BUSI0009 Business Strategy

Lecture 7

External Strategic Position 1

22 May 2008

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Outline of this lecture:

External Environment PESTEL SWOT (OT)

Part One

The External Environment

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The External Environment

The external environment is an essential element of business strategy analysis because of the dependencies organisations have upon their markets and because of the way in which unexpected changes can result in businesses struggling to cope

(Lynch, 2006)

Johnson, Scholes and Whittington, Exhibit 2.1

Layers of the business environment

Part Two

PESTLE

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PESTLE (1)

The Political Environment The Economic Environment The Social Environment The Technological Environment The Legal Environment The Environmental issues

P-E-S-T-L-Ealso called STEP, PEST, PESTEL, STEPPLE,

LoNGPEST

PESTLE (2)

Johnson Scholes and Whittington, 2006 Exhibit 2.2

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Political Considerations

Government stability Type of government

DemocracyAuthoritarian regime

Taxation policy Welfare policy Foreign trade regulations Social welfare policies

Adapted from Johnson, Scholes and Whittington, 2006

Economic Considerations

GDP/ GNP International trade levels

and tariffs National competitive

advantage Money supply Interest rates Disposable incomes Welfare entitlements Unemployment

Inflation Recession/ Depression Exchange rates Interest rates on lending

and borrowing State of stock markets Tax rates Savings incentives Economic Systems

Free market economies Command economies Mixed market economies

Adapted from Johnson, Scholes and Whittington, 2006

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Socio-Cultural Considerations

Adapted from Johnson, Scholes and Whittington, 2006

Population demographicsGender, age, ethnicity, race, religion, working

age population Income distribution Social mobility and stratification Lifestyle changes Attitudes to work and leisure Consumerism Levels of education and training Social Change and Changing Social Attitude

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Technological Considerations

Adapted from Johnson, Scholes and Whittington, 2006

• Government spending on research• Government and industry focus on

technological effort• New discoveries /developments• Speed of technology transfer• Rates of obsolescence• Levels of research and development• Subsidies for research and development

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Legal Considerations

Adapted from Johnson, Scholes and Whittington, 2006

• Competition law• Employment law• Health and safety• Product safety• Environmental protection laws• Business ownership laws• Company law• Disclosure laws• Planning and property law

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Environmental Considerations

Adapted from Johnson, Scholes and Whittington, 2006

• Waste disposal• Energy consumption• Impact of fossil fuels• Raw material resource depletion• Air and soil contamination• Protection of the environment

– conservationrecyclingalternative forms of energy

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Key Aspects of PESTLE Analysis

Not just a list of influences Need to understand key drivers of change Drivers of change have differential impact on

industries, markets, and organisations Focus is on future impact of environmental

factors Combined effect of some of the factors likely to

be most important

Adapted from Johnson, Scholes and Whittington, 2006

Part Three

SWOT

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SWOT

Strengths Weaknesses Opportunities Threats

Internal

External

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Identifying Opportunities

What external trends are there that could be helpful to the organisation? Changes in technology and markets on both a

broad and narrow scale Changes in government policy related to your field Changes in social patterns, population profiles,

lifestyle changes, etc. Local Events

Opportunities usually relate to the organisation’s strengths.

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Identifying Threats:

What external trends are there that could be harmful to the organisation?Obstacles faced? Actions of competitors? Industry or market change? Technology changes?