Environmental Analysis

Environmental Analysis

1. PESTEL

   • Identifies external factors that affect the industry: opportunities and threats - just becase and industry is growing does not guarantee success
     • + Shows links between factors
       • + Shows key drivers for change
     • - Subjective - different strategists have different views
       • - Paralysis by analysis - develop a laundry list that never gets done
         • - Retrospective looks at trends and events - needs to look forward
     • Real life example: Nokia and Microsoft - Nokia was late into the smartphone market as was Microsoft - backward thinking - did not invision the success of the smartphone

2. Five Forces

   • Identifies how attractive an industry is by analysing each force
     • Microsoft Phone: Low threat of substitutes - innovation of smartphone is the threat; low threat of new entrants - saturated market and established competitors; low bargaining power of suppliers - higher number of suppliers vs. producers, some also do in-house production; high bargaining power of buyers - brand loyalty is weak; high competitive rivalry - align market with competitive pricing
     • + Provides insight into industry forces
       • + Helps managers to decide whether or not to enter an industry (5* rating)
         • + Can explore implications of a change in forces over time
     • - Lack of 6th force (govt & complementers)
       • - Rules out cooperation in favour of competition
         • - It is deterministic - industry structure determines position and likelihood of success.
           • - Argued to be outdated (written about economy in the 80's)
             • New theory: Downe's 3 forces
               • Forces are outdated: 3 additional new forces!
                 • Digitalisation - growth and power of IT will create new business models where even players from outside the industry can influence - ie. growth of electronic shopping malls (big in Middle East) - run by telecom companies (from outside industry.
                 • Globalisation: customers can compare prices globally so even smaller companies are now cometing globally even if they do not import/export themselves - it is not enough to be a cost/quality leader - have to develop and manage strong relationships with mobile customers and partners
                 • Deregulation - shrinking influence of govt on some industries (ie. airlines) has forced them to restructure