The Wider Economy, Industries and Competitors Introduction Organisations do not exist in a vacuum. They exist and coexist, compete and cooperate in the same terrain as others. A graphic view of such terrains can be portrayed by borrowing images from the animal world where business organisations can be observed as creatures trying to outsmart others in a proliferated and challenging landscape in order to survive. For that reason, it is critical to have a good understanding of the organisation’s environment and its competitors in order to be able to develop strategies that have the potential to outperform rivals. This is even more important when factoring in the complexity and the diversity of the modern-day economy, and the fact that deregulation, globalisation and political and economical unifications intensify interactions. Consequently, it is essential for the decision maker to have accurate ‘road maps’ that are continuously updated with new information as and when conditions change in order to be able to steer the company accordingly to achieve the objectives. Figure 1 illustrates simplistically the different levels of an organisation’s environment to provide an overview of competitive landscapes. An Overview of the Levels of an Organisation Õs Business Environment Macro (External Environment) The Wider Economy Meso (External Environment) The Operating Env ironment or Task Environment Micro T he Industry (supply) Figure 1 (Internal Environment) The Organisation T he Marketplace (demand) As shown in Figure 1, an organisation has two key environments. The first is the external environment that includes the macro (the wider economy) and the meso levels (the industry and the marketplace). The second is the internal environment that consists from the micro level alone (the firm’s internal aspects). The sections below and the following few chapters discuss the various organisational environments in detail and provide techniques with which to carry out different sets of analyses to support decision-making. The Macro Environment The development of competitive strategies falls, by default, at the level of business strategy, as discussed in chapter one because this level is concerned with navigating a firm in its specific industry and marketplace. If an organisation has more than one business, i.e. Strategic Business Units (SBUs) in different industries or more than one SBU in the same industry, each business unit will need to develop their own competitive strategies according to their very own particular circumstances and environmental challenges and opportunities. However, before such strategies are developed an analysis of the macro environment will first have to be carried out to identify the prevailing characteristics of the wider economy in order to evaluate the effect of these conditions on the organisation’s industry and their impact on the company. In doing so, an appreciation of economics fully supports the analyst to both seek appropriate factors to examine as well as understand better their impact and effect on business. Nevertheless, in the field of business strategy the basic PEST (Political, Economic, Social and Technological) framework enjoys widespread acceptance as a useful technique that enables individuals to appraise the macro environment even without a particular knowledge of economics. The technique was first introduced by Aguilar (1967) using the initials ETPS to provide a simple and memorable acronym that summarises the key aspects of the macro environment in order to contextualise that level of analysis. Since then, the framework is appearing in the wider literature of business and management in a number of ways including additional variables. Some of such versions are PESTLE (the additional letters stand for Legal and Environmental), SLEPT, SLEPTE, STEP and STEEP (the additional E stands for ecological). Cartwright (2001) even created a SPECTACLES framework incorporating even more diverse aspects (Social, Political, Economic, Cultural, Technological, Aesthetic, Customer, Legal, Environmental, Sectoral). However, the ‘Aesthetic’ variable is mostly an internal to the organisation characteristic and the ‘Customer’ is, clearly, a feature of the marketplace. Hence the technique is not concentrating at the macro level alone, potentially creating unnecessary confusion. Paradoxically, given the importance and increasing impact of globalisation on world economies such a perspective has not yet been fashioned on any of the PEST-based frameworks available in the public domain, consequently, leaving a significant gap in the technique. In order to troubleshoot this weakness, in this book, the PESTILE form of the framework is adopted (Panagiotou and Van Wijnen, 2005) where the initials stand for: ‘Political’; ‘Economic’; ‘Socio-Cultural’; ‘Technological’; ‘International’; ‘Legal and Regulatory’ and ‘Environmental and Ecological’. In this way, a structured framework is advanced that summarises the key aspects of the macro environment consistently to enable a focused level of analysis. An important aspect in practice, nonetheless, is the manner in which the technique is implemented. Repeated observations in the field indicate that most users apply the technique simplistically. For example, by populating the framework with bullet points. However, a key requirement for any kind of analysis is the evaluation of the data examined in order to determine the impact and effect of the different factors on the company so that appropriate strategies are developed given the identified challenges and opportunities. The commonly used bullet points is not, perhaps, the best way of doing so because bullet points tend to be brief and implicit hence hindering clarity and detail. A more effective way, by far, is to also allocate values on each construct identified in the different variables, according to the analyst’s or team members’ perceptions, in order to support conclusions and informed decision-making. Figures 2, 3, 4 and 5 illustrate different PESTILE analyses that are considered to represent best practice. Figures 2 and 3 contain qualitative values and Figure 4 quantitative values. Figure 5 illustrates the graphical representation of Figure 4. In addition, the outlines of these examples have been devised somewhat differently to reflect various organisational contexts. Figure 2 demonstrates a countrywide example for a small developing country, figure 3 provides an overview of a large organisation’s presence in diverse markets and figure 4 displays a medium sized firm in a single market context. In other words, the framework can be designed in many different ways to enable a technique that is concise, focused and straightforward - limited only by the designer’s imagination and sophistication. The most important aspect, nevertheless, is the interpretation and evaluation of these constructs by ranking their perceived importance from the company’s viewpoint. Therefore, identifying the different macro factors is only half the task. The task is complete only if there is also a statement about the impact and effect of the identified factors on the company because only then informed decision-making can be reached. To conclude, attention is also drawn to the simplicity of examples used here because of space limitations. In real life, the likelihood is that an organisation’s PESTILE analysis will be much more elaborated, if enough thought and reflection has been put into it. As mentioned above, it is also suggested that users avoid bullet points when populating the framework. It is best to enter bullet paragraphs instead because in the process of synthesising the paragraph the breadth and depth of comments will be much more explanatory thus justifying the analyst’s viewpoint and hence the value assigned on each attribute. A Developing Country Example PESTILE Analysis Variable Constructs Effect on Sectors T IT M A O P E ¥Stab le d emo cratic sy stem w ith co mmitted g o v ern men t to su p p o rtto ch ang e ¥N o immed iate risk o f civ il u n rest, terro rism etc. ¥Stro n g cu ltu ral ties w ith Eu ro p e/A sia/A frica + + + + + + + + + + + + + + + + + + + + + ¥A frican su ccess sto ry ¥Flag gin g eco no my relian t o n declin in g mark etsecto rs ¥Lag g in g in comp ariso n to o th er islan d eco n o mies (H o n g K o n g etc.) ¥Ch eap co st o f liv in g b u t n o tas ch eap as so meco u n terp art co un tries ¥A ccess to v ario u s lo an s/fin ance fro mWo rld Ban k , In d ian G o v ern men t etc. ¥G o o d tax in cen tiv es fo r b u siness & ind iv id u als & resid en cy p lan 0 0 + + + + + + + + + + 0 + + + 0 0 0 + + 0 0 + + + + + 0 ¥Biling u al p o pu latio n w ith rich an d d iv erse cultu ral back g ro u nd s ¥Majo rity emp lo y ed in man u factu rin g / g o v ern men t ro les ¥G o o d p o p u latio n mix (5 4 0 k w o rk ers, 6 4 k immig ran t w o rk ers) ¥Lack o f tech nical sk ills ¥Stro ng serv ice eth ic + + 0 + + + + 0 + + 0 + 0 + 0 0 + + + 0 + + 0 0 + 0 0 + ¥G o o d k n o w -h o w in tex tiles an d ag ricu ltu re p articu larly su g ar in d u stry secto r ¥Lin k ed to th e SA FE fib er o p tic cab le ¥A d eq uate lan dlin e in frastru ctu re ¥Mo b ile n etw o rk ¥Lo w PC d iffu sio n ¥Relativ ely low in ternet p en etr atio n 0 + + + 0 0 0 + + + - + + + 0 0 0 + 0 0 0 0 0 0 + + + 0 - + 0 + + 0 0 + + + + - International ¥Pressu re fro m man u factu rin g in A sia, N o rth A frica, Eastern Eu ro p e ¥Ch in ajo in in g WTO ¥N o o pen sk iesp o licy fo r airlin es 0 0 - 0 0 - - 0 0 - 0 0 - - 0 0 - Legal And Regulatory ¥WTO remo v al o f p referen tial tariffs o n tex tiles ¥Co to no u A g reemen t & Lamy in itiativ e abo lish in g p referen tial access/p rice ¥ICT Co p y rig h t/co mp u ter crime leg islatio n facilitatin g g ro w th ¥A G O A 1 1 A g reemen t sp ecial ru le fo r app arel Ğd u ty /q u o te free ¥Lo sso f p referen tialaccess to EU /U S 0 0 0 - 0 0 + 0 0 0 - 0 0 0 - 0 0 + 0 0 0 0 0 0 0 0 0 + 0 0 ¥Co n sisten tly g o o d climate, b eau tifu lb each esan d lan dscap e ¥G reen en erg y so u rcesfro m su gar b y -p ro d u cts ¥Remo te lo catio n p articu larly to U S ¥K ey geo g rap h ical areafo r A frica an d East A sia (lo catio n , time zo n es) + + + + + + 0 + + + + 0 + + + + 0 + + + + + Political Economic Socio-Cultural Technological Environmental and Ecological Key : Figure 2 Sectors: T=To u rism;IT= IT; M=Man ufactu ring /Tex tiles; Effect: + = Positiv e. - = N eg ativ e. 0 = N eu tral A=A g ricu ltu re; O=O ffsh o re Cen tre;P= O ffsh o re Pro cessin g; E= Ed u catio n Aircraf t Manuf acturer Example PESTILE Analysis Effect on Key Markets A merica s Economic Constructs So uth A merica UK Fra nce Germa ny C hina J a pa n Su b sid ies an d Co u n terv ailin g Measu res co d e ¥Bilateral ag reemen tsfo r large civ ilaircraft ¥WTO litig atio n b etw een U S an d Eu ro p e ¥WTO litig ation b etw een Bo mb ard ier an d Emb raer ¥D eregu latio n remo v esb arriersto en try + + + + + + + + + 0 - + 0 - + 0 - + 0 - + 0 - + 0 - + 0 0 - + 0 - ¥Fu elp rice increase ¥D ep reciatio n o f U S d ollars ¥In creasin g w orld w id ed eman d fo r + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + ¥H ig h research an d d evelo p men tco sts ¥U se of military tech no lo g iesin th e civ il aircraft + - + - + - + - + - + - + - + - ¥Co mp etitio n law s ¥Emp loy men t law s, H ealth ¥En v iro n men tallaw s + - + - + - + - + - + - + - + - - - - - - - - - + + + + + + + + ¥Th e new co mmercial airlin es ¥Cu rren cy flu ctu atio n s, tariffs an d p rice co n tr o ls ¥In creasin g in tern atio n al d iv isio n o f lab o u r Socio-Cultural ¥G lo b al p o p u latio n g row th in dev elo p ing co u n tries. ¥In crease in av erag e life ex p ectan cy in w estern civ ilizatio n . ¥In crease o f disp o sab le in co mein d ev elo p in g co u n tr ies. Technological mark et ¥Pressu re fo r lo w er w eig h t an d lig h ter materials ¥ D ep en d en ce on sp ecialist su pp liers Legal and Regulatory Environmental and Ecological ¥G reen issu es ¥Pressu re fo r lo w er an d Safety w eig h t, carb o n emissio n and n o ise ¥Climate p ro tectio n o n ch arg e ¥Co n stru ctio n o f tu rb o p ro p s in o rd er to rep lace ag eing fleets, meet mo re strin g en t env iro n mental co n strain ts at co mmu n ity airp o rt Key : + = Po sitiv e. - = N eg ativ e. 0 = N eutral. Figure 3 A sia C a na da Variable Political Euro pe U SA A High Street Firm with Internet Presence Example Q uantif iable PESTILE Analysis Variable Po litica l Construct ¥Demo cratic and stab lesy stemth at su pp o rts b usin ess activ ities +3 ¥Eco n omic slo wd o wn impacts d eman d lev els ¥Co n sumers h ave b eco memo re p rice sen siti v e ¥In creasin g interest rates fu rth er impact d eman d lev els ¥Ov erall h ig h er co st of liv in g cau tio ns b u y ersan d redu ces d eman d lev els ¥Desp ite eco n omic p ro blems co n sumer d ispo sab le in co me isstill relativ ely h ig h ¥Lo w u n emp lo y men t ¥In creasin g costs o f raw materials ad d to th e co stso f p ro du ctio n an d red u ce p ro fitmarg in s -2 -1 -2 -2 +2 +2 -3 So cio -Cultura l ¥Ex p ansio n o f eth ic g ro u p s requ ires p ro d u ct/serv ice attrib u te mo d ificatio n s to reflect p referen ces ¥Co n sumers areb eco ming in creasin g ly mo re d eman d in g ¥In creasin g con su mer co n fid en ce o f In tern et sho p p in g esp ecially amo n g th e y o u ng g en eratio n ¥Greater co n sumer awaren ess and so p h isticatio n o f p ro du ct/service attrib u tes -1 -1 +2 -1 Techno lo g ica l ¥Th e In tern etis rap idly ex p and in g d igital mark ets an d imp acts h ig h street sales ¥Hig h PC an d bro ad b an d d iffu sio n su p p orts In tern et-b ased sales ¥Th e ad v an cemen ts o f mo b ile commu n icatio n s su p p ort n ew distrib u tio n ch ann els ¥Th e hig h d iffu sio n o f in teractiv e d igital TV h as created a n ew mark et -2 +2 +2 +3 Interna tio na l ¥Co n g en ial in ter-co u n tr y relatio n sh ip s p ro v id e o p p o rtu n ities fo r in tern atio n al ex p an sio n ¥Go o d co n d ition s fo r ov erseaso u tso u rcin g in co u n trieswith cheap er lab o u r an d o th er co sts ¥Th e glo b alisatio n o f in d u stries an d mark ets in ten sifies co mp etitio n +1 +2 -1 ¥Deregu latio n lo wers b arriers to entry in th e in d u stry an d in creases co mp etitio n ¥Hig h er tax atio n rates ¥Greater p resen ce o f reg u lato ry b o d ies in th e in d u stry -2 -1 -2 ¥Gro win g p ressu re to use ren ewab le so urces in th e p ro cess o f pro d u ction ad d sto p ro d uctio n costs ¥Emp h asis o n waste man ag emen t ¥Co n sumer in creasin g preferen ce to g reen p ro d ucts an d fair trad e req u ir es carefu l man ag emen t ¥Op p o rtu n ities to en h ance th e b ran d with corp o rateso cial resp o n sibility characteristics -2 0 -1 +2 Eco nomic Leg a l a nd Reg ula to ry Eco lo g ica l a nd Env iro nmenta l Key: -1 = Low negative effect. -2 = M edium negative effect. -3 = High negative effect 0 = Neutral. +1 = Low pos itive effect. +2 = M edium pos itive effect. +3 = High pos itive effect Figure 4 Effect on the Company Graphical Representation of the Quantifiable PESTILE Analysis Example Economic Variables Technological Variables Socio-Cultural Variables 2 3 2 1.5 1 2.5 1.5 0.5 0 Effect on the -0.5 Company -1 2 1.5 1 Effect on the 0.5 company 1 Effect on the 0.5 company 0 0 -0.5 -1.5 -2 -2.5 Economic slowdown -3 Increasing interest rates Stable disposable income Increasing costs of raw materials Consumer price sensitivity Higher cost of living Low unemployment -1 -0.5 Expansion of ethnic groups -1 Internet shopping confidence 1.5 -0.2 1.5 1 Effect on the company Effect on the 0.5 company 0 -0.4 1 -0.6 0.5 Effect on the company -0.8 -1 -1.2 -1 -1.6 Good conditions for overseas outsourcing -1.8 Deregulation lowers barriers to entry -2 0 -0.5 -1.4 -0.5 Figure 5 2 0 2 High PC and broadband diffusion Hign diffusion of digital TV Ecological/Environmental Variables Legal & Regulatory Variables International Variables Congenial inter-country relationships -1 Higher competition due to globalisation Demanding consumers Greater consumer sophistication -1.5 Internet impact on high street -2 Advancement of mobile communications Higher taxation Greater industry regulation -1.5 Growing pressure for renewable sources -2 Consumer preference on green products Waist management pressures Enhance brand with CSR aspects
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