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The General Environment: Strategic Analysis

This document discusses analyzing an organization's general environment. It begins by defining the general environment and competitive environment. The general environment consists of factors beyond any single industry that can significantly impact organizations. It is important for organizations to scan the general environment to identify weak signals and trends. Scenario planning can help organizations consider different potential futures. PEST analysis is introduced as a framework for analyzing political, economic, social, technological, legal, and environmental factors in the general environment. SWOT analysis evaluates internal strengths and weaknesses as well as external opportunities and threats. The relationship between the general environment and competitive environment is explored, with changes in the former eventually impacting the latter.

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113 views

The General Environment: Strategic Analysis

This document discusses analyzing an organization's general environment. It begins by defining the general environment and competitive environment. The general environment consists of factors beyond any single industry that can significantly impact organizations. It is important for organizations to scan the general environment to identify weak signals and trends. Scenario planning can help organizations consider different potential futures. PEST analysis is introduced as a framework for analyzing political, economic, social, technological, legal, and environmental factors in the general environment. SWOT analysis evaluates internal strengths and weaknesses as well as external opportunities and threats. The relationship between the general environment and competitive environment is explored, with changes in the former eventually impacting the latter.

Uploaded by

sarmitha
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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CHAPTER 2:

STRATEGIC ANALYSIS:
THE GENERAL ENVIRONMENT
Introduction

Previously…..

In this session….
Introduction

Previously…..
What is strategy?
– various definitions and perspectives!
Importance of ‘values’, ‘vision’ and ‘mission’.
The strategic management process:
analysis, formulation and implementation.

In this session….
Introduction

Previously…..

In this session we will begin our consideration of strategic


analysis (external and internal environmental analysis)
by considering ways of analysing the general or contextual
environment.
Learning Objectives
After completing this topic you should be able to:
 Define what constitutes the general environment
 Evaluate the role of scanning and monitoring in detecting environmental trends
 Apply scenario planning to decision-making in uncertain environments
 Evaluate PEST as a framework for analysing the macro-environment
 Explain the use of SWOT analysis
 Evaluate the relationship between the general and the competitive environment.
The General
Environment
•THE EXTERNAL ENVIRONMENT FACING THE
ORGANIZATION
CONSISTS OF:
• General environment
• Competitive environment

•THE CHANGES THAT OCCUR IN THE GENERAL


ENVIRONMENT
TRANSCEND ORGANIZATIONS AND INDUSTRIES

•THE COMPETITIVE ENVIRONMENT CONSISTS OF THE


INDUSTRY
AND MARKETS IN WHICH AN ORGANIZATION
COMPETES
•THE FIGURE The General Environment
SHOWS THE
RELATIONSHIP
BETWEEN THE
ORGANIZATION Political Economic
AND ITS The competitive
EXTERNAL Environment
ENVIRONMENT Potential Entrants

Power of Power of
Suppliers
Buyers

•OTHER THINGS Competitive Rivalry


BEING EQUAL, IT Substitute
IS THE Products/Services
COMPETITIVE
Social Technological
ENVIRONMENT
THAT HAS THE
GREATEST IMPACT
ON THE
ORGANIZATION
Figure 2.1
The General
Environment
• ORGANIZATIONS MUST SCAN THEIR GENERAL ENVIRONMENT TO
DISCERN WEAK SIGNALS

• WEAK SIGNALS REFER TO BARELY PERCEPTIBLE CHANGES IN THE


EXTERNAL ENVIRONMENT WHOSE IMPACT HAS YET TO BE FELT

• ONCE WEAK SIGNALS ARE IDENTIFIED THEY MUST BE MONITORED TO


SEE IF THEY MIGHT COALESCE INTO A TREND THAT CAN IMPACT THE
ORGANIZATION

• THE UNEVEN RATE OF CHANGE IN THE EXTERNAL ENVIRONMENT


LEADS TO DISCONTINUITIES

• DISCONTINUITIES HAVE THE POTENTIAL TO UNDERMINE HOW


ORGANIZATIONS COMPETE
GINTER AND DUNCAN (1990)
Scanning, monitoring and forecasting
Changes in the Environment

Scanning

Monitoring

Forecasting
Types and levels of
Risk and Uncertainty
VAN DER HEIJDEN (1996) IDENTIFIES 3
TYPES OF UNCERTAINTY:

1. RISKS - WHERE PAST PERFORMANCE OF


SIMILAR EVENTS ALLOWS US TO
ESTIMATE THE PROBABILITIES OF
FUTURE OUTCOMES
2. STRUCTURAL UNCERTAINTIES - WHERE
AN EVENT IS UNIQUE ENOUGH NOT TO
OFFER EVIDENCE OF SUCH
PROBABILITIES
3. UNKNOWABLES - WHERE WE CANNOT
EVEN IMAGINE THE EVENT
Scenario Planning
•SCENARIO PLANNING IS AN INTERNALLY
CONSISTENT
VIEW OF WHAT THE FUTURE MIGHT TURN OUT TO
BE
•IT IS NOT A FORECAST BUT A TOOL OF ANALYSIS
TO HELP THE ORGANIZATION RECOGNISE WEAK
SIGNALS
•
SCENARIO PLANNING HELPS MANAGERS TO
OVERCOME BIASES AND IMPERFECT REASONING
•SCENARIO PLANNING HELPS MANAGERS TO
RECOGNISE CHANGE THAT MAY NOT FIT THEIR
THEORY OF BUSINESS
(SCHOEMAKER,1995)
Undertaking Scenario Planning
1. DEFINE THE SCOPE
2. IDENTIFY THE MAJOR STAKEHOLDERS
3. IDENTIFY BASIC TRENDS
4. IDENTIFY KEY UNCERTAINTIES
5. CONSTRUCT INITIAL SCENARIO THEMES
6. CHECK FOR CONSISTENCY AND PLAUSIBILITY
7. DEVELOP LEARNING SCENARIOS
8. IDENTIFY RESEARCH NEEDS
9. DEVELOP QUANTITATIVE MODELS
10. EVOLVE TOWARDS DECISION SCENARIOS

(SCHOEMAKER,1995)
PESTLE Analysis
PESTLE ANALYSIS IS USEFUL FOR SCANNING THE GENERAL
ENVIRONMENT

POLITICAL, ECONOMIC, SOCIAL, TECHNOLOGICAL, LEGAL AND


ECOLOGICAL FACTORS

PESTLE ANALYSIS CAN BE USED TO IDENTIFY WEAK SIGNALS


THAT MAY
POINT TO A DISCONTINUITY SHAPING THE ENVIRONMENT

PESTLE PROVIDES A LINK BETWEEN THE GENERAL AND


COMPETITIVE
ENVIRONMENT [E.G. PESTLE-C]

•WEAK SIGNALS IN THE GENERAL ENVIRONMENT CAN BECOME


FORCES FOR
CHANGE IN THE COMPETITIVE ENVIRONMENT
PESTLE categories

 Political

 Economic

 Social and cultural

 Technological

 Legal

 Ecological
PESTLE analysis
PESTLE ANALYSIS - NOT A ‘SHOPPING LIST’ OF BULLET
POINTS

THE RAMIFICATIONS OF EACH PESTLE FACTOR IDENTIFIED


NEED TO BE CLEARLY EVALUATED

LIMITATIONS?

How useful is general


environmental analysis when
surely only the competitive
environment is directly relevant?
SWOT Analysis
SWOT ANALYSIS REFERS TO STRENGTHS,
WEAKNESSES, OPPORTUNITIES AND
THREATS
STRENGTHS AND WEAKNESSES
- INTERNAL ENVIRONMENT
OPPORTUNITIES AND THREATS -
EXTERNAL (GENERAL AND THE
COMPETITIVE) ENVIRONMENT
THE UNPREDICTABLE NATURE OF EVENTS IN THE
GENERAL ENVIRONMENT MAKES THE USE OF SWOT
ANALYSIS MORE PROBLEMATIC
The General and the
Competitive Environments
 How do changes in the general environment impact on the competitive
environment?

 PEST analysis and scenario analysis can identify changes in the


general environment that will eventually affect the competitive
environment.
Lecture review

 The general environment


 Scanning, monitoring and forecasting
 Risks, uncertainties and unknowables
 Scenario planning
 PEST analysis
 SWOT analysis
Virtual Learning and Seminar

VLH
See the question on the discussion board, do
your research and make at least one
contribution to the discussion
Seminar
Come along prepared to discuss the lecture
material and in particular the review and
discussion questions at the end of Henry 2e
chapter 2
Review and Discussion Questions

Review Questions:
1. Explain the role that weak signals play in helping
managers to understand potential changes in their
competitive environment?

2. Why might PEST analysis be more appropriate for an


organization than scenario planning?

Discussion Question
“Scenario planning is little more than an educated guess.”
Discuss.
Workshop 2

 Feed back on Laura Ashley case-study (if appropriate)


 Review the VLH on-line discussion
 Lecture review
 Discussion question/presentation
Laura Ashley case study

Questions:
 To what extent did Laura Ashley’s theory of business under
Ann Iverson represent a fit with reality?
 Comment on whether Laura Ashley’s strategy in the past
has been more emergent than deliberate.
 How is Laura Ashley’s theory of business being continually
tested?
Review VLH on-line discussion
'What is Strategy?'
‘Is it possible to discern what these airlines’ strategies are from the
information on their websites?’
‘To what extent do you have to ‘read between the lines’?’

British Airways <www.ba.com>

Virgin Atlantic <www.virginatlantic.com>

Lufthansa <www.lufthansa.com>
Ryanair <www.ryanair.com>

Southwest Airlines <www.southwestairlines.com>


Lecture review – In small groups
 Define the “general environment”.
 What is the role of environmental scanning and monitoring?
 What is meant by “scenario planning” and how might it be
used?
 What is PEST analysis and what might be its failings?
 Explain the use of SWOT analysis;
 What is meant by the ‘competitive environment’ and how does
it relate to the ‘general environment’?
Discussion question/presentation

““Scenario planning is little more than an educated guess.”


Discuss.

Prepare a brief presentation giving the arguments in favour and


against the use of scenario planning.
Assignment related activity

Imaging that you are ordering an environmental


analysis for a firm in the textile/clothing
manufacturing industry.
What would you require in terms of a PESTLE
analysis of the general environment?
What factors do you think should have particular
attention?
What aspects are particularly risky or uncertain?
How might scenario planning be useful?
http://www.businessballs.com/freespecialresources/SIC-2007-e
xplanation.pdf

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