what is the PESTEL framework?
highlights six external factors including:
- political
- economic
- social
- technological
- ecological
- legal
organisations need to consider market environment (e.g. suppliers, customers and competitors) and the non-market environment (e.g. government, media, campaign groups)
what are political factors?
- the role of the state
- government policies
- foreign trade regulations
- political risks in foreign markets
- changes in regional trade blocs (e.g. BREXIT)
- exposure to civil society organisations
what are economic factors?
- business cycles
- economic growth rates
- rates
- unemployment rates
- interest
- personal disposable income
- exchange rates
what are social factors?
- culture
- demographics
- wealth distribution
- geography
- organisation networks within an organisational field (the community of organisations that interact more frequently with one another than with those outside the field)
what are technological factors?
new discoveries and technology developments
- blockchain
- supercomputing
- generative AI
- lunar exploration
what are ecological factors?
environmental issues, such as pollution, waste and climate change
- global warming
- waste disposal and recycling
- environmental protection regulations
- renewable energy
what are legal factors?
- labour, environmental and customer regulations
- taxation and reporting requirements
- rules on ownership
- competition regulations
- regulation of corporate governance
what are the varieties of capitalism?
- liberal market economies
- coordinated market economies
- developmental market economies
what are liberal market economies?
formal and informal rules favour competition between companies (UK, USA)
what are coordinated market economies?
encourages more coordination between companies, supported by industry associations (Germany, Japan)
what are developmental market economies?
strong roles for the state, which own or influence companies that are important for economic development (China, Brazil)
what are the key drivers for change?
external factors that are likely to have high impact on industries and sectors and may vary by industry or market (e.g. birth rate is a key driver for those planning nursery education provision)
forecasting
all strategic decisions involve forecasts about future conditions and outcomes and takes 3 fundamental approaches based on varying degrees of certainty:
- single point
- range
- alternative futures
single-point forecasting
for low uncertainty (straight line graph)
range forecast
medium level uncertainty
alternative futures
high uncertainty
what are megatrends?
large-scale changes that are slow to form but influence many other activities over decades to come
- e.g. ageing populations, global warming and the wide use of ai
what are inflexion points?
when trends shift sharply upwards or downwards
- e.g. the experience of working from home during the pandemic may have tipped the trend against working in the office
what are weak signals?
advanced signs of future trends that may help to identify inflexion points, often unstructured and fragmented bits of information
- e.g. mortgage failures in California 2007 were a weak signal for the financial crisis in 2008
what are scenarios?
possible ways an organisation’s environment might evolve in the future, based on important changes that are highly uncertain
outline the scenario process
- define the scope (industry, region, years)
- identify key drivers (PESTEL; megatrends, inflexions, weak signals)
- develop distinct scenario ‘stories’ (name scenarios)
- identify impacts (check and adapt strategies)
- monitor progress (early warning indicators)
carrying out scenario analysis
- develop scenario ‘stories’: coherent and plausible descriptions of the environment that result from opposing outcomes
- identify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios
- monitor progress: identify indicators that might give an early warning of the way the environment is changing and monitor such indicators
explain the role of AI
- AI can power scenario planning for real-time strategic insights
- AI-based monitoring can quickly evaluate millions of data points (news events, regulatory updates, social media, competitor announcements) and identify decisive indications of how a scenario is developing and what problems may be ahead
