4 - The External Environment

Question 1

Chapter 4 learning outcomes

Answer 1

• understand the different operating environments of an organisation
• demonstrate the relevance of undertaking a PESTEL analysis of an organisation
• consider the varying impact of the five forces identified by Michael Porter on organisational positioning
• understand the importance of human influence, opinion and reputation within all aspects of the development of strategy

Question 2

What are Taleb’s black swans?

Answer 2

Unknown unknowns

Question 3

What can we do re. black swans when developing strategy?

Answer 3

Have a generic plan of how we will deal with their inevitable emergence

Question 4

3 categories of risks/uncertainties that business face

Answer 4

• Environmental
• Technological
• Human

Question 5

4 layers of boundary within which an org operates

Answer 5

• Organisation
• Competitors and markets (micro)
• Industry or sector (micro)
• Macro environment

Question 6

What is changeability re. the external environment?

Answer 6

The degree to which the external environment is likely to change

Question 7

What is predictability re. the external environment?

Answer 7

The degree to which macro changes can be predicted

Question 8

What is PESTEL used for?

Answer 8

A model for the analysis and deeper interrogation of the macro environment

Question 9

What does PESTEL stand for?

Answer 9

Political
Economic
Socio-cultural
Technological
Environmental
Legal

Question 10

How is PESTEL analysis most frequently presented?

Answer 10

Tabular structure (additional column to further expand / refer back to the org being considered)

Question 11

Which PESTEL is most important / significant?

Answer 11

This is completely dependent on the org in question, their priorities/mission, and the sector that they exist in

Question 12

4 common forces under first E of PESTEL

Answer 12

• Interest rates
• Currency exchange rates
• Inflation rates
• Economic growth rate

Question 13

2 key aspects of S within PESTEL

Answer 13

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)

Question 14

3 key forces within T of PESTEL

Answer 14

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)

Question 15

3 aspects of second E of PESTEL

Answer 15

• Sustainability and stewardship
• Global warming
• Public conscience

Question 16

4 specific legal areas to consider re. PESTEL

Answer 16

• Labour and employment laws
• Environmental protection legislation and consumer regulation
• Finance, taxation and reporting requirements
• Ownership, merger and competition law

Question 17

3 types of forecasting - Johnson

Answer 17

Single-point forecasting
Range forecasting
Alternative futures forecasting (number of fixed-point outcomes)

Question 18

Key point to consider initially when considering micro environment

Answer 18

Dynamics of competitive marketplace - where industry sits between monopoly and perfect competition

Question 19

Along with the ‘dynamics of the competitive marketplace’, what should be considered in respect of the micro environment?

Answer 19

The business lifecycle

Question 20

4 stages of business lifecycle - and short line on planning for each

Answer 20

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)

Question 21

What are Porter’s 5 forces - diagram

Answer 21

Potential
new
entrants
I
Supplier Existing Customer
bargaining > competition < bargaining
power power
I
Substitute
products

Question 22

What is horizontal of Porter’s 5 forces diagram based around?

Answer 22

Supply chain of operation

Question 23

What is horizontal of Porter’s 5 forces diagram based around?

Answer 23

Dynamics of competitive marketplace

Question 24

5 aspects of existing competition - Porters 1st force

Answer 24

• Relative strength and range or platers in arena
• Rate of growth/decline
• Differentiation of products
• Fixed costs for entry
• Ease of exit

Question 25

4 influences on supplier bargaining power - Porter’s 2nd force

Answer 25

• Number of potential suppliers
• Reliance upon production expertise of specific supplier/s
• Operating margins of suppliers
• How dependent supplier is on their own suppliers

Question 26

4 influences on customer bargaining power - Porter’s 3rd force

Answer 26

• 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

Question 27

6 barriers to market entry for potential new entrants - Porter’s 4th force

Answer 27

• 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)

Question 28

Substitute products - Porter’s 5th force

2 reasons why consumer may move to substitute

Answer 28

Better price point

Different branding

Question 29

4 elements of the impact of people when considering dev of strategy

Answer 29

• 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