Lecture 3 - Context of Strategy (External Macro Environment & Strategic Purpose) Flashcards
What does PESTEL stand for?
Political Economic Social Technological Environmental Legal
The PESTEL analysis helps to identify…
…key drivers of change, opportunities and threats
The key drivers of change can be used to…
…construct scenarios of alternative possible futures
Key Success Factors (KSFs) are…
…environmental issues that can affect an organisation’s ability to achieve its aims
Economic factors:
1) Exchange rates
2) Business cycles
3) Differential economic growth rates around the world,
Social influences
Changing cultures and demographics
E.g. ageing population
Legal factors
Legislative and regulatory constraints
Megatrends
Large scale social, economic, political, ecological, technological changes typically slow to form but which influence many other activities and views, possibly over decades
Typically shapes other trends
Inflexion points
When trends shift in direction, e.g. economic growth
Weak signals
Advanced signs of future trends
Particularly helpful in identifying inflexion points
Weak signals are typically…
…unstructured, fragmented bits of information
Scenario analyses
Carried out to allow for different possibilities and help prevent managers from closing their minds to alternatives
Scenarios offer…
Plausible alternatives of how business environment might develop in future
Scenario analyses typically build upon
PESTEL analyses
Critical strategic question:
BUSINESS DEFINITION
Whats kind of business are we, or want to be?
3 influences on strategic purpose:
Governance structure
Social responsibility and ethics
Stakeholder expectations
Business mission should be defined by: (4)
Customers needs served (WHAT)
Customer groups (WHO)
Technologies utilised (HOW)
Employees are bonded (HOW)
Mission statement
Aims to provide employees and external stakeholders with clarity about the overriding purpose of the organisation
What business are we in?
How do we make a difference?
Why do we do this?
Strategic context: External environment
Environment in which firm operates
Environmental constraints that may limit what an organisation might do
Strategic context: Internal environment
Organisation’s CAPABILITIES which will determine what organisation can do and how these capabilities are fitted to the external environment and the strategies are employed
Changing views of the environment - CONTESTED ASSUMPTIONS
Environment is STATIC (unchanging and predictable)
Environment is SIMPLE
homogenous, perfect information, compete on price
Changing views of the environment - CURRENT ASSUMPTIONS
Environment is DYNAMIC (speed of change, predictability of change)
Environment is COMPLEX (Heterogeneous, imperfect information, compete on 4Ps)
Why analyse the environment?
Identify KSF (Key success factors)
Establish opportunities and threats
How can we understand the environment?
PESTLE analysis
Scenario planning
SWOT analysis
PESTLE analyses the…
Macro-environment
PESTLE identifies…
Opportunities and threats
Scenario planning:
Internally consistent view of what future might turn out to be
Can be defined as method for imagining possible futures
Not a forecast in sense that one can extrapolate using past data –> but a tool of analysis to help the organisation recognise the signals.
Helps managers to recognise change objectively –> overcoming biases and imperfect reasoning
