Global Strategy and Leadership · Module 2: Understanding the external environment
Outside In: PESTEL and Five Forces
Chapters
- Outside in
- PESTEL
- Five forces
- Test it
- Recap
In short
PESTEL analyzes the macro environment that affects every firm: political, economic, social, technological, environmental and legal factors. Porter's five forces analyze one industry's structure and profitability: rivalry, new entrants, substitutes, buyer power and supplier power. Ask whether a fact affects everyone or shapes this industry's profits.
- PESTEL: forces outside the industry that hit every firm.
- Five forces: what sets an industry's profit potential.
- A costly plant to build is a barrier to entry, a force, not a PESTEL factor.
Transcript
Outside in
Every strategy starts outside the business. Galah Brewing wants to grow. First, it has to read the world around it.
PESTEL
The outer ring is PESTEL. Political, economic, social, technological, environmental and legal. These forces hit every firm in the country, not just brewers. An ageing population is social. A new excise rate is political and legal.
Five forces
The inner ring is the industry itself: Porter's five forces. Rivalry, new entrants, substitutes, buyer power and supplier power. Together, they decide how much profit the industry leaves on the table. Two big retailers buy most of Galah's beer. That's strong buyer power.
Test it
Pause. A new brewery costs millions to build. Which ring is that? It's a barrier to entry: a force inside this industry, not a national trend. Ask whether it affects everyone, or shapes this industry's profits.
Recap
PESTEL is the weather. Five forces is the field you play on. Next: four rules, four answers. Subscribe so you catch it.
Try a question on this lesson
From the EstatePass Global Strategy and Leadership bank. Answer it, then read the explanation.
Rosella Aged Care Ltd notes in its planning papers that the median age of the Australian population is rising and that the number of people aged over 85 is expected to double within 25 years. In a PESTEL analysis, under which heading does this factor belong?
Sources
- Porter (1979), How competitive forces shape strategy
- CPA question bank: cpa-gsl-0021, 0022, 0028
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