entertainment market also has numerous alternative
online streaming sources and leisure platforms that raise certain powerful threats to the business
management faculty of the company. In order to counter these threats, the firm requires to apply risk
control techniques such as boosting its R&D sector for product innovation (Anastasiu and et.al.,
2020).
TASK 3
Business risk assessment and Action plan management
Every business witnesses ceratin risks in its organizational functions. These are also known
as operational hazards which occur either due to its potentialities or arise from the interruption in
critical managerial processes. These risks can be managed and later on avoided by drafting an
action plan that serves as a risk management tool for businesses for their smooth running
(Willumsen, P., and et.al., 2019). Given below is an action plan of McKinsey & Co. entailing
business risks and their mitigating factors.
RISKS MITIGATING METHODS LIKELIHOOD
1. Technological Hazards: The
McKinsey & Co. firm has been
facing the consequential
downsides of rising technology.
The digital age comes not only
with its organizational benefits
but also disrupt business
objectives. The company at
times experience surface cyber
attacks, viral threats, etc.
This risk can be mitigated with
the help of a unique digital
revolution that the company can
employ in its sitations of crisis.
For instance, it can increase
automated database
management and ensure ethical
standards of business.
HIGH
2. Socio-economic Risks: The
corporate firms have been
facing stakeholder issues in the
The McKinsey company can
take brand new vocal CSR
initiatives for satisfying their
HIGH

form of the fulfillment of
consumer expectations. People
feel that the their preferred
company should take a social
stand for them for example
'Black Lives Matter' campaigns,
etc. Also, the post-Covid era
has triggered real-time credit
problems.
consumers. On the economic
front, it can develop a real-time
creadit monitoring system with
supervised data visbility.
3. Environmental Risks: In
spite of the organization's
sustainable operations, the risk
of environmental problems
affect the business. These are
uncalled for issues such as
governmental pressure for crisis
management, stakeholders'
demands, or much more
importantly sudden natural
disasters.
These environmental risks can
be mitigated by following the
Reduce-Reuse-Recycle model
of waste management.
Preparing a feasible risk
management budget can keep
the government demands
fulfiled. Adopting necessary
disaster management protocols
with rehabilitation strategies
can also help in mitigating this
risk factor.
MODERATE
4. Geopolitical Factors: The
business consultancy firm
operates on a global basis
which involves dealing with
international companies and
customers. This calls for safe
overseas conduct but
unfortunately there are
geopolitical elements such as
terrorism, global epidemics, and
inter-country conflicts that put
the firm at risk.
The company can manage these
risks through adapting its
business functions to a multi-
country facet. Building resilient
monetary and physical plans at
times of crisis can also help
mitigate this.
LOW

CONCLUSION
The above report has conducted a detailed business environment analysis of the chosen organization
– McKinsey & Company. It has analyzed both the internal and external environments of the
management consultancy firm with the application of various analytical models. The SWOT and
VRIO frameworks were suitably applied to gauge the intrinsic environment. Similarly for the
extrinsic analysis the PESTEL and Porter's Five Forces models were used. At last, a risk assessment
of the company was conducted along with its mitigating factors portrayed through an action plan.

REFERENCES
Books and Journals
Anastasiu, L., and et.al., 2020. Is human capital ready for change? A strategic approach adapting
Porter’s five forces to human resources. Sustainability. 12(6). p.2300.
Benzaghta, M.A., and et.al., 2021. SWOT analysis applications: An integrative literature review.
Journal of Global Business Insights. 6(1). pp.55-73.
Bruijl, D. and Gerard, H.T., 2018. The relevance of Porter's five forces in today's innovative and
changing business environment. Available at SSRN 3192207.
Chatzoglou, P., and et.al., 2018. The role of firm-specific factors in the strategy-performance
relationship: Revisiting the resource-based view of the firm and the VRIO framework.
Management Research Review.

Çitilci, T. and Akbalık, M., 2020. The importance of PESTEL analysis for environmental scanning
process. In Handbook of Research on Decision-Making Techniques in Financial Marketing
(pp. 336-357). IGI Global.
Danemo, J., 2018. How is AI influencing industry competition?: An exploration of online retailing
using Porter’s Five Forces Framework.
Dias, C., and et.al., 2020. A SWOT Analysis of Big Data in Healthcare. In ICT4AWE (pp. 256-263).
Fosher, H., 2018. Understanding the Marketing and Management of trails using PESTEL Analysis
(Doctoral dissertation, University of New Hampshire).
Geraldes, R., and et.al., VRIO FRAMEWORK-STATIC OR DYNAMIC?.
Madsen, D.Ø. and Grønseth, B.O., 2022. PESTEL Analysis. In Encyclopedia of Tourism
Management and Marketing. Edward Elgar Publishing.
Maksimov, M.I., and et.al., 2020. Acceleration of business: a comparative analysis of companies
development methods. Journal of Advanced Research in Dynamical and Control Systems.
12(6). pp.2248-2253.
Martinez-Contreras, R.M., and et.al., 2022. Pestel Analysis and the Porter's Five Forces: An
Integrated Model of Strategic Sectors. In Handbook of Research on Organizational
Sustainability in Turbulent Economies (pp. 292-314). IGI Global.
Teoli, D., and et.al., 2019. SWOT analysis.
Willumsen, P., and et.al., 2019. Value creation through project risk management. International
Journal of Project Management. 37(5). pp.731-749.
Yusop, Z.B.M., 2018. PESTEL analysis. COMRAP 2018. p.34.