Contextual environment and
scenarios
Chapter 2, Exploring Corporate
Strategy
EBE and Scenarios materials
Why do we need to analyse the
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)
Political
• Government stability
• Taxation policy
• Foreign trade
regulations
• Social welfare
policies
Exhibit 2.2
Economic
•
•
•
•
•
•
•
Business cycles
GNP trends
Interest rates
Money supply
Inflation
Unemployment
Disposable income
Macroenvironment – PESTEL (3)
Sociocultural
Technological
• Population
demographics
• Income distribution
• Social mobility
• Lifestyle changes
• Attitudes to work and
leisure
• Consumerism
• Levels of education
• Government spending on
research
• Government and industry
focus on technological
effort
• New discoveries
/developments
• Speed of technology
transfer
• Rates of obsolescence
Exhibit 2.2
Macroenvironment – PESTEL (4)
Environmental
• Environmental
protection laws
• Waste disposal
• Energy consumption
Exhibit 2.2
Legal
•
•
•
•
Competition law
Employment law
Health and safety
Product safety
What are the strengths and
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
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
The ‘Unknowns’
WWKWDK
WWDKWDK
WWK
Forecasting and Scenario planning
uncertainty
F
S
H
predetermineds
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
Build 2 or 3 scenarios based on:
1.
2.
3.
4.
Consistent mix of identified factors
Key uncertainties
Dominant themes
Optimistic, pessimistic, middle ground
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 1
Scenario 1
Key uncertainty 2
Scenario 2
Key uncertainty 3
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