1. 1
Dr.L.Prakash Sai
External Analysis

2. 2
Environmental
Variables
Hierarchy of
Strategy

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
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
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
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
13
Scanning the Task Environment
14
Porter’s Approach to Industry Analysis

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
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