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The primary tool for achieving this insight into the future is SLEPT analysis (an acronym of Social, Legal, Economic, Political and Technological). The technique is variously named PEST, STEP, PESTLE, etc., but the nomenclature is inconsequential as all versions amount to the same thing. Again, this is a tool that is much devalued by its misuse in many companies, in which it is degraded into a simplistic listing of thoughts with no analysis and therefore little management value. Doing SLEPT analysis well is both more rigorous and more useful than what passes for it in some companies. As with the other techniques of strategic marketing planning, space does not allow for a detailed exposition of the SLEPT process here. The principles are, however, straightforward and can be summarized in four steps, described in Box below
Political, legal and societal factors: Laws and regulations might seem to be tiresome limitations, but they do provide protection and a measure of stabilbity. For our home market we will know what is legally acceptable, hours and conditions of employment, health and safety issues, taxation and regulatory requirements. When operating overseas, it is wise to understand that what is acceptable in one country may not be acceptable in another. With overseas trading partners stability of government has to be taken into account when importing or exporting. At home it is necessary to understand the policies of the government of the day and of the major opposition parties.
Economic factors include the state of the economy in general including interest, unemployment, inflation and foreign exchange rates and likely movements.
Socio-cultural includes the movement towards triple bottom line accounting for environmental and sustainability including social issues as well as the traditional economic and financial bottom lines. The impact on the supply chain of pressure from the environmental green movement with their concerns, real or imagined (such as global warming)
Technological changes: In the supply chain technology plays an important part. It is true to say that the supply chain of today would not function without information technology to provide point of sale, electronic data interfaces, electronic funds transfer, manufacturing resource planning, enterprise resource planning
Technology includes more than information technology, it includes handling and stacking equipment, packing material, storage, tracking with radio frequency identification (RFID) and bar coding. In manufacturing it includes computer aided design, automation and robotics.
Competition: It is not normally shown in a PESTLE but is very important. Competition is where your customers can go! Identifying and understanding the competition, what they are doing and what they are threatening to do is essential. However, it is dangerous to overreact, what the competition says it can do, or will do, may not be quite the same as what actually happens. In essence, the very least an organization can do is to meet the service
level provided by the competition, and to recognize that your performance is judged against customers perceptions of world class standards and, rather unfairly, customers will be swayed by hyperbolic claims of the competition.
An outline process for SLEPT analysis
Gather possible SLEPT factors
This requires the collation of all possible macro-environmental factors which might have an impact on the market and the firm. The SLEPT acronym acts as a good mnemonic and it should be remembered that the aim is to make a comprehensive collection of macro-environmental factors. Micro-environmental considerations about customers, competitors and channels are not relevant at this stage, and nor are internal factors. For a single SBU, typically 20-50 SLEPT factors might be identified.
Draw out the implications of each SLEPT factor
This stage requires the thinking through of what each SLEPT factor means for the market under consideration. If the SLEPT factors have been clearly stated, most of them will have a simple implication for the market, either positive or negative. It should be remembered at this stage that the aim is to draw out the broad implications for the market and not detailed implications for the company. Although some SLEPT factors might have no discernible implications, this stage will usually result in a list of implications about the same size as the list of SLEPT factors.
Combine the implications
This stage requires the consideration of all the implications and how they might combine to impact on the market. There is no quick and easy process for this; it requires careful thought and an understanding of how the market works. In particular, it should be remembered that the classification of factors and their implications into one of each of the five SLEPT categories is purely notional and implications combine across these categories. The aim at this stage is to create a list of combined implications for the market, usually much fewer than the original number of uncombined implications.
Translate into opportunities or threats
It is at this stage when the analysis starts to consider the more localized effects of the SLEPT factors and their combined implications. Each combined implication will usually translate into a likely and meaningful macro-environmental trend in the market. Where these are positive, they are labeled opportunities, where negative, threats. It is these outputs that are added to the SWOT analysis to detect if it and the key issues it produces are likely to change in the future.
A worked example of a real SLEPT analysis, from the market for organ transplantation therapies, in shown in Table below. It is simplified for clarity and adapted to protect the firm's confidentiality. Even so, it illustrates the process of SLEPT analysis. The outputs of a rigorous SLEPT analysis feed into the SWOT analysis and enable an informed review of the way the strategy will align the company to the market in the future.To the extent that the firm allows for this in its strategy, it has effectively managed any notable future risk that was identified in the Marketing Due Diligence diagnostic process.
SLEPT analysis example from the organ transplantation therapy market
Opportunity or threat
Higher social expectations for treatment
Lifestyle factors such a obesity and drinking
Political aversion to increasing the tax burden
Threat of price pressure on undifferentiated propositions
Macroeconomic trends towards GDP growth in
Technological development of product for wider applications
IT developments allowing better use of data by customers
Threat of reduced volumes from indiscriminate treatment
Opportunity for more secure, targeted segments
EU trade regulations enabling greater cross-border trading
Development of the web as a patient information source
Emergence of Patient Advocacy Groups
Opportunity for value-added proposition extending up and down provider value chain
Political shift towards establishment transplantation therapy hospitals More litigious environment
Development of better management process within NHS
Opportunity for an extended, augmented transplantation therapy proposition
The environment creates both limits and opportunities for a firm's strategy and, subsequently, its structure. Lawrence and Lorseh (1967), for example, argued that increased environmental uncertainty leads to increased organizational differentiation. They define differentiation to mean that an organization has departments that are different in both tasks and orientation. lawrence and Lorsch studied three well-defined industries that they categorized as ranging from low to high uncertainty. They found that increased uncertainty in the environment required increased differentiation in the organizational structure in order for the organization to be efficient. Then integration is required to make the different departments work in coordination. Integration devices typically include rules and procedures, configurational plans, the authority of the hierarchy and decision-making committees.
In order to survive, organizations continually monitor their environment. You may be able to predict much more precisely a firm's environment by talking to customers. or suppliers or politicians or specialized research firms. By going to tradeshows or following basic research activities you may be able to predict technological developments. By tracking industry information you may be able to predict industry trends. By meeting with government officials you may be able to anticipate or influence political events. One thing is for sure: knowing more allows you to better understand your firm`s environment and anticipate its impact on the firm.
To describe an organization environment we use two dimensions: complexity and unpredictability. Complexity is measured as the number of factors in an organizations environment and their interdependency. Environmental complexity increases as the number of factors increases and/or the interdependency among the factors increases. Unpredictability is lack of understanding or ignorance of the environment in terms of the nature of the factors and their variance, greater variance means less predictability.
Consider the example of General Electric (GE), where the environmental factors for its thirteen product groups are relatively independent.(For instance. the market for jet engines is independent of the market for lighting.) ln addition, some markets are more predictable than others. (For example. lighting is easier to forecast than the market for jet engines which is subject to new airplane orders and the global market for air travel.) GE's environment has a large number of relatively independent environmental factors, some of which are difficult to predict.
The two dimensions of complexity and unpredictability were chosen because they can be related to a vast literature of empirical studies of organizations. and they lit well with our information-processing view of organizational design. An increase in each of the environmental dimensions increases the demand for information-processing capacity in a firm but in different ways. Greater environmental complexity increases the amount of information to process as there are more issues of importance to the organization Greater unpredictability requires greater capability to forecast or adjust to the changing environment. Neither necessarily increases the amount of information, but each does require a different response from an organization. An organization must either project what will happen or adjust quickly to the environment. The former is forecasting and the latter is adapting to feedback. Many organizations use a combination of both; for example, a firm with uncertain sales will forecast and also adjust quickly to actual sales.
The two environmental characteristics are general attributes. Complexity refers to the number of powerful forces affecting an organization. lf a firm has only one or two major competitors it faces low complexity; whereas if a firm must continually adjust to numerous conditions competitors prices, labor pool, new products - it faces high complexity. Unpredictability is the degree of uncertainty about the forces that impact a firm. The higher the environmental unpredictability the less accurate the forecasts are and the more uncertain management can be about the future. Consider a consumer products firm with operations in the United States and Russia. 'The number of variables or forces, influencing the firm's strategy may be similar across the two locations. But there is likely to be more environmental uncertainty today for the units that operate in Russia than those that operate in the US. This is due to the nature of the emerging market and political context of Russia today, as compared to the US.
Applying the complexity and unpredictability dimensions to describe the environment, we get four types of environments; a calm environment, a
varied environment, a locally stormy environment, and, finally, a turbulent environment. We will discuss each of these environments.
Figure I show the complexity and unpredictability dimensions with the four environmental categories: calm, varied, stormy, and turbulent. Generally, there are increased information processing demands on the organization as we move from a calm environment to a turbulent environment. An organization has more issues to consider and coordinate as the complexity and unpredictability of the environment increase
Each of the four environmental categories is a different combination of complexity and unpredictability. If a firm is in a calm environment, then the environment is low in complexity and is predictable. The firm has few factors to consider and they are predictable; you know what is important in the environment with a good deal of certainty. There are no surprises and few adjustments are required. If a firm is in a varied environment, then the environment is high in complexity but is predictable. There are many interdependent factors, but these are well known and predictable. If n firm is in a locally stormy environment, then the environment is low in complexity, but unpredictable. There are few and usually independent factors, but they are not predictable. Unrelated surprises require many adjustments which can be dealt with one by one. If a firm is in a turbulent environment then the environment is high in complexity and is unpredictable. There are many interdependent factors which are unpredictable. This is the most demanding environment for information processing requiring many short-term adjustments and coordinated responses on the part of the organization.
A calm environment has low complexity and low unpredictability (i.e.. it is highly predictable). lt is simple and known with few surprises. lf a firm only has a few products and sells them into markets where the markets are predictable, we say it has a calm environment. The political and financial issues usually are not major challenges for management except if the firm is in a monopoly situation protected by the political system. Some public organizations think that they are in a calm environment. Utility companies -at least those that have not yet been deregulated - may find themselves in a calm environment. Calm environments occur less and less frequently as more industries are deregulated. Further the deregulation of the technical system, the creation of a single European market, the NAFTA agreement and similar agreements have done away with many calm environments. If you are an executive in a calm environment you do not need to spend much time assessing your organizations environment, either to forecast what will happen or to adjust to surprises. Today's environment will be tomorrow's as well. There will be few surprises. So, you can focus on other organizational design issues, addressing more internal concerns.
If you are an executive in a calm environment you do not need to spend much time assessing your organizations environment, either to forecast what will happen or to adjust to surprises. Today's environment will be tomorrow's as well. There will be few surprises. So, you can focus on other organizational design issues, addressing more internal concerns.lt is important to recognize the risks of an executive`s perception of a calm environment. First, the executive's perception can be wrong. Second, the environment can change, and with an assumption of a calm environment. It is likely that any change will be ignored or missed. So the presumption of a calm environment by an executive is potentially risky. The CEO of Intel, Andy Grove, has a famous dictum that only the paranoid survive. This is a useful warning especially for firms that perceive they are in a calm environment. If you perceive that your organization is in a calm environment in the short run, you may be shocked or surprised without warning. With this perception and mindset, the time lag for needed change is likely to be long perhaps too long for the survival of the firm. Bon Gout, an importer of specialty goods in Denmark, was in a calm environment for many years, where it had a good working relationship with Samsonite, one of its suppliers. Bon Gout sold Samsonite goods to retail outlets throughout Denmark. When Samsonite decided without consultation that it would sell directly the retailers, the Bon Gout organization was in shock; the environment for Bon Gout instantly changed from calm to turbulent.Bon Gout was no longer in a calm environment and new action was required
The varied environment is complex as there are many factors to take into consideration and they can be interdependent (i.e., they influence one another), but these factors are relatively predictable and they tend to change within known limits if a firm has many products and sells them into markets where the markets are predictable, we say it has a varied environment. Further, political and financial issues can add to the number of factors in the environment. If in the markets the politics and financial factors are all interdependent as they are for many governmental suppliers, the environment is varied. In such a varied environment there are many factors for an organization to consider, but it is possible to predict what will occur. Market forecasts, analysis of political trends (e.g.. road construction or environmental protection ) are frequently applied techniques to predict the future environment. It is possible to project into the future with reasonable accuracy and understanding. The focus of the executive in a varied environment is on planning and coordination that will allow the organization to manage in the face of the interdependencies among the factors that are in its environment. In earlier times the toy manufacturer LEGO was in a varied environment.lt operated in many countries with many different variations of its products and there were many legal, financial and logistic issues to take into consideration. Demand had seasonal variations but it was quite predictable. But that environment has changed to a locally stormy environment where the sales are rather unpredictable.
Locally Stormy Environment
The locally stormy environment is highly unpredictable but not very complex. That is, there are few factors in the environment which are relatively independent, but they are unpredictable business environment is analogous to the prediction of rain with .5 probability for a farmer. Amount of rainfall may be one of the few factors that determine a crop's growth rate, but the predictability of rain may be extremely low. Start-up companies that are dependent on a patent right or the result of a particular outcome of a clinical trial are in stormy environments. In the locally stormy environment, executives are most concerned about the unpredictability of environmental factors that affect their firm. Many years ago Ashby (1956) proposed the Law of Requisite Variety which states that a systems internal flexibility must meet the outside uncertainty for the system to survive. For purposes of organizational design, the Law of Requisite Variety means that a firm needs to be flexible so that it can meet the unpredictability of its environment. Put another way, the information processing capacity of the firm should be able to adjust when unpredictable events occur. Unpredictability means that the response time in which the firm has to react is much shorter than if the environment were predictable. In a predictable environment a firm has time to plan for the future; but in an unpredictable situation the peak information requirement is much higher as you have to do many things when the unpredictable factors in the environment suddenly become known.
The turbulent environment has both high complexity and high unpredictability. There are many interdependent factors which are not predictable.
This environment is analogous to that faced by the farmer who has not only the rain to consider but also the market price for grain, and the rain and price may be correlated; further, both are difficult to predict.
Porter's five forces model
This can be used to understand how profitable target industry might be and to understand the forces impacting upon the current industry's profitability
The threat of new entrants looks at how easy it is for newcomers to enter the market and will be heavily influenced by any barriers to entry such as high investment, patents, legal restrictions or strong branding.
Buyer power looks at how easy it might be for customers to force their prices down. Supplier power looks and how easy it might be for suppliers to put their prices up. Substitutes consider whether customers could get what they require from a product or service from a different industry. Competitive rivalry looks at the number and size of the competition as well m the stage of life the market has reached and competitors' strategy. Clearly, competitor intelligence information is n vital way to remain profitable in a competitive environment. Each of these Forces threatens to either decrease prices or increase costs, and hence reduce profits, for the current players
After having looked at the general factors which make an industry profitable, Michael Porter turned his attention to that factors which make one nation more profitable in a particular industry than another
Factor conditions relate to the availability of inputs. Countries that have access to the factors necessary to produce the product will have an advantage over countries which do not. Basic factors require no investment, whereas advanced factors require investment. Demand conditions (in the home market) are important as the greater the demand and more discerning the consumers in the home market the greater the need for innovation channel cost reduction by companies in that market.
lf they are plentiful and competitive it will enable cheap and effective production of products. Competitive rivalry in the local market will encourage innovations and cost reduction amongst competitors.
Using Peter's Diamond
Porter's Diamond can be used to assess the organizations likely competitiveness in foreign markets. The company is likely to be competitive where the four factors are significant in the home market and are not present in the target market.
It can also be used to assess the likely threat from overseas competition. There is likely to be a significant threat when the four factors are not present in the home market but are present in the foreign competitor's market.
The demand conditions in the home market are important for three reasons:
1. If the demand is substantial it enables the firm to obtain the economies of scale and experience effects it will need to compete globally.
2. The experience the firm gets from supplying domestic consumers will give it an information advantage in global markets, provided that:
(a) Its customers are varied enough to permit segmentation into groups similar to those found in the global market as a whole;
(b) Its customers are critical and demanding enough to force the firm to produce at world-class levels of quality in its chosen products;
(c) Its customers are innovative in their purchasing behaviour and hence encourage the firm to develop new and sophisticated products.
3. If the maturity stage of the plc is reached quickly (say, due to rapid adoption), this will give the firm the incentive to enter export markets before others do.
Porter's strategic prescriptions
Porter suggests that the firm identi¬ed its most promising strategy in the following ways:
1. Identify which clusters in the home country give a competitive advantage - either through
(a) Permitting lower costs of production than global rivals;
(b) Allowing a differentiated product.
2. If these advantages are likely to be world class, the firm should compete in global markets.
3. If these advantages are not world class, the firm should find a niche market at home or abroad where it can use its available strength.