4 - The External Environment Flashcards
What are Taleb’s black swans?
Unknown unknowns
What can we do re. black swans when developing strategy?
Have a generic plan of how we will deal with their inevitable emergence
3 categories of risks/uncertainties that business face
- Environmental
- Technological
- Human
4 layers of boundary within which an org operates
- Organisation
- Competitors and markets (micro)
- Industry or sector (micro)
- Macro environment
What is changeability re. the external environment?
The degree to which the external environment is likely to change
What is predictability re. the external environment?
The degree to which macro changes can be predicted
What is PESTEL used for?
A model for the analysis and deeper interrogation of the macro environment
What does PESTEL stand for?
Political
Economic
Socio-cultural
Technological
Environmental
Legal
How is PESTEL analysis most frequently presented?
Tabular structure (additional column to further expand / refer back to the org being considered)
Which PESTEL is most important / significant?
This is completely dependent on the org in question, their priorities/mission, and the sector that they exist in
4 common forces under first E of PESTEL
- Interest rates
- Currency exchange rates
- Inflation rates
- Economic growth rate
2 key aspects of S within PESTEL
Demographics (eg. ageing population, more people to look after, less people willing to look after them)
Wealth distribution (greater wealth disparity constraining areas of consumption)
3 key forces within T of PESTEL
Tech push or market pull (will tech aid us in effective business or force us down a particular route)
People skill divergence (need for technologically capable individuals must be recognised, many ordinary jobs will be done by robots)
Diffusion (process and timing of spread of use of certain technology)
3 aspects of second E of PESTEL
- Sustainability and stewardship
- Global warming
- Public conscience
4 specific legal areas to consider re. PESTEL
- Labour and employment laws
- Environmental protection legislation and consumer regulation
- Finance, taxation and reporting requirements
- Ownership, merger and competition law
3 types of forecasting - Johnson (2017)
Single-point forecasting
Range forecasting
Alternative futures forecasting (number of fixed-point outcomes)
What is single-point forecasting? (2)
There is a single future figure or result we are using as a benchmark
Requires resolute confidence about future
What is range forecasting? (2)
Range of possible outcomes we are benchmarking towards
High level of risk along route
What is alternative future forecasting?
There are a defined number of fixed-point outcomes we are using as a benchmark
Key point to consider initially when considering micro environment
Dynamics of competitive marketplace - where industry sits between monopoly and perfect competition
Along with the ‘dynamics of the competitive marketplace’, what should be considered in respect of the micro environment?
The business lifecycle
4 stages of business lifecycle - and short line on planning for each
Introduction (lots of strategic planning towards growth)
Growth (planning in anticipation of maturity levels)
Maturity (planning for volume maintenance and anticipation of decline)
Decline (planning for next growth phase, or new products/markets)
Which model is used to analyse macro environment?
PESTEL
Which model is used to analyse micro environment?
Porter’s 5 forces
What are Porter’s 5 forces - diagram
Potential
new
entrants
I (arrow down)
Supplier Existing Customer
bargaining > competition < bargaining
power power
I (arrow up)
Substitute
products
Definition - Porter’s 1st force - existing competition
The existing rivalry between the current players in the market
Definition - Porter’s 2nd force - supplier bargaining power
The relationships with those who supply all the resources to enable production, including tangible and intangible resources
Definition - Porter’s 3rd force - customer bargaining power
The relationship with customers, and how easily they can find an alternative
Definition - Porter’s 4th force - new entrants
How easy or difficult it is for new entrants to enter the market
Definition - Porter’s 5th force - substitute products
The availability of an alternative product, which is either a direct alternative (or very similar product) or the same product with different branding
What is horizontal of Porter’s 5 forces diagram based around?
Supply chain of operation
What is vertical of Porter’s 5 forces diagram based around?
Dynamics of competitive marketplace
5 aspects of existing competition - Porters 1st force
- Relative strength and range or players in arena
- Rate of growth/decline
- Differentiation of products
- Fixed costs for entry
- Ease of exit
4 influences on supplier bargaining power - Porter’s 2nd force
- Number of potential suppliers
- Reliance upon production expertise of specific supplier/s
- Operating margins of suppliers
- How dependent supplier is on their own suppliers
4 influences on customer bargaining power - Porter’s 3rd force
- Number of potential buyers
- Bespoke nature of customer requirement (reduced if more specific as less suppliers to go to)
- Ability to ‘make’ rather than ‘buy’
- Are they buying to supply? > reduced
6 barriers to market entry for potential new entrants - Porter’s 4th force
- Economies of scale
- Product differentiation (need for USP)
- Capital requirement
- Customer persuasion (likelihood to leave current supplier)
- Government policy (re. competition or consumer protection)
- Organisational strength (of existing players)
Substitute products - Porter’s 5th force
2 reasons why consumer may move to substitute
Better price point
Different branding
4 elements of the impact of people when considering dev of strategy
- Human psyche (ethics morals, etc.)
- Workforce reliance on technology
- Impact of the media
- Certain orgs becoming of ‘public interest’ and therefore progress manipulated by govs etc. to ensure non-failure
Answer table for Porter’s 5 forces - 3 headings to use
- Factor
- Definition
- Issues to consider (re. case study)
When else might PESTEL be needed when not obvious? (2)
To allow for scenario planning
To analyse the market (market means external environment)
What is scenario planning?
A technique that can be used when a company has a block of info in a dynamic environment (PESTEL knowledge), and can consider what might happen next. They can then consider the strategic implications and take decisions based on scenarios.
Often, a scenario planner is identifying potential risks (negative scenarios)
