Week
3 - The Strategic Framework
Sources/References:
1) Lecture
Notes
2) Tutorial
References
3) “PEST
analysis”, Wikipedia
4) “SWOT analysis”, Wikipedia
Response:
In
this week lecture, 2 important strategic frameworks are introduced. One is PEST
analysis, another one is SWOT analysis. In the following paragraph, I will try
to express my understanding of this 2 analysis clearly.
PEST
analysis is a framework of factors in macro environment, which used in the early
stage of strategic thinking, to analysis the impact of the overall business
environment. That is, PEST analysis can give a whole picture of the business
environment to the managers.
P
stands for Political factors, including legal factors, e.g. political
stability, trade restrictions and tariffs, tax policy etc. They mean that how
and to what degree a government intervenes in the economy. For example, the
United States government has set different trade restrictions in different
import products from China. Therefore, the businessmen in China will have a
higher level of P when using PEST analysis.
E
stands for Economic factors, including stage of business cycle, labour costs,
inflation rate etc. They are about the major impacts on how businesses operate
and make decisions. For example, due to the law of the minimum wages of labour,
the labour costs increase, which affect many industries. For those industries,
there is a higher level of E in PEST analysis now.
S
is stands for Social factors, including population growth rate, age distribution,
career attitudes etc. They affects the demand for a company’s products and how
the company operates. For example, there will be an increase in demand of
careering services in Poly U campus in next year since there are 2 types of
year 1 students, both students from HKAL and HKDSE. Therefore, there will be a
higher level of S to careering companies in PEST analysis next year.
Last
but not least, T is stands for technological factors, including automation,
technology incentives, the rate of technological change etc. They determine
barriers to entry, minimum efficient production level and influence outsourcing
decisions. For example, due to the popularity of auction websites, e.g.
Yahoo!auction, eBay etc., many stores can now promote the business and do
business on the Internet. So, there is a higher level of T to those businesses
in PEST analysis.
SWOT
analysis is different from PEST analysis. SWOT analysis is a strategic planning
method, which use to evaluate the following 4 factors involved in the business.
S
stands for Strengths, including the advantages of the company, unique or
lowest-cost resources etc. For example, because of backward integration, the
cost of raw material is lower than other competitors.
W
stands for Weakness, including the disadvantages of the company, the areas the
business should improve etc. For example, the turnover of human resources is
higher than other companies; the training expenses will be higher. Also, the
performance of the company might have an negative effect.
O
stands for Opportunities, including the external chances to improve performance.
For example, due to information age, the needs for website design, information
system design etc. increase, the opportunity for hosting companies, system
design company increase respectively.
T
stands for Threats, including external elements that cause trouble for the
business, competition etc. For example, the cost of china labour is much lower
that that of local labour. Therefore, if the business continues using local
labour, there is a threat to the business, since the cost of products would be
increased.
