CH4 - The External Environment

Question 1

Macro-Environment

Answer 1

PESTEL: Framework for analysing sources of opportunities and threats:

• Political
• Economic
• Social
• Technological
• Environment
• Legal

Question 2

National Environment

Answer 2

Porters Diamond (1990)
Components of the diamond (influences on national competitiveness):
- Factor conditions
- Demand conditions
- Related and supporting industries
- Firm strategy, structure and rivalry
Combination of the above produces clustering (cluster of extremely competitive firms)

Question 3

Industry or Sector Environment

Answer 3

Porters 5 forces:
- Threats of new entrants
- Substitutes
- Bargaining power of suppliers
- Bargaining power of customers
- Competition and rivalry
3 Main Uses:
- analysing inherent profitability of a particular industry
- identifying actions relating to different competitive forces on an organisation that:
=> mitigate their damaging effects (threats)
=> promote the beneficial effects (opportunities)
- considering whether all competitors are affected equally by the forces

Question 4

Scenario planning

- stages in scenario planning

Answer 4

Constructing plausible view of how the business environment of an organisation might develop in the future
Stages in Scenario Planning:
1) identifying the scope and stakeholders
2) identifying the key trends and areas of uncertainty
=> based on PESTEL factors
3) construct initial scenarios
4) check scenario for consistency and plausibility
5) expand initial scenario into full descriptions
6) develop quantitative models for effect of different scenarios on organisation activity and profitability
7) develop strategy or courses of action to be adopted in different scenarios