4 - The External Environment

Question 1

What are Taleb’s black swans?

Answer 1

Unknown unknowns

Question 2

What can we do re. black swans when developing strategy?

Answer 2

Have a generic plan of how we will deal with their inevitable emergence

Question 3

3 categories of risks/uncertainties that business face

Answer 3

• Environmental
• Technological
• Human

Question 4

4 layers of boundary within which an org operates

Answer 4

• Organisation
• Competitors and markets (micro)
• Industry or sector (micro)
• Macro environment

Question 5

What is changeability re. the external environment?

Answer 5

The degree to which the external environment is likely to change

Question 6

What is predictability re. the external environment?

Answer 6

The degree to which macro changes can be predicted

Question 7

What is PESTEL used for?

Answer 7

A model for the analysis and deeper interrogation of the macro environment

Question 8

What does PESTEL stand for?

Answer 8

Political
Economic
Socio-cultural
Technological
Environmental
Legal

Question 9

How is PESTEL analysis most frequently presented?

Answer 9

Tabular structure (additional column to further expand / refer back to the org being considered)

Question 10

Which PESTEL is most important / significant?

Answer 10

This is completely dependent on the org in question, their priorities/mission, and the sector that they exist in

Question 11

4 common forces under first E of PESTEL

Answer 11

• Interest rates
• Currency exchange rates
• Inflation rates
• Economic growth rate

Question 12

2 key aspects of S within PESTEL

Answer 12

Demographics (eg. ageing population, more people to look after, less people willing to look after them)
Wealth distribution (greater wealth disparity constraining areas of consumption)

Question 13

3 key forces within T of PESTEL

Answer 13

Tech push or market pull (will tech aid us in effective business or force us down a particular route)

People skill divergence (need for technologically capable individuals must be recognised, many ordinary jobs will be done by robots)

Diffusion (process and timing of spread of use of certain technology)

Question 14

3 aspects of second E of PESTEL

Answer 14

• Sustainability and stewardship
• Global warming
• Public conscience

Question 15

4 specific legal areas to consider re. PESTEL

Answer 15

• Labour and employment laws
• Environmental protection legislation and consumer regulation
• Finance, taxation and reporting requirements
• Ownership, merger and competition law

Question 16

3 types of forecasting - Johnson (2017)

Answer 16

Single-point forecasting
Range forecasting
Alternative futures forecasting (number of fixed-point outcomes)

Question 17

What is single-point forecasting? (2)

Answer 17

There is a single future figure or result we are using as a benchmark

Requires resolute confidence about future

Question 18

What is range forecasting? (2)

Answer 18

Range of possible outcomes we are benchmarking towards

High level of risk along route

Question 19

What is alternative future forecasting?

Answer 19

There are a defined number of fixed-point outcomes we are using as a benchmark

Question 20

Key point to consider initially when considering micro environment

Answer 20

Dynamics of competitive marketplace - where industry sits between monopoly and perfect competition

Question 21

Along with the ‘dynamics of the competitive marketplace’, what should be considered in respect of the micro environment?

Answer 21

The business lifecycle

Question 22

4 stages of business lifecycle - and short line on planning for each

Answer 22

Introduction (lots of strategic planning towards growth)

Growth (planning in anticipation of maturity levels)

Maturity (planning for volume maintenance and anticipation of decline)

Decline (planning for next growth phase, or new products/markets)

Question 23

Which model is used to analyse macro environment?

Answer 23

PESTEL

Question 24

Which model is used to analyse micro environment?

Answer 24

Porter’s 5 forces

Question 25

What are Porter's 5 forces - diagram

Answer 25

Potential new entrants I (arrow down) Supplier Existing Customer bargaining > competition < bargaining power power I (arrow up) Substitute products

Question 26

Definition - Porter's 1st force - existing competition

Answer 26

The existing rivalry between the current players in the market

Question 27

Definition - Porter's 2nd force - supplier bargaining power

Answer 27

The relationships with those who supply all the resources to enable production, including tangible and intangible resources

Question 28

Definition - Porter's 3rd force - customer bargaining power

Answer 28

The relationship with customers, and how easily they can find an alternative

Question 29

Definition - Porter's 4th force - new entrants

Answer 29

How easy or difficult it is for new entrants to enter the market

Question 30

Definition - Porter's 5th force - substitute products

Answer 30

The availability of an alternative product, which is either a direct alternative (or very similar product) or the same product with different branding

Question 31

What is horizontal of Porter's 5 forces diagram based around?

Answer 31

Supply chain of operation

Question 32

What is vertical of Porter's 5 forces diagram based around?

Answer 32

Dynamics of competitive marketplace

Question 33

5 aspects of existing competition - Porters 1st force

Answer 33

- Relative strength and range or players in arena - Rate of growth/decline - Differentiation of products - Fixed costs for entry - Ease of exit

Question 34

4 influences on supplier bargaining power - Porter's 2nd force

Answer 34

- Number of potential suppliers - Reliance upon production expertise of specific supplier/s - Operating margins of suppliers - How dependent supplier is on their own suppliers

Question 35

4 influences on customer bargaining power - Porter's 3rd force

Answer 35

- Number of potential buyers - Bespoke nature of customer requirement (reduced if more specific as less suppliers to go to) - Ability to 'make' rather than 'buy' - Are they buying to supply? > reduced

Question 36

6 barriers to market entry for potential new entrants - Porter's 4th force

Answer 36

- Economies of scale - Product differentiation (need for USP) - Capital requirement - Customer persuasion (likelihood to leave current supplier) - Government policy (re. competition or consumer protection) - Organisational strength (of existing players)

Question 37

Substitute products - Porter's 5th force 2 reasons why consumer may move to substitute

Answer 37

Better price point Different branding

Question 38

4 elements of the impact of people when considering dev of strategy

Answer 38

- Human psyche (ethics morals, etc.) - Workforce reliance on technology - Impact of the media - Certain orgs becoming of 'public interest' and therefore progress manipulated by govs etc. to ensure non-failure

Question 39

Answer table for Porter's 5 forces - 3 headings to use

Answer 39

- Factor - Definition - Issues to consider (re. case study)

Question 40

When else might PESTEL be needed when not obvious? (2)

Answer 40

To allow for scenario planning To analyse the market (market means external environment)

Question 41

What is scenario planning?

Answer 41

A technique that can be used when a company has a block of info in a dynamic environment (PESTEL knowledge), and can consider what might happen next. They can then consider the strategic implications and take decisions based on scenarios. Often, a scenario planner is identifying potential risks (negative scenarios)