contextual environment and scenarios chapter 2, exploring corporate strategy ebe and scenarios...
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Contextual environment and Contextual environment and scenarios scenarios
Chapter 2, Exploring Corporate Strategy
EBE and Scenarios materials
Why do we need to analyse the Why do we need to analyse the contextual environment?contextual environment?
Understanding the Environment
Diversity– Many different influences
Complexity– Interconnected influences
Speed of change– Particularly ICT
Macroenvironment – PESTEL (1)
Exhibit 2.2
Macroenvironment – PESTEL (2)
Exhibit 2.2
Political• Government stability• Taxation policy• Foreign trade
regulations• Social welfare
policies
Economic• Business cycles• GNP trends• Interest rates• Money supply• Inflation• Unemployment• Disposable income
Macroenvironment – PESTEL (3)
Exhibit 2.2
Sociocultural• Population
demographics• Income distribution• Social mobility• Lifestyle changes• Attitudes to work and
leisure• Consumerism• Levels of education
Technological• Government spending on
research• Government and industry
focus on technological effort
• New discoveries /developments
• Speed of technology transfer
• Rates of obsolescence
Macroenvironment – PESTEL (4)
Exhibit 2.2
Environmental• Environmental
protection laws• Waste disposal• Energy consumption
Legal• Competition law• Employment law• Health and safety• Product safety
What are the strengths and What are the strengths and limitations of PESTEL analysis?limitations of PESTEL analysis?
Key Aspects of PESTEL Analysis
Not just a list of influences Need to understand key drivers of change Drivers of change have differential impact on industries,
markets, and organisations Focus is on future impact of environmental factors Combined effect of some of the factors likely to be most
important
How do you feel about How do you feel about scenarios?scenarios?
[...] Now what is the message there? The message is that there are no "knowns." There are things we know that we know. There are known unknowns. That is to say there are things that we now know we don't know. But there are also unknown unknowns. There are things we don't know we don't know. So when we do the best we can and we pull all this information together, and we then say well that's basically what we see as the situation, that is really only the known knowns and the known unknowns. And each year, we discover a few more of those unknown unknowns.
It sounds like a riddle. It isn't a riddle. It is a very serious, important matter. There's another way to phrase that and that is that the absence of evidence is not evidence of absence. It is basically saying the same thing in a different way.
Press conference D. Rumsfeld, NATO headquarters, Brussels, 6 June 2002
WWK
WWKWDKWWDKWDK
The ‘Unknowns’
F S H
uncertainty
predetermineds
Forecasting and Scenario planning
Distance into the future
Scenarios serve four main purposes:-
1. Prospective – anticipating and understanding risk
2. Entrepreneurial –discovering new strategic options
3. To help managers break out of their established mental constraints and get closer to “seeing possible reality”
4. To evaluate the robustness of strategic options given different possible futures
Scenarios
Are:
An archetypical image of the future
AND
An interpretation of the present
AND
An internally consistent story about the path from present to future
Are not:
Stories about the strategy of the organisation
Predictions
Extrapolations
Good/bad futures
“Science fiction”
Strategic Questions
Today which customers do you serve? through what channels do you
reach your customers? who are your competitors? what is the basis of your
competitive advantage? what are your distinctive
competencies?
Tomorrow who will your customers be? through what channel will you
need to reach your customers? who will your competitors be ? what will need to be the basis of
your competitive advantage? what distinctive competencies will
you need to develop?
Steps to Developing Scenarios
Identify focal issues or decisions - consider “strategic questions” Identify horizon year brainstorm on external environment - PESTEL cluster and label issues to establish scenario agenda - Identify
driving forces Rank by Impact on the business and Uncertainty set up scenario 2 by 2 matrix – ensure independent axes Flesh out Scenarios name scenarios with expressions of the dynamics occurring describe stories in horizon year by cause and effect reasoning
over time Consider implications for the business Selection of leading Indicators
Building Scenarios
1. Consistent mix of identified factors
2. Key uncertainties
3. Dominant themes
4. Optimistic, pessimistic, middle ground
Build 2 or 3 scenarios based on:
Some common errors
Make sure the horizon year is appropriate to the issue
Use active voice sentences/phrases for driving forces When discussing “impact” of driving forces be clear
that you are concerned with impact on the client organisation
Make sure axes of 2x2 scenario matrix are independent and related to contextual environment
Building Scenarios
Pre-determineds
Key uncertainty 3
Key uncertainty 2
Key uncertainty 1 Scenario 1
Scenario 2
Scenario 3
Consider once more the Scenarios purposes:-1. Prospective – anticipating and understanding risk
2. Entrepreneurial –discovering new strategic options
3. To help managers break out of their established mental constraints and get closer to “seeing possible reality”
4. To evaluate the robustness of strategic options given different possible futures
Scenarios and Learning
“... the ability to learn faster than your competitors may be the only sustainable competitive advantage .....”
de Geus HBR 1988