international strategic management - SUDZUCKER company Germany
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lec2.pptxCORP 5039 Lecture Week 2 External Environment – Macro Analysis Dr Demola Obembe
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Lecture Focus
Outline of the strategic management process
Relevance of external analysis to business organizations?
Understanding the layers of the business environment.
The PESTLE framework.
Critical Success Factors (CSFs or KSFs).
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The Strategic Management Process
Purpose
(Mission,
Vision,
Objectives)
Internal
Analysis
External
Analysis
Strategy
Formulation
(Objectives setting)
Strategy
Implementation
Evaluation &
Control
Environmental
Scanning
Strategic Influences on Business
Analysis is the critical starting point of strategic thinking.
- Kenichi Ohmae
Before you can evaluate an organisation’s business prospects, you need to ask:
What is the nature of the environment, where the firm operates?
What resources and capabilities are at the organisation’s disposal?
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The Organisation As a Transformation System
INPUTS
Land, premises
Materials
Labour
Technology
Finance
Managerial Skills
BUSINESS
ORGANISATION
OUTPUTS
Goods
Services
Ideas
Information
Consumption
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The Environment
The environment will have an impact upon all stages of the transformation process.
Resource Acquisition.
Conversion / Transformation
Output
Consumption
Feedback
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Layers of the Business Environment
Changing conditions in:
General economic conditions
Legislation and regulations
Population demographics
Societal values & lifestyles
Technology
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The Firm
(S/W)
Industry (Micro Environment) (O/T)
PESTLE (Macro Environment)
Some Considerations in Undertaking PESTLE
Political:
Home country legislation (current & potential) e.g. taxation and employability, International legislation , Political parties and alignments, Regulatory bodies and processes, Trading policies & regulations, State ownership of businesses and attitudes towards competition
Economic:
Home economy situation and trends, Overseas economies and trends, Inflation, Interest rates, Currency fluctuations and exchange rates, Consumer purchasing power, Disposable income, Unemployment, Business set-up & running costs
Socio-cultural:
Lifestyle trends, Demographics , Consumer attitudes and opinions, Changes in socio-cultural values, Income distribution, Fashion and role models, Ethnic/religious factors, Education and health
Some Considerations in Undertaking PESTLE
Technological:
Competing technology development, Expenditure on R&D and innovation potential, Innovation diffusion and new technology adoption, Technology legislation and government investment policy, Intellectual property issues (patents, licensing etc.)
Environmental:
Green issues, Pollution, Sustainability, Waste disposal, Climate change and seasonal conditions, Natural disasters, Natural resources
Legal:
Competition law and government policies, Health and Safety law, Employment law, International agreements, Human rights issues, Environmental policy
PESTEL Analysis Exercise
Task
In groups of 3-4, write down key issues for each element of PESTLE that may affect Industry sectors generally.
Political
Economic
Socio-cultural
Technological
Legal
Environmental
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Discussion Point
What problems did you encounter in identifying issues?
Relevance?
How many?
Importance?
Implications?
Inter-dependencies?
Finding data?
Others…?
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PESTLE: Example for the Airline Industry
Political:
Government Support for national carriers
Security Controls
Restrictions on migration
Economic:
National growth rates
Fuel prices
Socio-cultural:
Rise in travel by elderly
Student international study exchanges
Source: Johnson et al (2011) Exploring Strategy (9th Ed): p51.
PESTLE: Example for the Airline Industry
Technological:
Fuel-efficient engines and airframes
Security Check technologies
Teleconferencing for business
Environmental:
Noise pollution controls
Energy consumption controls
Land for growing airports
Legal:
Restrictions on mergers
Preferential airport rights for some carriers
Source: Johnson et al (2011) Exploring Strategy (9th Ed): p51.
You’re Not Alone!
“The first thing about information…that strikes me is that one gets too much information…Much of this is only partly digested and much of it is irrelevant.”
“I think the problem with information systems…has been that they’re overwhelming as far as the executive is concerned.”
Quotes cited from Rockart, J. (1979) ‘Chief Executives define their own data needs’,
Harvard Business Review, Mar-April, pp.81-93.
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Criticisms of PESTLE
Pigeon-holing Issues
Time and resource intensive
Information Access & Utilisation
Possibility for overload
Restrictions to key information
Oversimplification of information
Dependence on subjective views
Subjectivity due to underlying assumptions
Context/Setting
The Solution?: Critical Success Factors
CSFs term coined by Sloan School of Management, MIT, in the 1970s (see also J.F. Rockart’s 1979 Harvard Business Review article: ‘Chief Executives Define Their Own Data Needs’ https://hbr.org/1979/03/chief-executives-define-their-own-data-needs).
CSFs should be common to all major organisations in an industry and relate to the pool of resources, skills & attributes within organisations that are essential to delivering success in the marketplace.
CSFs could take the form of (inter alia):
Branding, Advertising, Low wage costs, Technological process or product innovation, Distribution, After sales service, Product specification and performance attributes
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Critical Success Factors
CSFs will vary from industry to industry
Think about the following analogy:
“Think of athletes preparing for different races. Clearly they must all train, but they do so differently, depending upon the race they are going to run. The muscular build of a 100m sprinter is completely different from that of a marathon runner. And so are the standard training methods used to develop their physical fitness. What is key to succeed in a 100m race is different from what it takes to succeed in a marathon.”
Speed/agility vs Stamina
Ketelhohn, K. (1998) What is a Key Success Factor, European Management Journal,
v16 (3), pp. 335-340.
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Critical Success Factors
In identifying CSFs:
Consider the Demand structure:
Who are the customers?
What do the customers want?
Analysis of competition (how does the firm survive competition?)
What drives competition?
What are the main competitive dimensions?
What gives superior position to competitors?
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CSFs in Different Industries
It is generally expected that typically you may have 3-4 CSFs in an industry.
Task
In small groups, identify 3-4 CSFs for each of the following:
Car manufacturing.
Airlines.
Supermarkets.
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Recognising Personal Limitations
Do you have the capability to analyse the factors that underpin success?
Is your analysis valid? – Influence of personal bias & interpretation?
Effects of ‘bounded rationality’? We tend to generate simple schemas to address our limited capacity to deal with complexity.
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CSFs & PESTLE
In summary:
Having identified your 3-4 CSFs, attention should be drawn to changes or trends in the environment (PESTLE). Which PESTLE issues may, individually or in conjunction with other issues, directly affect your CSFs & how?
By focusing upon the CSFs first, you start to exclude much, largely irrelevant, external data.
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