The Business Environment Contextual environment Transactional/ Stakeholder environment Client Competitors Games Driving forces Driving forces Political Economic Social Technological (Legal Ecological Demographic) Players

Structured investigation through consideration of:- Political - policies, power structures, alliances, etc. Economic - global markets, currencies, growth, etc. Social - demographics, culture, skills, etc. Technological - IT, communications, logistics, etc. Ecological - climate, energy, sustainability, etc. The scenario approach

Examples of Driving Forces l Economic –greying population –debt burdens –changing profile of employment –global competitiveness l Societal –2 billion teenagers by 2001 –declining literacy standards –rise of “single parent” families –role of women in society –the “have” and “have nots” –“portfolio” workers l Technological –genome project –superhighway –multi-media l Political –EU pressures –WTO/NAFTA/ASEAN –north/south divide –rise of “nationalism” l Ecological –ozone layer depletion –refuse/rubbish disposal –changing weather –water shortages

PESTLED analysis Scania in the UK in 1990s l Political –restrictive government transport policies –change in government: more restrictive –rail privatisation –investment in rail infrastructure –EU pressure to regulate road haulage companies eg truck size, driver hours, registration requirements –toll roads –restriction in central road building –excise duty on diesel –increasing levels of truck road tax l Economic –effects of economic cycles and demand for new trucks –FX fluctuations –single EU currency –increasing interest rates/new vehicle l Social –lobby of governments to reduce road traffic congestion –increase in demand for clean cities l Technological –complexity in truck design –innovation in on-board management systems –channel tunnel - rail freight –innovation in fuel consumption/emission control technology –alternative fuels –IT logistics & distribution l Legal –dealers “Block exemption” review –EU harmonisation –truck sizes increases/scale efficiencies l Ecological –EU emissions –lobby for rail freight –engine service requirements –increasing public concern re health, QoL etc l Demographic –changing shopping habits influencing rates of growth and geographical distribution of retailers

Questions l What are the key driving forces? l In the past? l In the future? l What are key uncertainties?

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

Scenario Planning l Use PEST analysis l To identify main areas of uncertainty l With major potential impact in terms of: - Key environmental influence - Drivers of change Use up to 5 of these factors for scenario building HI LO HI Potential Impact Uncertainty

l Define ‘driving forces’ that will impact upon the future business environment l Outline 2 polar extremes of possible outcomes from it. The scenario approach - Driving forces

High impactLow impact Low certainty The scenario approach - Impact on Business High certainty

High impactLow impact Low certainty The scenario approach - (Un)certainty High certainty Factor A Factor B

Scoping the Scenario Boundaries factor A factor B Extremes A1+B2 Extremes A2+B2 Extremes A2+B1 Extremes A1+B1

Developing Scenarios Establish scenario dimensions l identify horizon year l brainstorm on external environment – PEST/STEEP/PESTLED l cluster and label issues to establish scenario agenda l set up scenario 2 by 2 matrix l identify scenario themes - what is most relevant to the case organisation? l label scenarios with titles which are memorable and represent the dynamics of the situation l describe scenario stories in the horizon year

Key environmental variable ranking chart Least impact Most impact Most predictable outcome Least predictable outcome Predictable Planning Region Problematic Planning Region

Scenario End-State Design Chart Key variable 1 Pole 1 Key variable 1 Pole 2 Key variable 2 Pole 2 Key variable 2 Pole 1 Scenario 1 Scenario 4Scenario 3 Scenario 2

Scenario Implications l Consider your scenarios on behalf of your case organisation and ask the following questions: l Can you identify drivers of change? What are they and what might be the impact for the case organisation? l Who are the key actors driving change? l What are the implications for competition in the future? l What are the implications for customers and markets in the future?