Learning Objectives1. Internal and External Analysis; 2. PESTLE Analysis - an examination of the
Legal, Economic, Political, Environmental; Social; Technological; Ethical factors and Competition.
3. SWOT Analysis - identifying and analysing Strengths, Weaknesses, Opportunities and Threats;
4. Porter's 5 Forces - Rivalry amongst Existing Competitors, New Entrants, Substitutes, Bargaining Powers of Buyers and Suppliers.
Business & Financial Analysis Introduction
As the course title suggests this course will examine:Business Analysis andFinancial Analysis
What do they involve ?
Business Analysis
Business Analysis involves:Internal Analysis – value chain, audit External Analysis – SWOT, PESTLE & Porter’s 5
Forces ModelCompetitive Advantage – Generic Strategies
and SPACE Model, Stakeholder Analysis and Choices
This session will focus on External Analysis (Internal Analysis: Self study)SWOTPESTLEPorter’s 5 Forces Model
External Analysis
SWOT PESTLE Porter’s 5 Forces Model
Spend a moment outlining what you know of each model
OK, let’s see if we agree…
SWOT Analysis
SWOT
Strengths Internal Factors
Weaknesses
Opportunities External Factors (PESTLE Analysis)
Threats
Opportunities & Threats
PESTLE Analysis is a useful tool to help identify Opportunities & Threats facing your organisation or sector
Let us examine PESTLE Analysis…
PESTLE Analysis
PESTEL analysis is: an evaluation of broad societal trends that
affect many industries. It is intended to identify:
both current and, especially, future developments that will shape the micro-environments of each industry sector
What current and future developments will have an impact on a particular sector ?
Hint: The first one is P – Political. The second is E…
PESTLE Factors
POLITICAL ISSUES/TRENDS
ECONOMIC ISSUES/TRENDS
SOCIAL ISSUES/TRENDS
TECHNOLOGICAL ISSUES/TRENDS
ENVIRONMENTAL ISSUES/TRENDS
LEGAL ISSUES/TRENDS
PESTLE & The Oil Sector
Spend a moment listing events under each heading with reference to the Oil Sector, for example:
P – PoliticalTension in the Middle East may impact on
supply and hence priceTension between neighbouring countries may
affect supply, e.g. Russia and UkraineTax will affect price
What did you come up with ?
E EconomicVolatility in the price of oilExchange rate risk (oil is priced in $)Cost of petrol and its impact on demand
SocialThe rise of the car from luxury to necessityMove to green and/or alternative fuel
TechnologyDevelopment of alternative energy due to….?
EnvironmentalBP Oil Spill
LegalFines etc, consider the cost of the recent BP oil
spill
A good PESTLE analysis should be…. Focused on society wide trends which looks at
the impact on industry and organisation. Based on sound research of actual (not
hypothetical) issues. Supported by evidence from the research to
validate points made. Future oriented rather than merely describing the
present, i.e. it is about emerging trends that will shape the industries future.
Interpretive in nature not descriptive, i.e. don’t just state what is, but say why/how it is significant for the future of the industry and firm context.
Porter’s 5 Forces Model
Industry Sector AnalysisThe industry analysis can be done using
Porter’s 5 Forces Model.
This has two main aims:1.To understand the drivers of competitive behaviour
in the sector;2.To evaluate the long-run profit potential of the
sector;
What factors do you think drive Competitive Behaviour ?
Threat ofnew entrants
BargainingPower of
consumers
Bargainingpower ofsuppliers
Threat fromSubstitutes
Rivalry amongExisting firms
Porter’s 5 Forces Model
Again, consider the Oil Sector
Bargaining power of Suppliers
Bargainingpower of Customers
Threat ofSubstituteproducts
Threat fromnew entrants
Intensity of Rivalry
• Capital requirements• Product differentiation • Switching costs• Access to distribution
channels• Access to raw materials• Intellectual property• Competitive response• Government regulation• Economies of scale
• Degree of differentiation• Technological innovation• Price performance relationships
• Size of purchases• Undifferentiated product• Per cent of cost• Low margins (buyer)• Threat of forward integration• Impact on quality• Price performance is high
• Size of purchases• Differentiation in product• Few substitutes• A few big suppliers• Threat of backward
integration
• Growth rate of market• Relative size of rivals• Capacity increases in
large increments• Exit barriers are high• Switching costs • Profitability
Evaluation of the Five Force Model
Identifies drivers of competitive behaviour.
Indicates trends in profitability.
Highlights strategies to alter industry structure.
Can be used to compare attractiveness of different sectors.
Assumes all business relationships are competitive.
Industry convergence makes defining sectors difficult.
Five forces may not capture the whole picture of what drives an industry.
ADVANTAGES DISADVANTAGES
Market analysis for strategy
Market attractiveness Is entry into the market compatible with our strategic
objectives? Competitive advantage
What relative (better) or absolute (unique) advantages do we bring to the market that satisfy customer needs better than competitors?
The GEC Matrix examines these issues
Market analysis for strategy purposes is not simply about customer segments, their needs and numbers as in marketing.
Strategists are concerned with broader criteria relating to*:
* These two issues overlap, i.e. the better able you are to compete, the more attractive the market
Information sources
Basic market data Mintel Keynote Datamonitor/Marketline Census data
Basic competitor information Hoovers online Fame Corporate web sites
Obviously, the available sources are many and varied but key ones include:
Summary
SWOTStrengths, Weaknesses – Internal Factors Opportunities & Threats – External Factors
(PESTLE Analysis)
Porter’s 5 Forces Model – Competitive Behaviour/ Industry Sector Analysis
Can you remember what PESTLE stands for and what the 5 Forces are ?
PESTLE Factors
POLITICAL ISSUES/TRENDS
ECONOMIC ISSUES/TRENDS
SOCIAL ISSUES/TRENDS
TECHNOLOGICAL ISSUES/TRENDS
ENVIRONMENTAL ISSUES/TRENDS
LEGAL ISSUES/TRENDS
Threat ofnew entrants
BargainingPower of
consumers
Bargainingpower ofsuppliers
Threat fromSubstitutes
Rivalry amongExisting firms
Porter’s 5 Forces Model