Week 3 - The Strategic Framework

Week 3 - The Strategic Framework

Sources/References:

1)      Lecture Notes

2)      Tutorial References

3)      “PEST analysis”, Wikipedia

http://en.wikipedia.org/wiki/PEST_analysis

4)      “SWOT analysis”, Wikipedia

http://en.wikipedia.org/wiki/SWOT_analysis

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.