Question

The STEEP, PEST or PESTLE model, Porter’s five forces model, and the SWOT framework. Each of these models has a different focus and purpose in analysing and understanding the organisational business environment.

Please explain each of these models and the purpose of how each model is used for businesses/organisations

Answer 1

1) STEEP/ PEST/PESTLE Model:It is an acronym for sociological, technological, economical, environmental and political environment. It is one of the most popular tool to understand future trends in a business environment. It involves analysis of the following trends:

Social trends: This involves any assessment of who people are, how they live, their health, and other trends about daily life. Some prominent indicators include:

Demographics

Marriage rates

Morbidity and mortality

Housing choices

Technological trends: Technology is one of the most popular ways to forecast the future. After all, industrial advances and the gadgets of modern life have been a key driver of change around the world. Some indicators include:

Materials science

Information technologies

Energy generation, storage, and transmission

Product design

Economical trends:It includes inflation rate, interest rate etc. These trends have a direct impact on the profitability of the business. Some indicators include:

Employment rates

New business formation rates

Tax rates

Stock markets

Environmental trends: In the era of rapid industrialization  human beings has a definite impact on the planet that we call home. When on a local or planetary level, ecological trends are critical to foresight. These include:

Water table levels

Air pollution

Topsoil levels

Atmospheric carbon dioxide

Political trend:The changes in ideology and political participation can radically shift the future. For these reasons it is useful to track:

Voting participation rates

Spending on political campaigns

Type and number of political parties

New laws passed.

2)Porters five forces model: Porter five forces analysis is a framework that attempts to analyze the level of competition within an industry and business strategy development. It draws upon industrial organisation economics to derive five forces that deter- mine the competitive intensity and therefore attractiveness of an Industry. Porter five forces analysis involves

Threat of new entrant: New entrants in an industry bring new capacity and the desire to gain market share. The seriousness of the threat depends on the barriers to enter a certain industry. The higher these barriers to entry, the smaller the threat for existing players.

Bargaining power of supplier:The concentration of suppliers and the availability of substitute suppliers are important factors in determining supplier power. The fewer there are, the more power they have. Businesses are in a better position when there are a multitude of suppliers. Sources of supplier power also include the switching costs of companies in the industry.

Bargaining power of customer: If there are less number of buyers or if there are too many suppliers for the same product then the customer can influence the price

Threat of substitute product: If there is a substitute available then it reduces the industry attractiveness and it should be well evaluated by the entity.

Rivalry among competitors:Rivalry is high when there are a lot of competitors that are roughly equal in size and power, when the industry is growing slowly and when consumers can easily switch to a competitors offering for little cost.

3)SWOT ANALYSIS: It is a business analysis process that ensures that objectives for a project are clearly defined and that all factors related to the project are properly identified. Both internal and external components are considered when doing SWOT Analysis, as they both have the potential to impact the success of a project or venture.

The SWOT analysis process involves four areas:

Strength: Attributes within an organization that are considered to be necessary for the ultimate success of a project. Strengths are resources and capabilities that can be used for competitive advantage.

Weakness:Weaknesses include factors such as an abundance of rivalry between departments, a weak internal communication system, lack of funding and an inadequate amount of materials.

Opportunities:Opportunities are classified as external elements that might be helpful in achieving the goals set for the project. These factors could involve vendors who wish to work with the company to help achieve success, the positive perception of the company by the general public, and market conditions that could make the project desirable to the segment of the market.

Threats:These external factors could gravely affect the success of the project or business venture. The possible threats that are critical to any SWOT analysis include a negative public image, no ready-made market for the final product and the lack of vendors who are able to supply raw materials for the project.