Strategic Analysis and the External Environment
Scanning the environment
Candidates must distinguish the layers of the external environment: the macro-environment (PESTLE: political, economic, social, technological, legal, environmental), the industry or competitive environment (Porter's Five Forces), and the immediate stakeholder/competitor environment. Understand the difference between the far environment (slow, structural) and the near environment (fast, tactical). Know that scenarios are a tool for handling deep uncertainty, not forecasts.
Porter's Five Forces
Be able to apply the forces rigorously: threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes, and competitive rivalry. A common trap is confusing a substitute (a different product meeting the same need, e.g. video conferencing for business travel) with a new entrant (same product, new player). Another trap: treating the forces as static - they change with technology and regulation, so always ask 'over what horizon?'
PESTLE and its traps
PESTLE is a checklist, not analysis. Strong answers prioritise the two or three factors with the greatest impact and uncertainty, then link them to strategic implications. A frequent exam error is listing factors without judging materiality or direction of impact.
Worked rule of thumb
For any Five Forces question, score each force High/Medium/Low and justify with one concrete driver, then state the profitability consequence. Example: if supplier power is High (few suppliers, high switching costs) and buyer power is High (commoditised product, low switching costs), industry margins are squeezed from both sides - a structural profit warning.
Scenario thinking
Use 2x2 matrices built on the two most impactful and uncertain drivers. Avoid building scenarios on certainties; those belong in the base case.