Strategic Planning Process: The External Environmental Analysis.

Assalamualaikum guys,,,, may god bless you all..

Topic for lecture today is about external environment in page 38 from textbook strategic of management. An organization needs to understand its external environment. Why we need external environment in our organization?, this is because being aware of customer tastes and preferences, the changes of economy, and to know about their competitors. The external environment also can help the organization improve its performance or hinder its performance. Moreover, this external environment will focus on how firms analyzes and understand the external environment.

The general environments or macroenvironment is PESTEL.

First we will look into the General Environments @ macroenvironment. A simple word to remember the General and Industry Environment factor is PEST or sometimes PESTEL. They call it Pestel because have add environmental and legal.

PESTEL:

P: Political factors; for political stability and risk, import tariffs and quotas, export restrictions and anti-monopoly laws.

E: Economic factors; for economic growth, unemployment rate, inflation rate, inventory levels, and gross domestic products.

S: Socio-cultural factors; for demographic factors such as population size and distribution, age distribution, education levels, and income distribution. Then for attitudes towards are consumerism, environmentalism, work/leisure, and materialism.

T: Technological factors; for rate of technological transfer, energy use and cost, and intellectual property issues.

E: Environmental factors; for save the earth, and go green.

L: Legal factors; for valid or legal business.

The industry environment or microenvironment is Porter’s Five Forces.

Second we will look into the industry environment or microenvironment. These factors include the threat of new entrants, the bargaining power of supplier, threat of substitute products and services, bargaining power or buyers, and rivalry among the existing firms.

The example of Porters Five Forces is oil and gas industry:

Supplier: PETRONAS, BP, Caltex, Shell and so on

Buyers: The market structure is monopolistic and the non-price competitive is very common, so the buyer have to seek lower price and better contract terms.

New Entrants: High challenges for new entrants because of high fix cost, and the scarcity of resources.

Rivalry: The rivalry among the existing firm is very high.

Substitute: Solar power, wind power, coal, hydroelectric, and even nuclear energy.