This document discusses strategic planning and the external environment. It covers macroeconomic factors like GDP, inflation, exchange rates, and competitive advantages between nations. The PEST analysis framework is introduced to analyze political, economic, social and technological trends. Scenario planning is also presented as a tool to consider potential futures. The key message is that the external environment is largely outside a company's control but must be understood to inform strategic decision-making.

1. Strategic Planning
Roger Bradburn

2. Learning Objectives
 By the end of this session students should be
able to practically apply the PEST framework.
 Understand how an understanding of macro
economic factors can assist companies form
strategy.
 Recognise the key driving forces in the
external environment and the opportunities
and threats these present.

3. Required Reading
Carpenter and Sanders, (2009) Strategic
Management (2nd Edition) Person
International (Part two - THE INTERNAL
AND EXTERNAL ENVIRONMENT OF
STRATEGY )

4. Strategic Planning
Week 3
The Company, the Market and the
Economy.

5. Strategic Planning
 Clearly companies are greatly influenced
by the outside environment. However
 In many cases, the external environment
is beyond the control of the company.

6. Strategic Planning
 The Total Market is controlled by national
income, population, product life cycle.
 Market share is controlled by marketing strategy,
competitor strategies, marketing expenditure.
 Price is controlled by demand conditions,
competition, competitor advantage and market
segmentation.

7. Strategic Planning
 Workforce – controlled by the labour
market, regional supply variations, working
conditions.
 Wage rate – labour market conditions,
unemployment level.
 Capital – capacity of the capital goods
sector.

8. Strategic Planning
 Capital price – capital market con , interest
rates etc.
 Materials - capacity of suppliers,
particularly capital equipment suppliers.
 Material price – material market
conditions. The price of raw materials for
example.

9. Strategic Planning
 What forces are happening within the
company and what forces are happening
outside?
 What are the key forces at work?
 The environment can have a profound
impact on our company, but can be
difficult to understand.

10. Strategic Planning
 A useful way of considering this problem is
looking at the two areas of economics:
 Macro economics looks at the bigger picture and
is largely outside our control.
 Micro economics looks at the firm and the
market and may be much more under our
control.

11. Strategic Planning
 Strategy is heavily controlled by outside
forces.
 A good example of this is GNP elasticity.

12. Strategic Planning
 GNP Elasticity is:
The prroportionate change in GNP related to
a proportionate change in demand.
If a 1% change in GNP leads to a greater than
a 1% change in demand, demand is inelastic.
If a 1% change in GNP leads to a smaller than
1% change in demand, this is elastic.

13. Strategic Planning
 We have seen the effect of GNP elasticity
in recent times with the recession. Some
companies have done well in the
recession, some very badly. Anticipating
the demand effects of a recession is
clearly going to be important to us.

14. Strategic Planning
The International Economy
 With today’s global economy, international
factors will have a major impact on
strategic planning.
 Relative Inflation Rates will vary and will
have a positive or negative impact on the
pricing of our products.

15. Strategic Planning
The International Economy
 Exchange Rate Fluctuations. Traditionally
it was thought that inflation rates and
exchange rates would balance out. This is
no longer the case.
 Capital flows influence currency rates fact
more than trade.

16. Strategic Planning
The International Economy
 As a result, you may get inflation and
adverse currency variations that can
influence the company.
 Currency hedging and other strategies can
help us, although as the Ryanair
experience shows, this is not always the
case!

17. Strategic Planning
 The Competitive Advantage of Nations.
A key question might be, why do some
countries have a clear advantage over
others?
The main thesis of the model is that
advantage is not down to natural resources.

19. Strategic Planning
 The Four Factors of the Diamond.
Factor Conditions – The highly specialised
resources that develop in countries/regions
over time.
Silicon Valley and Hollywood in California for
example.

20. Strategic Planning
 The Four Factors of the Diamond.
Related and supporting industries – few
companies work in isolation.
 Need support from suppliers.
 Need support from ancillary companies.
 Need skilled labour.

21. Strategic Planning
 The Four Factors of the Diamond.
Demand Conditions – the local market for the
company is key. It has to be strong and have
demanding innovator buyers.

22. Strategic Planning
 The Four Factors of the Diamond.
Examples of demand conditions:
 Japanese love innovative electronic goods.
 The German’s love their cars.

23. Strategic Planning
 The Four Factors of the Diamond.
Strategy, Structure and Rivalry – tough
competition means that you can compete
anywhere.
This is a strong argument against
protectionism etc.
The UK car and motorbike industry is a case
in point.

24. Strategic Planning
 Looking Ahead
 It is very difficult to forecast the future with
any great confidence. However, some
factors can be taken into account.

25. Strategic Planning
 The Business Cycle – some
considerations:
 What is the trend?
 What is the underlying cyclical patter?
 How large are the random disturbances?

26. Strategic Planning
 PEST Analysis.
 This model is well known and can be very
useful for spotting overall and underlying
trends.

27. Strategic Planning
 Political – all governmental changes such
as taxation, new laws, trade unions,
human resource legislation, environmental
legislation.
 Economic – booms and bust, money
supply and interest rates, exchange rate
fluctuations, the cost of energy.

28. Strategic Planning
 Social – changes in people’s lifestyles,
“money rich, time poor”, social mobility,
changes in the family group, ageing
population.
 Technological – digital technology and the
Internet, mobile communication, changes
that effect our market.

29. Strategic Planning
 Scenarios
These are used by many major
companies and essentially build “what
if?” models that consider what might
happen in the future.

30. Strategic Planning
Conclusions.
In this lecture we have considered the
external environment. The external
environment is generally beyond our control but
can have a major impact on our business and our
strategic decisions. We cannot really control it but
we certainly need to understand it!