Chapter 2

The External
Environment
The
PESTLE
Framework
PESTLE
Social Technological

Economic Legal

Political Environmental

COMPETITIVE
RIVALRY
PESTLE
Framework
• A PESTLE analysis studies the key external factors (Political,
Economic, Sociological, Technological, Legal and Environmental)
that influence an organisation.
• is the most comprehensive and used approach for grouping and
reviewing macro-environment trends in strategic management.
• it allows a company to form an impression of the factors that might
impact a new business or industry.
POLITICAL ECONOMICAL
These factors determine the These factors are determinants of an
extent to which a government economy’s performance that directly
may influence the economy or a impacts a company and have resonating
certain industry. long term effects.
P E
ENVIRONMENTAL SOCIAL
These factors include all those These factors scrutinize
that influence or are determined
by the surrounding environment. E S the social environment of the market,
and gauge determinants like cultural
trends, demographics, population
analytics, etc.

LEGAL L T TECHNOLOGICAL
There are certain laws that affect the These factors pertain to
business environment in a certain innovations in technology that may
country while there are certain policies affect the operations of the industry
that companies maintain for and the market favorably or
unfavorably.
themselves.
P E S T L E
• Government • Economic • Population • Technology • Discrimiation • Weather
policy growth growth rate incentives laws • Climate
• Political • Exchange • Age • Level of • Antitrust aws • Environmental
stability rates distribution innovation • Employment policies
• Corruption • Interest rates • Safety • Automation laws • Climate change
• Foreign trade • Inflation rates emphasis • R&D activity • Consumer
policy • Unemployme • Health • Technological protection
• Tax policy nt rates consiousness change laws
• Labour law • Lifestyle • Technological • Copyright and
• Trade attitudes awareness patent laws
restrictions • Cultural • Health and
barriers safety laws
The
PESTLE
Process
Process
1 So m e o n e s h o u ld b e in c h a rg e o f th e
p ro c e s s , in c lu d in g m e e tin g s a n d
d isc u s s i o n s .

2 B e fo re s ta r tin g , th i n k th ro u g h th e p ro c e ss
a n d b e c l e a r w h a t th e o b je c tiv e s o f th e
PESTL E a n a ly s i s .

3 K e e p i t s im p le ; d o n o t g e t b o g g e d d o w n in
d e ta il s o t h a t th e b ig p ic tu re g e ts lo st.
4 Involve a balance of pessimists and optimists;
include outsiders w ith different perspectives
and bew are of vested interests and groupthink.

5 A gree on appropriate sources and check inside

the organization first for information.

6 K eep it simple; do not get bogged dow n in

detail so that the big p icture gets lost.
7 Ide nt i fy t he most c ri t i ca l fa c t or i ssues for
st ra t e gy

8 Produce a discussion document for broader

circulation.

9 U se feedback and follow -up checks on actions

and keep all PE ST L E participants informed on
a follow -up to encourage continual dialogue.

10 D ecide w hich issues to monitor on an ongoing

basis; link to existing in-house processes for
monitoring and review ing change, especially
for planning.
Industry life
cycle
The industry life cycle likens the life of an industry to a
living organism: markets expand over time, eventually
maturing and finally declining. The life cycle has
introduction, growth, maturity, and decline stages
MATURITY
INTRODUCTION
The market stabilizes as demand
Industry competitors seek to develop
level off the industry is now
the winning technology/ business
I M dominated by a few large
competitor

DECLINE
GROWTH

G D
Demand for industry product
Industry products gain acceptance
declines, competition increases,
and rapid growth in product demand
failing competitors either exit the
attracts new competitors
market or are acquired by rival firm
Do industry life cycle
models work?

An industry life cycle model helps strategists identify the opportunities and
threats that characterize different industry environments.
5 Competitive
Forces
A model that identifies and analyzes five competitive forces that shape
every industry and helps determine an industry's weaknesses and
strengths.
Porter's Five Forces Model
Bargaining Power of Supplier
Threat Of Substitute
This force studies how easy it is for This force analyzes how much power a
consumers to switch from a business’s business’s supplier has and how much control
product or service to that of a competitor. it has over the potential to raise its prices,
which, in turn, lowers a business’s profitability
.

Bargaining Power of Custom

Threat Of New Entry
This force considers how easy or This force examines the power of
difficult it is for competitors to join the consumer, and their effect on
the marketplace. pricing and quality.

COMPETITIVE
RIVALRY
8 Sources Of
Barriers To Entry
• Supply-side economies of scale
• Demand-side benefits of scale
• Customer switching costs
• Capital requirements
• Incumbency advantages
• Unequal access to distribution channels
• Restrictive government policy
• Expected retaliation
Bargaining Power of Customers Bargaining Power of Supplier

• Customers are few and buy in quantities that are • Supply is more concentrated than the industry's
mainly about the size of suppliers. customers.
• The industry's products are standardized or • Suppliers are not dependent upon a single industry for
undifferentiated. their revenues.
• Customers have low switching costs in changing • Suppliers have customers with high switching costs and
suppliers. close supply chain relationswith customers.
• Customers can produce the product themselves if • Suppliers with differentiated products and services are
a supplier is too costly. dependent on individualcustomers.
• Suppliers have products and services for which there
are no substitutes.
• Suppliers have the potential to integrate forward and
enter a customer's market.
Hyper Competition
A condition of rapidly escalating competition based on price-quality positioning,
competition to create new know-how and establish first-mover advantage,
competition to protect or invade established product or geographic markets, and
competition based on deep pockets and the creation of even deeper pocketed
alliances
STRATEGIC FIT
This is the matching the opportunities of the external
environment with an organization's internal
capabilities.
End of slides