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PESTLE analysis aims to identify and summaries environmental influences on an organization or policy.

PEST analysis involves identifying the political, economic, sociocultural and technological influences on an organization - providing a way of auditing the environmental influences that have impacted on an organization or policy in the past and how they might do so in future. Increasingly when carrying out analysis of environmental or external influences, legal factors have been separated out from political factors (due to increasing legal influences outside national political systems, such as European and regional legislation). The increasing acknowledgement of the significance of environmental factors has also led to Environment becoming a further general category, hence 'PESTLE analysis' becoming an increasingly used and recognized term, replacing the traditional PEST analyses: P - political E - economic S - socio-cultural T - technological L - legal E - environmental The following can be used as a checklist to consider and prompt analysis of the different influences. The model can then be used to inform and guide further analysis. 1. Which of the environmental factors are affecting the organization? 2. Which of these are the most important at the present time? In the next few years? Political Taxation policy Local government/devolved administrations Economic Business cycles GNP trends Interest rates Inflation Unemployment Disposable income Socio-cultural Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work and leisure Consumerism Levels of education

Technological New discoveries ICT developments Speed of technology transfer Rates of obsolescence Legal International/European Agreement/Law Employment Law Competition Law Health & Safety Law Regional legislation Environmental Environmental impact Environmental legislation Energy consumption Waste disposal The items in the list above are of limited value if they are merely seen as a listing of influences. It is therefore important that the implications of the factors are understood. It may be possible to identify a number of structural drivers of change, which are forces likely to affect the structure of an industry, sector or market. It will be the combined effect of some of these separate factors that will be important, rather than the factors separately. A good example can be found in the forces which are leading to increased globalization of industries and markets. It is particularly important that PEST (LE) is used to look at the future impact of external factors, which may be different from their past impact. Using scenarios may help with this. PEST (LE) analysis may also help to examine the differential impact of external influences on organizations either historically or in terms of likely future impact. This approach builds on the identification of key trends and asks to what extent they will affect different organizations. Strengths Straightforward, easy to grasp tool Broad categories, covering major environmental factors - can priorities specifics for own policy area Can generate a lot of material about influences Can help to identify the long term drivers of change which can be built into scenarios Weaknesses Will be of limited use unless the results are used to inform and guide analysis. Of limited use unless there is some analysis of the differential impact of the trends - need also to indicate which can combine to greater effect and which might cancel each other out.

What is 7-S Model? The Seven-Ss is a framework for analyzing organizations and their effectiveness. It looks at the seven key elements that make the organizations successful, or not: strategy; structure; systems; style; skills; staff; and shared values. Consultants at McKinsey & Company developed the 7S model in the late 1970s to help managers address the difficulties of organizational change. The model shows that organizational immune systems and the many interconnected variables involved make change complex, and that an effective change effort must address many of these issues simultaneously. 7-S Model A Systemic Approach to Improving Organizations The 7-S model is a tool for managerial analysis and action that provides a structure with which to consider a company as a whole, so that the organization's problems may be diagnosed and a strategy may be developed and implemented. The 7-S diagram illustrates the multiplicity interconnectedness of elements that define an organization's ability to change. The theory helped to change manager's thinking about how companies could be improved. It says that it is not just a matter of devising a new strategy and following it through. Nor is it a matter of setting up new systems and letting them generate improvements. There is no starting point or implied hierarchy - different factors may drive the business in any one organization. Shared Values Shared values are commonly held beliefs, mindsets, and assumptions that shape how an organization behaves its corporate culture. Shared values are what engender trust. They are an interconnecting center of the 7Ss model. Values are the identity by which a company is known throughout its business areas, what the organization stands for and what it believes in, it central beliefs and attitudes. These values must be explicitly stated as both corporate objectives and individual values. Structure Structure is the organizational chart and associated information that shows who reports to whom and how tasks are both divided up and integrated. In other words, structures describe the hierarchy of authority and accountability in an organization, the way the organization's units relate to each other: centralized, functional divisions (top-down); decentralized (the trend in larger organizations); matrix, network, holding, etc. These relationships are frequently diagrammed in organizational charts. Most organizations use some mix of structures - pyramidal, matrix or networked ones - to accomplish their goals. Strategy Strategy is plans an organization formulates to reach identified goals, and a set of decisions and actions aimed at gaining a sustainable advantage over the competition.

Systems Systems define the flow of activities involved in the daily operation of business, including its core processes and its support systems. They refer to the procedures, processes and routines that are used to manage the organization and characterize how important work is to be done. Systems include:

Business System Business Process Management System (BPMS) Management information system Innovation system Performance management system Financial system/capital allocation system Compensation system/reward system Customer satisfaction monitoring system

Style "Style" refers to the cultural style of the organization, how key managers behave in achieving the organization's goals, how managers collectively spend their time and attention, and how they use symbolic behavior. How management acts is more important that what management says. Staff "Staff" refers to the number and types of personnel within the organization and how companies develop employees and shape basic values. Skills "Skills" refer to the dominant distinctive capabilities and competencies of the personnel or of the organization as a whole. The Seven Elements The McKinsey 7S model involves seven interdependent factors which are categorized as either "hard" or "soft" elements: Hard Elements Strategy Structure Systems Soft Elements Shared Values Skills Style Staff

"Hard" elements are easier to define or identify and management can directly influence them: These are strategy statements; organization charts and reporting lines; and formal processes and IT systems. "Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more influenced by culture. However, these soft elements are as important as the hard elements if the organization is going to be successful. The way the model is presented in Figure 1 below depicts the interdependency of the elements and indicates how a change in one affects all the others.

CULTURE - HANDY Organizational culture has been given a lot of attention in recent years. Culture consists of the shared values of an organization - the beliefs and norms that affect every aspect of work life, from how people greet each other to how major policy decisions are made. The strength of a culture determines how difficult or easy it is to know how to behave in the organization. This note is a summary of Charles Handy's model describing the 4 main types of corporate culture, taken from his book "Gods of Management". Handy - Gods of Management Handy suggests that we can classify organizations into a broad range of four cultures. The formation of culture will depend upon a whole host of factors including company history, ownership, organization structure, technology, critical business incidents and environment, etc.

The four cultures he discusses are Power, Role, Task and 'People. The purpose of the analysis is to assess the degree to which the predominant culture reflects the real needs and constraints of the organization. HANDYS CLASSIFICATION OF CULTURAL TYPES POWER CULTURE: Culture relies on central figure Central figure communicates outwards no system of feedback found in small organizations Quick decision making can respond to change and outside threats Hard to maintain once the business starts to expand Vigorously pitted against change constrains flexibility Unnecessary costs incurred ROLE CULTURE: Most common and readily recognized Presumption of logic and rationality based on job/role rather than personalities complements traditional hierarchical structure suppress individual efforts to improve No thought required to work in role culture Change relatively slow and only brought about by fear can adapt but this ability restricted and will thus face problems surviving a dramatic change TASK CULTURE: Managements basic concern continuous and successful solution of problems Basis of performance judgment results and problems solved Flexible structure can be tailored according to task in hand Organization more loosely bound than role culture Individual knowledge rather than rank and position Jobs described on the basis of results achieved Suitable for rapidly changing organizations where groups are established for short term basis Often associated with matrix structure e.g. entertainment industry PERSON CULTURE: Structure and culture built around individuals Uncommon for entire organization exists within small areas in an Organization Culture for educated articulate individuals coming together for a common interest e.g. use of some common office service but operate independently

STRATEGIC MANAGEMENT PROCESS The strategic management process means defining the organizations strategy. It is also defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance. Strategic management is a continuous process that appraises the business and industries in which the organization is involved; appraises its competitors; and fixes goals to meet the entire present and future competitors and then reassesses each strategy. Strategic management process has following four steps: Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization. After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it. Strategy Formulation- Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. After conducting environment scanning, managers formulate corporate, business and functional strategies. Strategy Implementation- Strategy implementation implies making the strategy work as intended or putting the organizations chosen strategy into action. Strategy implementation includes designing the organizations structure, distributing resources, developing decision making process, and managing human resources. Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as its implementation meets the organizational objectives. These components are steps that are carried, in chronological order, when creating a new strategic management plan. Present businesses that have already created a strategic management plan will revert to these steps as per the situations requirement, so as to make essential changes.

PORTER'S FIVE FORCES MODEL: ANALYZING INDUSTRY STRUCTURE Defining an industry An industry is a group of firms that market products which are close substitutes for each other (e.g. the car industry, the travel industry). Some industries are more profitable than others. Why? The answer lies in understanding the dynamics of competitive structure in an industry. The most influential analytical model for assessing the nature of competition in an industry is Michael Porter's Five Forces Model, which is described below:

Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are - The threat of entry of new competitors (new entrants) - The threat of substitutes - The bargaining power of buyers - The bargaining power of suppliers - The degree of rivalry between existing competitors Threat of New Entrants New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency, restaurants). Key barriers to entry include - Economies of scale - Capital / investment requirements - Customer switching costs

- Access to industry distribution channels - The likelihood of retaliation from existing industry players. Threat of Substitutes The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on: - Buyers' willingness to substitute - The relative price and performance of substitutes - The costs of switching to substitutes Bargaining Power of Suppliers Suppliers are the businesses that supply materials & other products into the industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive. The bargaining power of suppliers will be high when: - There are many buyers and few dominant suppliers - There are undifferentiated, highly valued products - Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers threatening to set up their own retail outlets) - Buyers do not threaten to integrate backwards into supply - The industry is not a key customer group to the suppliers Bargaining Power of Buyers Buyers are the people / organizations who create demand in an industry The bargaining power of buyers is greater when - There are few dominant buyers and many sellers in the industry - Products are standardized - Buyers threaten to integrate backward into the industry - Suppliers do not threaten to integrate forward into the buyer's industry - The industry is not a key supplying group for buyers Intensity of Rivalry The intensity of rivalry between competitors in an industry will depend on: - The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader - The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price cutting

- Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry - Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier - Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less - Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry.

VALUE CHAIN ANALYSIS Introduction Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings: (1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and (2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities. Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced"). Linking Value Chain Analysis to Competitive Advantage What activities a business undertakes is directly linked to achieving competitive advantage. For example, a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition. By contrast, a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used. Primary Activities Primary value chain activities include: Primary Activity Description

Inbound logistics Operations Outbound logistics

All those activities concerned with receiving and storing externally sourced materials The manufacture of products and services - the way in which resource inputs (e.g. materials) are converted to outputs (e.g. products) All those activities associated with getting finished goods and services to buyers

Marketing and Essentially an information activity - informing buyers and consumers about products and services (benefits, use, price etc.) sales Service All those activities associated with maintaining product performance after the product has been sold

Support Activities Support activities include: Secondary Activity Procurement Human Resource Management Technology Development Infrastructure Description This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials suppliers) Those activities concerned with recruiting, developing, motivating and rewarding the workforce of a business Activities concerned with managing information processing and the development and protection of "knowledge" in a business Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management

Steps in Value Chain Analysis Value chain analysis can be broken down into a three sequential steps: (1) Break down a market/organization into its key activities under each of the major headings in the model; (2) Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage; (3) Determine strategies built around focusing on activities where competitive advantage can be sustained

The firm's margin or profit then depends on its effectiveness in performing these activities efficiently, so that the amount that the customer is willing to pay for the products exceeds the cost of the activities in the value chain. It is in these activities that a firm has the opportunity to generate superior value. A competitive advantage may be achieved by reconfiguring the value chain to provide lower cost or better differentiation. The value chain model is a useful analysis tool for defining a firm's core competencies and the activities in which it can pursue a competitive advantage as follows:

Cost advantage: by better understanding costs and squeezing them out of the valueadding activities. Differentiation: by focusing on those activities associated with core competencies and capabilities in order to perform them better than do competitors.

BOWMANS STRATEGY CLOCK In many open markets, most goods and services can be purchased from any number of companies, and customers have a tremendous amount of choice. It's the job of companies in the market to find their competitive edge and meet customers needs better than the next company. So, how, given the high degree of competitiveness among companies in a marketplace, does one company gain competitive advantage over the others? When there are only a finite number of unique products and services out there, how do different organizations sell basically the same things at different prices and with different degrees of success? This is a classic question that has been asked for generations of business professionals. In 1980, Michael Porter published his seminal book, "Competitive Strategy: Techniques for Analyzing Industries and Competitors", where he reduced competition down to three classic strategies:

Cost leadership. Product differentiation. Market segmentation.

These generic strategies represented the three ways in which an organization could provide its customers with what they wanted at a better price, or more effectively than others. Essentially Porter maintained that companies compete either on price (cost), on perceived value (differentiation), or by focusing on a very specific customer (market segmentation). Competing through lower prices or through offering more perceived value became a very popular way to think of competitive advantage. For many businesspeople, however, these strategies were a bit too general, and they wanted to think about different value and price combinations in more detail. Looking at Porter's strategies in a different way, in 1996, Cliff Bowman and David Faulkner developed Bowman's Strategy Clock. This model of corporate strategy extends Porter's three

strategic positions to eight, and explains the cost and perceived value combinations many firms use, as well as identifying the likelihood of success for each strategy. Figure 1 below, represents Bowman's eight different strategies that are identified by varying levels of price and value.

Position 1: Low Price/Low Value Firms do not usually choose to compete in this category. This is the "bargain basement" bin and not a lot of companies want to be in this position. Rather it's a position they find themselves forced to compete in because their product lacks differentiated value. The only way to "make it" here is through cost effectively selling volume, and by continually attracting new customers. You won't be winning any customer loyalty contests, but you may be able to sustain yourself as long as you stay one step ahead of the consumer (we're not going to mention any names here!) Products are inferior but the prices are attractive enough to convince consumers to try them once. Position 2: Low Price Companies competing in this category are the low cost leaders. These are the companies that drive prices down to bare minimums, and they balance very low margins with very high volume. If low cost leaders have large enough volume or strong strategic reasons for their position, they can sustain this approach and become a powerful force in the market. If they don't, they can trigger price wars that only benefit consumers, as the prices are unsustainable over anything but the shortest of terms. Wal-Mart is a key example of a low price competitor that persuades suppliers to enter the low price arena with the promise of extremely high volumes. Position 3: Hybrid (moderate price/moderate differentiation)

Hybrids are interesting companies. They offer products at a low cost, but offer products with a higher perceived value than those of other low cost competitors. Volume is an issue here but these companies build a reputation of offering fair prices for reasonable goods. Good examples of companies that pursue this strategy are discount department stores. The quality and value is good and the consumer is assured of reasonable prices. This combination builds customer loyalty. Position 4: Differentiation Companies that differentiate offer their customers high perceived-value. To be able to afford to do this they either increase their price and sustain themselves through higher margins, or they keep their prices low and seek greater market share. Branding is important with differentiation strategies as it allows a company to become synonymous with quality as well as a price point. Nike is known for high quality and premium prices; Reebok is also a strong brand but it provides high value with a lower premium. Position 5: Focused Differentiation These are your designer products: High perceived value and high prices. Consumers will buy in this category based on perceived value alone. The product does not necessarily have to have any more real value, but the perception of value is enough to charge very large premiums. Think Gucci, Armani, Rolls Royce. Clothes either cover you or they don't, and a car either gets you around the block or it doesn't. If you believe pulling up in your Rolls Royce Silver Shadow is worth 25 times more than in an economy Ford then you will pay the premium. Highly targeted markets and high margins are the ways these companies survive. Position 6: Increased Price/Standard Product Sometimes companies take a gamble and simply increase their prices without any increase to the value side of the equation. When the price increase is accepted, they enjoy higher profitability. When it isn't, their share of the market plummets, until they make an adjustment to their price or value. This strategy may work in the short term, but it is not a long-term proposition as an unjustified price premium will soon be discovered in a competitive market. Position 7: High Price/Low Value This is classic monopoly pricing, in a market where only one company offers the goods or service. As a monopolist, you don't have to be concerned about adding value because, if customers need what you offer, they will pay the price you set, period. Fortunately for consumers in a market economy, monopolies do not last very long, if they ever get started, and companies are forced to compete on a more level playing field. Position 8: Low Value/Standard Price Any company that pursues this type of strategy will lose market share. If you have a low value product, the only way you will sell it is on price. You can't sell day-old bread at fresh prices. Mark it down a few cents, and suddenly you have a viable product. That is the nature of consumer behavior, and you will not get around it, no matter how hard you try.