Lecture 2 - CH 2 Flashcards
What is “External Analysis” about?
its about:
1) Analysing the broad macro-environment of organisations
2) Identify key drivers in this macro-environment
3) Analyse industry attractiveness & how firms can shape it - By Porters Five Forces
What are the layers of the “Business-environment”?
1) Macro-enviroment
2) Industry
3) Competitors + Markets
4) Organisation
What is “PESTEL”?
PESTEL: This is a method of conducting analyses. The framework categorizes environmental factors into key types. It highlights 6 factors: o Political o Economic o Social o Technological o Ecological o Legal
What is the goal of using “PESTEL”?
The goal is to identify key drivers (typically 2)
- Drivers likely to IMPACT organizations
- Drivers that introduce an IMPORTANT source of uncertainty for organizations
- Drivers that are INDEPENDENT: aim to create scenarios that diverge significantly
In terms of “PESTEL”, what does the P highlight?
P is the political element of PESTEL that highlights two important steps in political analysis:
first, identifying the importance of POLITICAL FACTORS and second carrying out POLITICAL RISK analysis.
When conducting political risks analysis there are two dimensions to examine:
1) Macro-Micro dimensions
2) Internal-External Dimensions
In terms of “PESTEL”, what does the first E highlight and what are the three parts to define it?
It analyzes ECONOMICAL FACTORS and it consists of three parts:
1) The Kitchin or ‘stock’ cycle:
- shortest cycle
- 3 to 4 years - one cyclical peak to the next.
2) The Juglar or ‘investment’ cycle:
- medium-term cycle,
- 7–11 years.
3) The Kuznets or ‘infrastructure’ cycle
- longest,
- 15 to 25 years.
- These cycles follow the life-spans of infrastructural investments, for example in housing or trans-port.
In terms of “PESTEL”, what does the S highlight and what are the 4 parts to define it?
SOCIAL elements of the macro-environment have at least two impacts upon organisations
1) First, they can INFLUENCE the specific nature of demand and supply within the overall economic growth rate.
2) Second, they can SHAPE the innovativeness, power and effectiveness of organisations.
When examining this factor we look at the following things:
1) Demographics
2) Distribution Changes
3) Geography
4) Culture
In terms of “PESTEL”, what does the T highlight and what are the 5 parts to define it?
TECHNOLOGICAL FACTORS and there are 5 primary indicators of innovation activity:
1) Research & development budgets - Innovative firms, sectors or countries can be identified by the extent of spending on research, typically reported in company annual reports and government statistics.
2) Patenting activity - Firms active in patenting new technologies can be identified on national patent registers, the most important being the United States Patents and Trademarks Office.
3) Citation analysis -The potential impact of patents and scientific papers on technology can be measured by the extent to which they are widely cited by other organisations, with data available from Google Scholar for instance.
4) New product announcements - Organisations typically publicize their new product plans through press releases and similar media.
5) Media coverage - Specialist technology and industry media will cover stories of the latest or impending technologies, as will various social media.
In terms of “PESTEL”, what does the E highlight?
Within the PESTEL framework, ENVIROMENTAL stands specifically for:
1) ‘green’ macro-environmental issues, such as pollution, waste and climate change.
2) Environmental REGULATIONS can impose additional COSTS (for example pollution controls) but they can also be a SOURCE of OPPORTUNITY (for example the new businesses that emerged around mobile phone recycling).
In terms of “PESTEL”, what does the L highlight?
The final element in a PESTEL analysis of the macro-environment refers to legal aspects. These can cover a wide range of topics: for example, labor, environmental and consumer regulation; taxation and reporting requirements; and rules on ownership, competition, and corporate governance.
This concept of institutional environment suggests that it can be useful in a PESTEL analysis to consider not only formal laws and regulations but also more informal norms: the ‘L’ can be stretched to cover all types of rules, formal and informal. Informal rules are patterns of expected (‘normal’) behaviour that are hard to ignore.
In terms of “PESTEL”, when we discuss the “Social” factor we mention “Organisational Field”; What is meant by that, and which are the 3 components that this constitutes?
An organizational field is a community of organizations that interact more frequently with one another than with those outside the field. To better understand an organizational field we can look at three things:
- Network density
- Central hub positions
- Broker positions
In terms of “PESTEL”, when we discuss the “Ecological”; What are the 3 challenges of this, and what are the 3 contextual sources of pressure?
When considering ecological issues in the macro-environment, there are three sorts of challenges that organizations may need to meet:
1) Direct pollution obligations and minimizing the production of pollutants in the first place
2) Product stewardship - managing ecological issues through an organization’s value chain and the whole life cycle of the firm’s products.
3) Sustainable development - as in reducing environmental damage and increasing the longevity of the product or service
sources of pressure:
1) Ecological - Clearly ecological issues are more likely to be pressing the more impactful they are: a chemical company may have more to worry about than a school.
2) Organisational field - Ecological issues do not become salient just because of their inherent characteristics.
3) Internal organization - The personal values of an organization’s leadership will clearly influence the desire to respond to ecological issues.
In terms of the “Legal” aspect of “PESTEL” there are 3 kinds of “Market Economies”, which ones and what do they stand for?
1) LIBERAL market economies are institutional environments where both formal and informal rules favour competition between companies, aggressive acquisitions of one company by another and free bargaining between management and labour.
2) COORDINATED market economies encourage more coordination between companies, often supported by industry associations or similar frameworks.
3) DEVELOPMENTAL market economies tend to have strong roles for the state, which will either own or heavily influence companies that are important for national economic development.
How do you define “Key Drivers”?
Key drivers for change are the ENVIRONMENTAL factors likely to have a HIGH impact on industries and sectors, and the SUCCESS or FAILURES of strategies within them.
What are the 3 approaches of “Forecasting”?
1) Single-point forecasting is where organizations have such confidence about the future that they will provide just one forecast number
2) Range forecasting is where organizations have less certainty, suggesting a range of possible outcomes.
3) Alternative futures forecasting typically involves even less certainty, focusing on a set of possible yet distinct futures.
