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4 external analysis

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4 external analysis

  1. 1. 1 Dr.L.Prakash Sai External Analysis
  2. 2. 2 Environmental Variables Hierarchy of Strategy
  3. 3. 3 Strategic Decision- Making Process A A Identify relevant elements: PESTEL Analysis Consider the general environment surrounding many businesses under six main headings: – Political – Economic – Sociological – Technological – Environmental – Legal. Key point: useful checklist.
  4. 4. 4 Societal Environment Economic Forces: Regulate exchange of materials, money, energy and information Technological Forces: Generate problem-solving inventions Political-legal Forces: Allocate power; provide laws and regulations Socio-cultural Forces: Regulate values, mores, and customs of society Task environment: Elements or groups that directly affect a corporation and are affected by it Political •Ecological/environmental issues •Current legislation home market •Future legislation •European/international legislation •Regulatory bodies and processes •Government policies •Government term and change •Trading policies •Funding, grants and initiatives •Home market lobbying/pressure groups •International pressure groups •Wars and conflict Economic •Home economy situation •Home economy trends •Overseas economies and trends •General taxation issues •Taxation specific to product/services •Seasonality/weather issues •Market and trade cycles •Specific industry factors •Market routes and distribution trends •Customer/end-user drivers •Interest and exchange rates •International trade/monetary issues PEST Analysis
  5. 5. 5 Social •Lifestyle trends •Demographics •Consumer attitudes and opinions •Media views •Law changes affecting social factors •Brand, company, technology image •Consumer buying patterns •Fashion and role models •Major events and influences •Buying access and trends •Ethnic/religious factors •Advertising and publicity •Ethical issues Technological •Competing technology development •Research funding •Associated/dependent technologies •Replacement technology/solutions •Maturity of technology •Manufacturing maturity and capacity •Information and communications •Consumer buying mechanisms/technology •Technology legislation •Innovation potential •Technology access, licencing, patents •Intellectual property issues •Global communications PEST Analysis 10 Variables in Societal Environment
  6. 6. 6 11 International Societal Environments Forecasting the Environment  Time Series Analysis: Examines the effect of selected trends on key business variables (costs, sales, etc.).  Delphi Technique: Pool the opinions of experts about the nature of trends.  Judgmental Forecasting: Obtain information from a variety of sources, although conclusions can be difficult.  Multiple Scenarios: Managers formulate competing scenarios concerning trends and developing contingency plans accordingly.
  7. 7. 7 13 Scanning the Task Environment 14 Porter’s Approach to Industry Analysis
  8. 8. 8 New Market Entrants •entry ease/barriers •geographical factors •incumbents resistance •new entrant strategy •routes to market Competitive Rivalry •number and size of firms •industry size and trends •fixed vs. variable cost bases •product/service ranges •differentiation, strategy Supplier Power •brand reputation •geographical coverage •product/service level quality •relationships with customers •bidding processes/capabilities Buyer Power •buyer choice •buyers size/number •change cost/frequency •product/service importance •volumes, JIT scheduling Product and Technology Development •alternatives price/quality •market distribution changes •fashion and trends •legislative effects Porter’s Approach to Industry Analysis •Apple developed and owns the software. •Apple faces no threat from the whims of powerful suppliers (owing to forward integration). • Consumers tend to be susceptible to price sensitivity and alternative choices. • Offered by Cingular only (in USA); switching costs for customers (service providers) •Threats from imitators such as LG and Samsung rather than from new companies entering the market. •Software companies such as Google and Microsoft may pose a credible threat. •Consumers need to pay a premium for Apple cachet and technological convergence when their needs may be equally met by cheaper alternatives. •Synaptics and LG products with touch-screen interfaces.
  9. 9. 9 Six Forces Model Limitations of Porter’s Model  Assumes the existence of a clear, recognizable industry  Addresses only firms in an industry and does not consider partner firms  Does not account for the fact that large firms may be able to modify the industry structure  Assumes industry factors, not firm resources, comprise the primary determinants of firm profit  Difficult to apply to firms operating in multiple countries where industry environments vary considerably

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