July 14, 2017 [No.40-2017]
Senior Management Consultant
Japan Productivity Center (JPC)
This time, I will outline PEST, 5 forces, value chains and SWOT, which are often used as a framework for the present data analyses of business aspects in the integrated management consulting. The present data analyses of business aspects are divided into the analyses of the external environment (management environment) and the analyses of the internal environment (management resources).
[Analyses of the external environment]
The external environment can be figured out by dividing it into the macro-environment relating to the entire market, which exceeds the industry which the company belongs to, and the micro-environment covering the inside of the industry or its periphery. The analyses are conducted in the perspective of whether the events as an external environment which are affecting (or can affect) the company are the opportunities (following wind), or the threats (opposing wind), for the company. Basically, they will be the managerial issues to get any opportunity and to avoid and overcome any threat.
What is used as a framework for the analyses of the macro-environment is PEST. PEST is an acronym taken from the four words “Politics,” “Economy,” “Social” and “Technology.” This means that the macro-environment is analyzed in a mutually exclusive and collectively exhaustive manner (in a so-called MECE manner) from the dimensions of politics, economy, society and technology.
“5 forces” are often used for the analyses of the micro-environment. 5 forces represent the concept that the attractiveness quotient and the competitive environment of the industry are determined by the five elements of (1) the number of competitors within the industry, (2) the strength and weakness of negotiation power of the seller (the product source), (3) the strength and weakness of negotiation power of the buyer (the customer), (4) the level of difficulty for the new entry and (5) the existence or non-existence of goods and services which serve (or can serve) as substituting goods. From these five perspectives, you will analyze what is the opportunity or the threat for the company and will extract the managerial issues.
[Analyses of the internal environment]
The analyses of the internal environment perform the evaluation on the management resources (abilities) held by the company in the perspective of whether they are strengths or weaknesses. They will be the managerial issues to extend and take advantage of the strengths and to improve and complement the weaknesses. When you evaluate the details of the internal environment, the utilization of the framework of value chains is effective. In value chains, company activities are divided into the main activities, which are broken down into more than one process, and the support activities, which relate to the whole process of the main activities. Although, the analyses were originally a framework to consider the processes to be strengthened, the unnecessary processes to be removed or simplified and the processes to be outsourced, these can take advantage to comprehend the strengths and weaknesses of the management resources in a, so-called, MECE manner.
As noted above, you should basically analyze the external environment in the perspective of opportunities and threats and the internal environment in the perspective of strengths and weaknesses. The framework which brings together these four perspectives is SWOT analyses, which can be defined as a framework which is the most frequently used in present data analyses. SWOT is an acronym taken from “Strength,” “Weakness,” “Opportunity and “Treat.” You may conduct detailed analyses of the external environment and the internal environment by PEST, 5 forces and value chains and may use SWOT analyses in order to bring together the results, or you may conduct only SWOT analyses at the beginning.
Moreover, as an applied form of SWOT analyses, cross SWOT analyses can be used. This is the framework to consider basic policies (management strategies) for improved management. SWOT analyses are the approaches which crossbreed the strengths and weaknesses and the opportunities and treats and which consider management strategies and policies from the four directions of (1) taking advantage of the strengths and taking the opportunities, (2) taking advantage of the strengths, living apart and intending to avoid and overcome the threats, (3) improving and complementing the weaknesses and taking the opportunities and (4) improving and complementing the weaknesses, living apart and intending to avoid and overcome the threats. Among these four directions, it can be an easy way to derive the most effective strategy in the pattern (1). (Continued to the next issue.)
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