External Analysis
Any strategy depends on good diagnosis. This requires that we analyse what is going on inside the business, and in the external environment. The external environment consists of:
This analysis is partly diagnosis of what is, and partly “prediction” of what is likely to happen. Doing this analysis well requires that the team drawing up the strategy is:
I’m going to break my discussion of the external analysis into two (and possibly three) parts. This, the first part, will consider the broader business environment. Later articles will discuss the market, the industry and competitors. Be aware that in doing this analysis, we are on the lookout for potential disruptors. These disruptors will change the game either positively or negatively and, in so doing, will either provide us with an advantage that must be leveraged, an advantage that must be created (and then leveraged), or a challenge that must be overcome better than anyone else in order to outmanoeuvre the competition.
The business environment in which we operate consists of the following:
The point of going through STEEPLED is to ensure that we ask and answer the widest possible range of questions and survey the broadest terrain. It is only if we cast our eye broadly that we can ensure that we don’t miss anything important. The fact is that we will always miss something. However, if we are obsessively disciplined about covering every base, we reduce the chances that we will be blindsided. It is not important under which category you put your answers. Nothing turns on whether an answer relates to Politics or Legislation. What matters is that you consider as much as you can possibly think of.
The most important aspect of your analysis is the extent to which the strategy team opens its mind. Generally, the mark of a strong team is that everyone is on the same page and pulling in the same direction. However, this carries with it some very real risks. Beware the following:
For this reason, it can be very helpful to allow participants to consider the STEEPLED factors individually and in writing (even anonymously) first, and then bring them together for discussion. This enhances the likelihood that at least someone will name the elephant in the room. There are countless examples from every endeavour of things going horribly wrong because nobody said what everybody knew. For some frightening and very familiar examples of this, read “Willful Blindness: Why We Ignore the Obvious at our Peril” by Margaret Heffernan.
In his recent book, “Great by Choice”, written with Morten Hansen, Jim Collins speaks about ONFs – obsessive neurotic freaks. What they found was that the truly top-performing companies were led by obsessive, neurotic freaks: obsessive in that they were unbending on the disciplines they had put in place in order to manage the business; neurotic in that they anticipated serious danger to their business at every turn, and responded to every sign of danger. This meant they were constantly paying attention to the business metrics, as well as reading the external environment for potential disruptors, and crafting responses. So while it would appear that analysis is an event, it must actually be an ongoing process. It has no beginning, middle or end.
In the forthcoming article, we will look at the competitive environment
Any strategy depends on good diagnosis. This requires that we analyse what is going on inside the business, and in the external environment. The external environment consists of:
- our market (amongst our customers and potential customers)
- our industry
- our competitors
- the broader business environment.
This analysis is partly diagnosis of what is, and partly “prediction” of what is likely to happen. Doing this analysis well requires that the team drawing up the strategy is:
- curious
- well-connected, well-read and well-informed
- a little cynical
- has the ability to consider data from multiple perspectives
- is a little neurotic – that is, sees potential danger around every corner.
I’m going to break my discussion of the external analysis into two (and possibly three) parts. This, the first part, will consider the broader business environment. Later articles will discuss the market, the industry and competitors. Be aware that in doing this analysis, we are on the lookout for potential disruptors. These disruptors will change the game either positively or negatively and, in so doing, will either provide us with an advantage that must be leveraged, an advantage that must be created (and then leveraged), or a challenge that must be overcome better than anyone else in order to outmanoeuvre the competition.
The business environment in which we operate consists of the following:
- Society: What is happening socially that has an impact on the business?
- Technology: How is technological change likely to impact on the business – either positively or negatively?
- Economy: What is happening in the various economies in which we play? What is happening in the various economies that have an impact on our business or our industry?
- Environment: What environmental or green issues will impact on your business, either creating a challenge or giving you an advantage?
- Politics: this includes national and local politics. Where are elections taking place? What political changes are taking place? Who is who in the political zoo and what does that mean to us?
- Legislation: What is changing legally and in terms of regulation that is going to change the game?
- Ethics: What is occurring in the ethics/corporate governance space that is game-changing?
- Demographics: How might trends in population movement impact on the business?
- What is changing / is likely to change here?
- How may this impact on our business?
- What advantage do we have that we can and must leverage in order to ensure that we have the edge over our competitors?
- What advantage could we create?
- What challenges must we overcome and what attacks must we defend ourselves from in order to put ourselves ahead of the game?
The point of going through STEEPLED is to ensure that we ask and answer the widest possible range of questions and survey the broadest terrain. It is only if we cast our eye broadly that we can ensure that we don’t miss anything important. The fact is that we will always miss something. However, if we are obsessively disciplined about covering every base, we reduce the chances that we will be blindsided. It is not important under which category you put your answers. Nothing turns on whether an answer relates to Politics or Legislation. What matters is that you consider as much as you can possibly think of.
The most important aspect of your analysis is the extent to which the strategy team opens its mind. Generally, the mark of a strong team is that everyone is on the same page and pulling in the same direction. However, this carries with it some very real risks. Beware the following:
- The tendency to toe the party line. If everyone is seeing and saying the same things you can be sure that things are not being seen and things are not being said.
- That people in groups will generally not say what is unpopular unless someone goes first – and usually no one is willing to go first.
For this reason, it can be very helpful to allow participants to consider the STEEPLED factors individually and in writing (even anonymously) first, and then bring them together for discussion. This enhances the likelihood that at least someone will name the elephant in the room. There are countless examples from every endeavour of things going horribly wrong because nobody said what everybody knew. For some frightening and very familiar examples of this, read “Willful Blindness: Why We Ignore the Obvious at our Peril” by Margaret Heffernan.
In his recent book, “Great by Choice”, written with Morten Hansen, Jim Collins speaks about ONFs – obsessive neurotic freaks. What they found was that the truly top-performing companies were led by obsessive, neurotic freaks: obsessive in that they were unbending on the disciplines they had put in place in order to manage the business; neurotic in that they anticipated serious danger to their business at every turn, and responded to every sign of danger. This meant they were constantly paying attention to the business metrics, as well as reading the external environment for potential disruptors, and crafting responses. So while it would appear that analysis is an event, it must actually be an ongoing process. It has no beginning, middle or end.
In the forthcoming article, we will look at the competitive environment
