Pestel and Porters Diamond

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Lecture Outline
• Analysis of Macro Environment

The External Environment


• Industry analysis
– 5 Forces Model

• Life-Cycle Model

Understanding the EnvironmentIssues
• Diversity
– Many different influences

Layers of the business environment

• Complexity
– Interconnected influences– eg Information Technology changes the nature of work- changes lifestyles- alters consumer behaviour

• Speed of change
– Particularly ICT –means more and faster change

Macro-environment – PESTEL (1)

Macroenvironment – PESTEL (2)
• Government stability • Taxation policy • Foreign trade regulations • Social welfare policies • • • • • • •

Business cycles GNP trends Interest rates Money supply Inflation Unemployment Disposable income

Macroenvironment – PESTEL (3)
• Population demographics • Income distribution • Social mobility • Lifestyle changes • Attitudes to work and leisure • Consumerism • Levels of education

Macroenvironment – PESTEL (4)
• Environmental protection laws • Waste disposal • Energy consumption • • • •

• Government spending on research • Government and industry focus on technological effort • New discoveries /developments • Speed of technology transfer • Rates of obsolescence

Competition law Employment law Health and safety Product safety

Key Aspects of PESTEL Analysis
• Not just a list of influences • Need to understand key drivers of change • Focus is on future impact of environmental factors • Combined effect of some of the factors likely to be most important

Likely Future Trends
• Portable Information Devices • Alternative Energy Sources– Geothermal, hydroelectric

• GM foods and farming • Growth of Woofies • Environmental Awareness

External Environment

Scenario Analysis
• How the business environment might develop in the future based on key environment changes around which there is a high degree of uncertainty. • Newspaper Industry – Influence of electronic media

Issues Priority Matrix
• Identify likely trends:
– Societal and task environments
• Strategic environmental issues

• •

Assess probability of trends occurring
– Low to High

• Energy Industry
– Middle East Situation – Environmental issues

Ascertain likely impact of trends on the corporation
– Low to High

Issues Priority Matrix
Probable Impact on Corporation High Medium Low

Porter’s Diamond
• PESTEL factors differ from country to country –their competitive impact will differ from country to country • Porter’s (1990) suggests reasons why some countries are more competitive than others

Probability of Occurrence



High Priority

High Priority

Medium Priority

High Priority

Medium Priority

Low Priority


Medium Priority

Low Priority

Low Priority

Porter’s Diamond
The Determinants of National Advantage

Porter’s Diamond
• Factor conditions
– Education, infrastructure, cash, eg, Taiwan

• Demand Conditions, eg, Japanese demand for quality. • Firm Strategy, Structure & Rivalry. Eg, Taiwan’s SME sector • Supporting Industries, eg Italy, leather, Silicon Valley computer related industry Source: M. Porter, Competitive Advantage of Nations, Macmillan, 1990.

Industry Analysis
A group of firms producing a similar product or service, such as soft drinks or financial services.

Industry Analysis

Industry Analysis (1)
Threat of New Entrants -Barriers to entry:
• • • • • • • Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Size Government Policy

Industry Analysis (2)
Rivalry Among Existing Firms -Intense rivalry related to:
• • • • • • • Number of competitors Rate of Industry Growth Produce or Service Characteristics Amount of Fixed Costs Capacity Height of Exit Barriers Diversity of Rivals

Industry Analysis (3)
Threat of...
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