You are on page 1of 6

Lecture Week 2 Assessing The Strategic Position.

The External Situation Part 1

Learning Outcomes
To be able to describe the forces in the macroenvironment of an organisation using PESTEL and a range of other frameworks Understand key drivers for globalisation and frameworks for National Com etitive !dvantage "e able to develo Scenarios and e# lain their im lications

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Exhibit 2.1 Layers of the business environment

The Macro-Environment
Diversity-Many di erent in !uences "o#$!e%ityKey PESTEL &nterconnected drivers in !uences S$eed o chan(e Scenarios
Particu!ar!y &")

The Organisation

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

'

PESTEL analysis of the macromacro-environment


There are many factors in the macro-environment that will effect the decisions of the managers of any organisation$ Ta# changes% new laws% trade barriers% demogra hic change and government olicy changes are all e#am les of macro change& To hel analyse these factors managers can categorise them using the PESTEL model&

Political factors. These refer to government olicy such as the degree of intervention in the economy& 'hat goods and services does a government want to rovide( To what e#tent does it believe in subsidising firms( 'hat are its riorities in terms of business su ort( Political decisions can im act on many vital areas for business such as the education of the workforce% the health of the nation and the )uality of the infrastructure of the economy such as the road and rail system&
Political +overn#ent sta,i!ity )a%ation $o!icy -orei(n trade re(u!ations Socia! .e! are $o!icies
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Economic factors. These include interest rates% ta#ation changes% economic growth% inflation and e#change rates& !s you will see throughout the *+oundations of Economics* book economic change can have a ma,or im act on a firm-s behaviour& +or e#am le$ - higher interest rates may deter investment because it costs more to borrow& - a strong currency may make e# orting more difficult because it may raise the rice in terms of foreign currency& - inflation may rovoke higher wage demands from em loyees and raise costs& - higher national income growth may boost demand for a firm-s roducts&
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Economic . "usiness cycles . /NP trends . 0nterest rates . 1oney su ly . 0nflation . Unem loyment . 2is osable income

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Social factors. Changes in social trends can im act on the demand for a firm-s roducts and the availability and willingness of individuals to work& 0n the U3% for e#am le% the o ulation has been ageing& This has increased the costs for firms who are committed to ension ayments for their em loyees because their staff are living longer& 0t also means some firms such as !sda have started to recruit older em loyees to ta into this growing labour ool& The ageing o ulation also has im act on demand$ for e#am le% demand for sheltered accommodation and medicines has increased whereas demand for toys is falling&
1

Sociocultural
. Po ulation demogra hics . . . . . .

0ncome distribution Social mobility Lifestyle changes !ttitudes to work and leisure Consumerism Levels of education

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

10

Technological factors New technologies create new roducts and new rocesses& 1P4 layers% com uter games% online gambling and high definition T5s are all new markets created by technological advances& 6nline sho ing% bar coding and com uter aided design are all im rovements to the way we do business as a result of better technology& Technology can reduce costs% im rove )uality and lead to innovation& These develo ments can benefit consumers as well as the organisations roviding the roducts&

Technological
. /overnment s ending on research . /overnment and industry focus on technological effort . New discoveries 7develo ments . S eed of technology transfer . 8ates of obsolescence

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

11

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

12

Environmental factors Environmental factors include the weather and climate change& Changes in tem erature can im act on many industries including farming% tourism and insurance& 'ith ma,or climate changes occurring due to global warming and with greater environmental awareness this e#ternal factor is becoming a significant issue for firms to consider& The growing desire to rotect the environment is having an im act on many industries such as the travel and trans ortation industries 9for e#am le% more ta#es being laced on air travel and the success of hybrid cars: and the general move towards more environmentally friendly roducts and rocesses is affecting demand atterns and creating business o ortunities&
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Environmental
. Environmental rotection laws . 'aste dis osal . Energy consum tion

13

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

1'

Legal factors These are related to the legal environment in which firms o erate& 0n recent years in the U3 there have been many significant legal changes that have affected firmsbehaviour& The introduction of age discrimination and disability discrimination legislation% an increase in the minimum wage and greater re)uirements for firms to recycle are e#am les of relatively recent laws that affect an organisation-s actions& Legal changes can affect a firm-s costs 9e&g& if new systems and rocedures have to be develo ed: and demand 9e&g& if the law affects the likelihood of customers buying the good or using the service:&
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Different categories of law include: Consumer laws; these are designed to rotect customers against unfair ractices such as misleading descri tions of the roduct Competition laws; these are aimed at rotecting small firms against bullying by larger firms and ensuring customers are not e# loited by firms with mono oly ower Employment laws; these cover areas such as redundancy% dismissal% working hours and minimum wages& They aim to rotect em loyees against the abuse of ower by managers Health and safety legislation; these laws are aimed at ensuring the work lace is as safe as is reasonably ractical& They cover issues such as training% re orting accidents and the a ro riate rovision of safety e)ui ment
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

15

1*

Macroenvironment PESTEL 1!
Legal
. Com etition law . Em loyment law . <ealth and safety . Product safety

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

1/

E%hi,it 222
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

10

Macroenvironment PESTEL 2!
Po!itica!
+overn#ent sta,i!ity )a%ation $o!icy -orei(n trade re(u!ations Socia! .e! are $o!icies

Macroenvironment PESTEL "!


Sociocu!tura! )echno!o(ica!
+overn#ent s$endin( on research +overn#ent and industry ocus on techno!o(ica! e ort 4e. discoveries 8deve!o$#ents S$eed o techno!o(y trans er 9ates o o,so!escence
20

Econo#ic
3usiness cyc!es +4P trends &nterest rates Money su$$!y &n !ation 5ne#$!oy#ent Dis$osa,!e inco#e
11

Po$u!ation de#o(ra$hics &nco#e distri,ution Socia! #o,i!ity Li esty!e chan(es 6ttitudes to .or7 and !eisure "onsu#eris# Leve!s o education
E%hi,it 222

E%hi,it 222
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Macroenvironment PESTEL #!
Environ#enta!
Environ#enta! $rotection !a.s :aste dis$osa! Ener(y consu#$tion

Le(a!
"o#$etition !a. E#$!oy#ent !a. ;ea!th and sa ety Product sa ety

What Are Key Drivers for Change? Key drivers for change are environmental factors that are likely to have a high im act on the success or failure of strategy&

4ote a PES)EL is not <ust a !ist o in !uences :e need to understand 7ey drivers or chan(e .hich have di erentia! i#$acts on industries, #ar7ets and or(anisations -ocus is on the uture i#$act o actors =e2(2 scenario $!annin( )he co#,ined e ect o so#e actors !i7e!y to ,e #ost i#$ortant
E%hi,it 222
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

21

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

22

Drivers of Globalisation

Porter>s Dia#ond
)he Deter#inants o 4ationa! 6dvanta(e

See E%$!orin( "or$orate Strate(y, 20002$301 or 2005 edition?$/1


Source: M2 Porter, Competitive Advantage of Nations, Mac#i!!an, 11102 23

E%hi,it 22'
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

2'

$eterminants of %ationa& '(vantage


Some nations are more com etitive than others
+ostering domestic competition

S)E%'*+O PL'%%+%,
Detailed and plausi le views of future develo ment of environment% based on grou ings of !ey environmental influences and drivers of change about which there is a high level of uncertainty 2ifferent views of ossible futures Long term view of strategy See <andbook7"lackboard site for the stages in develo ing scenarios and the illustration ="uilding Scenarios> in the core te#t =E# loring Cor orate Strategy> ? =Scenarios in the Bio Sciences page 58
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

So#e industries .ithin nations are #ore co#$etitive than others Clusters o or(anisations ro# the sa#e industry8sector
=Porter 1110,1110)
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

25

2*

Scenario Planning
!s strategists we should recognise that an industry analysis does not necessarily end with a PESTEL7+ive +orces etc& 'e often have to develo future ossible scenarios es ecially when dealing with high levels of uncertainty The first ste is to identify the key factors which act u on the industry ? focusing in articular u on those that will have a high impact and are uncertain in nature
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Scenario P&annin cont.


Step "ne: 0dentify between @ to A key trends ? +rom PESTEL7+05E +orces etc Step Two: 0dentify and list forces likely to have an high im act on the industries future develo ment& 9list as many as you can think of: Step #: S lit these into two categories$ 'hich of these are Certain Uncertain Step $our: 0dentify different ossible futures by each of the factors with the highest likely im act and the greatest uncertainty 9try to come u with 4 to @: Step $ive: +or each of the above in ste B identify in columns
"ig Positive change 9i: CDDD EDDD C& "enign Change E& 1oderate Change 4& <ostile Change No Change9ii: "ig negative change9iii:

Step Si%: +inally develo the scenarios based on the three ossible future states for a

See e#am le in core te#t e# loring cor orate strategy and "lackboard week E
2/ 20

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

+n(ustries an( Sectors


Industry @ a (rou$ o ir#s $roducin( the sa#e $rinci$a! $roduct, e2(2 #o,i!e $hones Sector @ a (rou$ o or(anisations $rovidin( the sa#e 7inds o services, e2(2 hea!thcare

)hanging -oun(aries of +n(ustry


Convergence
Previously se arate industries begin to overla in activities% technologies% roducts and customers Su ly-led% e&g&
bundling and unbundling of sectors in ublic services e#ternally driven by government regulation e#ternally driven by e-commerce trends

Competitive forces in the industry$


2etermine attractiveness of industry !ffect the way individual com anies com ete 0nfluence decisions on roduct7market strategy

2emand-led% e&g&
Substitution of one roduct by another Customers want bundling of com lementary roducts

Creates new market segments


Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

21

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

30

)om.etitiveness
"usiness
/aining advantage over com etitors
Com etitive advantage

Environment Part ! Key Points


PESTEL identifies key drivers of change Scenario lanning involves building u on a PESTEL analysis to hel develo strategies by redicting future uncertainties on im ortant drivers in terms of their environmental forces and levels of im ortance Environmental analysis identifies o ortunities and threats Scenario "uilding Portfolio !ssessment NoE

Public sector
2emonstrable e#cellence in service delivery
6ssess attractiveness o di erent industries8sectors &denti y sources o co#$etition in an industry8sector

Porter>s -ive -orces @ 4e%t :ee7


Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

31

Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

32