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Dr.L.Prakash Sai

External Analysis

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Environmental

Variables

Hierarchy of

Strategy

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Strategic Decision-

Making Process

A

A

Identify relevant elements: PESTEL Analysis

Consider the general environment surrounding many

businesses under six main headings:

– Political

– Economic

– Sociological

– Technological

– Environmental

– Legal.

Key point: useful checklist.

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Societal Environment

Economic Forces:

Regulate exchange of materials,

money, energy and information

Technological Forces:

Generate problem-solving

inventions

Political-legal Forces:

Allocate power; provide laws

and regulations

Socio-cultural Forces:

Regulate values, mores, and customs of society

Task environment:

Elements or groups that

directly affect a corporation

and are affected by it

Political

•Ecological/environmental issues

•Current legislation home market

•Future legislation

•European/international legislation

•Regulatory bodies and processes

•Government policies

•Government term and change

•Trading policies

•Funding, grants and initiatives

•Home market lobbying/pressure

groups

•International pressure groups

•Wars and conflict

Economic

•Home economy situation

•Home economy trends

•Overseas economies and trends

•General taxation issues

•Taxation specific to product/services

•Seasonality/weather issues

•Market and trade cycles

•Specific industry factors

•Market routes and distribution trends

•Customer/end-user drivers

•Interest and exchange rates

•International trade/monetary issues

PEST Analysis

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Social

•Lifestyle trends

•Demographics

•Consumer attitudes and opinions

•Media views

•Law changes affecting social factors

•Brand, company, technology image

•Consumer buying patterns

•Fashion and role models

•Major events and influences

•Buying access and trends

•Ethnic/religious factors

•Advertising and publicity

•Ethical issues

Technological

•Competing technology development

•Research funding

•Associated/dependent technologies

•Replacement technology/solutions

•Maturity of technology

•Manufacturing maturity and capacity

•Information and communications

•Consumer buying mechanisms/technology

•Technology legislation

•Innovation potential

•Technology access, licencing, patents

•Intellectual property issues

•Global communications

PEST Analysis

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Variables in Societal Environment

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International Societal Environments

Forecasting the Environment

Time Series Analysis: Examines the effect of selected trends on key

business variables (costs, sales, etc.).

Delphi Technique: Pool the opinions of experts about the nature of

trends.

Judgmental Forecasting: Obtain information from a variety of sources,

although conclusions can be difficult.

Multiple Scenarios: Managers formulate competing scenarios

concerning trends and developing contingency plans accordingly.

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13

Scanning the Task Environment

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Porter’s Approach to Industry Analysis

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New Market Entrants

•entry ease/barriers

•geographical factors

•incumbents resistance

•new entrant strategy

•routes to market

Competitive Rivalry

•number and size of firms

•industry size and trends

•fixed vs. variable cost bases

•product/service ranges

•differentiation, strategy

Supplier Power

•brand reputation

•geographical coverage

•product/service level quality

•relationships with customers

•bidding processes/capabilities

Buyer Power

•buyer choice

•buyers size/number

•change cost/frequency

•product/service importance

•volumes, JIT scheduling

Product and Technology

Development

•alternatives price/quality

•market distribution changes

•fashion and trends

•legislative effects

Porter’s Approach to Industry Analysis

•Apple developed and owns

the software.

•Apple faces no threat from

the whims of powerful

suppliers (owing to forward

integration).

•Consumers tend to be

susceptible to price sensitivity

and alternative choices.

•Offered by Cingular only (in

USA); switching costs for

customers (service providers)

•Threats from imitators such as LG

and Samsung rather than from new

companies entering the market.

•Software companies such as

Google and Microsoft may pose a

credible threat.

•Consumers need to pay a premium for Apple cachet and

technological convergence when their needs may be

equally met by cheaper alternatives.

•Synaptics and LG products with touch-screen interfaces.

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Six Forces Model

Limitations of Porter’s Model

Assumes the existence of a clear, recognizable industry

Addresses only firms in an industry and does not consider

partner firms

Does not account for the fact that large firms may be able

to modify the industry structure

Assumes industry factors, not firm resources, comprise the

primary determinants of firm profit

Difficult to apply to firms operating in multiple countries

where industry environments vary considerably