lecture 5 the general environment celia hadjichristodoulou cyprus institute of marketing - nicosia...
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Lecture 5THE GENERAL ENVIRONMENT
Celia HadjichristodoulouCyprus Institute of Marketing - Nicosia31/10/2013
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Outline• The General Environment
• Environmental Analysis and Diagnosis
• PESTLE Analysis
• Beyond PESTLE
• Ethical Considerations
• Government-Related Considerations
• Why be concerned with Environmental Analysis and Diagnosis?
• Strategic planning of Unicars: live presentation!
• Next Session
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The General Environment
• The current and forthcoming lectures will be dealing with the impact of environmental factors on the strategic management process, as well as ways in which the factors can be analyzed and diagnosed
• There are many ways to organize the sectors for analysis and diagnosis
• How can we analyse the environment within which the organisation operates?
• An in-depth analysis of the firm’s environment typically involves examining six major factors (PESTLE): Political, Economical, Social, Technological, Legal and Environmental.
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Environmental Analysis & Diagnosis
• Environmental analysis is the process by which strategists monitor the environmental sectors to determine opportunities for and threats to their firms
• Analysis is the tracing of an opportunity or threat to a source
• Environmental diagnosis consists of decisions made by assessing the significance of the data (opportunities and threats) of the environmental analysis
• These decisions lead to other decisions on whether to react, to ignore, try to influence, or anticipate the opportunities or threats discovered
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PESTLE Analysis
Political• Local, national and international political developments –
how will they affect the organisation and in what way?
• How actions from formal or informal political parties; government may influence the organisation?
• Governments have great influence on the health, education, and infrastructure of a nation
Political Stability
Tax Policy
Trade Restrictions & Policies
International Trade Regulations
Changes in Tax Structure6
PESTLE Analysis
Economical• The markets in which the organisation operates, including
labour markets, plus conditions in the national and international economy
Monetary Policies
Government Spending
Exchange Rates
Inflation Rates
Employment Rates
Interest Rates
Stage of Business Cycle
Economic Stability & Growth
Market Stability
Trade Restrictions
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• For example, tax policies can reduce the attractiveness of investment in an industry or reduce the after tax incomes of consumers who then lower their spending levels
• There are various economic factors that many firms analyze and diagnose:
• The stage of the business cycle. The economy can be classified as being in recession, recovery, or prosperity stage
• The inflationary or deflationary trend in the prices of goods and services (i.e. if inflation is very severe, wage and price controls may be imposed)
• Monetary policies, interest rates, and devaluation or revaluation of the currency in relation to other currencies
• Fiscal policies: tax rates for firms and individuals
• Etc.
• Each of these facets of the economy can help or hinder the achievement of a
firm's objectives and lead to success or failure for the strategy
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PESTLE AnalysisEconomical cont’d
PESTLE Analysis
Social Demographic Factors
Cultural Values / Influences Family Size Immigration Religion
Social Behaviour / Preferences
Income Distribution
Age Distribution
Labour and Social Mobility
Lifestyle Changes
Work / Career / Leisure Attitudes
Living Conditions
Population Growth Rate
Educational Level9
PESTLE Analysis
Social cont’dFor Example: Years ago, the norm was for a family to have two to four children. Today not all
individuals accept this, and change of attitude has had a big impact on P&G (Pampers) , Gerber (baby food), builders, Mattel (toys) etc.
Also, decades ago, retired people, single people, widows and widowers to live with relatives. Now there is a trend toward living alone, and this has had a big impact on builders, appliance manufacturers, food packers, magazine publishers etc.
For years most married women stayed home. Now, most work. This has caused problems for firms that sold door to door and has increased business for a variety of firms, such as those offering nursery school service, prepared foods, restaurants, and home security systems
• Increased education has led to new attitudes on the part of employees about how many hours they wish to work, the quality of life they expect at work, and the kind of supervisory style they expect can affect how strategies are developed and implemented. New benefits programs / WLB schemes are also needed for new lifestyles
• Cyprus example: RAI study findings
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Government Spending in R&D
New Inventions & Developments
Energy Cost & Use
Changes in IT
Changes & Trends in Internet
Changes in Mobile Technology
Automation
Technology Incentives
Electronic Money Transfers
Mobile Phones- Decline of the Fax
Video Conferencing
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PESTLE Analysis
Technological
For Example:
• Changing technology can offer major opportunities for improving goal achievement or threaten the existence of the firm
• Examples of product and service breakthroughs include transistors, lasers, efficient batteries for electric cars, computers, dvd’s etc.
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PESTLE Analysis
Technological cont’d
Legislation Contract Laws Consumer and Employee Protection Trade Unions Discrimination Laws Consumer Laws Employment Laws Health and Safety Laws Disciplinary and Grievance Procedures Equal Pay Holidays and Benefits Absence- Maternity and Paternity EU Regulations Regulatory Constraints Working Time Directives Minimum Wage
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PESTLE Analysis
Legal
• The impact of the natural world; climate; resources reduction etc.
• For example, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer.
Waste Disposal / Recycling
Sustainable Energy
Climate Changes
Environmental Regulations
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PESTLE Analysis
Environmental
For Example:
• Large food distributors can be paralyzed by an abnormal storm that keeps their trucks off the road
• Several businesses derive opportunity by providing climate - forecasting services
• One example is Ocean routes, which employs 65 full - time meteorologists. They plot weather and sea conditions leading to the best routes for ship lines so that time and fuel costs are minimized
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PESTLE Analysis
Environmental cont’d
Beyond PESTLEEthical Considerations
• Social values and behaviours that affect the perception of organisation leading to Corporate Social Responsibility and Business Ethics
Bribery
Reputation
Client Confidentiality
Employee Personal Information
Copyright Rights / Intellectual Property
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Beyond PESTLEGovernment-Related Considerations
Federal, state and local governments increasingly affect how businesses is maintained by organisations
They legislate on such matters as:• Wage and price controls• Equal employment opportunity• Safety and health at work• The way that consumer credit is administered• The place that the plant can be located• The chemicals that the plant can emit into the air• The amount of noise that the product can make• The way in which the firm can run advertising and the kinds of ads that can be run
Government philosophies, its relationships with business and its imposed laws and regulations can change over time. This is an important aspect for strategists to examine since these change how businesses operate on a day - to - day basis
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• Action by governments also affects the strategic choices of businesses
• They can increase a business's opportunities or threats or sometimes both. Some examples of opportunities include the following:• Government policy changes can lead to increases in opportunities and new business
for firms• Governments sponsor firms and industries and thus help them survive and prosper• Governments protect home producers against "unfair" foreign competition• Governments are large purchasers of goods and services
• Besides encouraging and helping, the government creates threats when it affects profits negatively. Many laws and regulations can limit the strategic options of many firms• For example, governmental policies that change economic conditions, tax laws etc.
can create threats to particular businesses (i.e. taxation & consulting organisations)
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Beyond PESTLEGovernment-Related Considerations cont’d
Why be Concerned With Environmental Analysis & Diagnosis?
• Managers must systematically analyze, explore and understand the environment since environmental factors are prime influencers of strategy change
• Environmental analysis and diagnosis gives strategists time to anticipate opportunities and to plan to make optional responses to these opportunities (i.e. plan ahead)
• Thus, helps strategists develop an early warning system to prevent threats or develop strategies which can turn a threat to the firm's advantages
• Important: When the company ceases to adjust the environment to its strategy or does not react to the demands of the environment by changing its strategy, the result is to observe a lessened achievement of corporate objectives
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Why be Concerned With Environmental Analysis & Diagnosis? cont’d
• Managers need to search the environment to:
(1) Determine what factors in the environment present threats to the company's strategy and barriers to objectives accomplishment
(2) Determine what factors in the environment present opportunities for a greater accomplishment of objectives through an adjustment in the company's strategy
• Firms which systematically analyze and diagnose the environment are more effective than are those which don’t
• Successful firms do more and better environmental analysis and diagnosis than do failing firms 23
Assignment 2• An in-depth analysis of the firm’s environment can be achieved by applying
the principles of PESTLE analysis. Discuss using real life examples.
• Format: Essay Type, 3000 words, produced on a laser printer
• Deadline: 11th April 2014
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Live Cypriot case study: Strategic Planning of Unicars for 2013-2016
• By Mr. Panayiotis Thrasyvoulou, HR and Quality Manager, Unicars Ltd
• Before similar position in Cybarco Ltd (Lanitis Group of Companies)
• BSc in Business Management, Essex University• MSc in International Employment Relations & Human
Resources Management, London School of Economics & Political Science (Distinction)
• Award from LSE “Foundation of Automation and Human Development School Prize for the Best Overall Performance”.
• Feel free to ask questions 25