Organisational Environment

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2.1 The General
Environment

The General Environment

2.2 Scanning,
Monitoring, and
Forecasting Changes
in the Environment

Key Work
Strategic decision
making under
conditions of
uncertainty

2.3 Scenario
Planning

Key Work
Strategic
inflection
points and their
impact on strategy

Tools and
Techniques
Undertaking
scenario
planning

2.4 PEST
Analysis

2.5 SWOT
Analysis

2.6 The General
and the
Competitive
Environments

Tools and
Techniques
Writing a PEST
analysis



Main Reference
Schoemaker, P.J.H. (1995).
Scenario planning: a tool for strategic
thinking. Sloan Management
Review, 36(2), 25.

Learning Objectives
After completing this chapter 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

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Introduction

2

In the previous chapter we looked at what strategy is and introduced a number of different perspectives on strategy formulation. We addressed the importance of values in determining why an organization exists, and looked at how an organization’s values, its vision, and its mission guide individuals’ behaviour by signposting what is important to the organization. We explained the importance of an organization being willing to change the assumptions that underpin its theory of the business if it is to adapt to changes in its environment. We also introduced a strategic management process which involves strategy analysis, strategy formulation, and strategy implementation. We noted that this essentially linear approach is useful for exposition but may not always accurately replicate decisions in the business world. With this caveat in mind we can start to evaluate some tools of analysis that can be used for strategy analysis. What happens in the general environment is important to an organization. This is because changes that take place in the general environment may point to trends that can substantially impact upon an organization’s competitive environment. These changes, sometimes called discontinuities, fractures, or tipping points, that fundamentally impact on the competitive environment will be considered in this chapter. The tools of analysis an organization can use to discern changes in its general environment will also be considered. This includes scenario planning, which will be assessed as an aid to organizational decision making in uncertain environments. The benefits and limitations of a PEST framework, which includes political, economic, social, and technological factors, will be addressed. A SWOT analysis and its links with scenario planning and PEST analysis will be briefly discussed before being taken up in detail in a later chapter. The aim of the chapter is not simply to apply these techniques but, importantly, to understand their limitations. The chapter ends with a discussion of the links between the general and competitive environment. • Section 2.1 defines the general environment and explains its importance to the competitive environment.

• Section 2.2 evaluates the role of scanning and monitoring the general environment to try to discern discontinuities that have the potential to disrupt an organization’s competitive environment.
• In Section 2.3 we assess the role of scenario planning in helping organizations to deal with uncertainty in their environment. This section also includes how to undertake scenario planning.
• Section 2.4 evaluates PEST analysis as a tool for analysing the macro-environment. It shows how an organization can detect and monitor weak signals in the hope of recognizing the discontinuities or...
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