It is known that strategic framework now becomes the part of the bedrock of most organisations. There are IS/IT strategies behind their business for accomplishing their visions and missions. It strongly says, not only is there much closer and interrelated relationship between the IS/IT strategy and the business, but also reveals many internal and external factors of business affecting formulating the organisational strategy by this lecture. In my thinking, strategy formulation is not a result, not also an outcome, but only an on-going process and a mean as the business environment has been rapidly changing. It is that, in effect, gives the management of organisation strategic options against the potential competitors, increasing customer base, and reaching a profitable margin. It also introduced that there are two models for strategy formulation in this lecture, SWOT model and PEST model, respectively.
First, the SWOT model is important to the business for understanding the competitive advantages and the competitive disadvantages itself and the value creation. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats.
Strengths are positive internal factors which help an organisation to accomplish its goals and objectives, but Weaknesses are negative internal factors which inhibit an organisation to accomplish its goals and objectives also. Special skills or knowledge, a positive public image and brand, financial sound, and an experienced sales force are parts of strengths owned by many successful organisations. Oppositely, shortage of skilled workers, lack of capital, an inexperienced sales force, and an inferior location are examples of weaknesses.
Apart from these internal factors, the organisation can scan potential opportunities and threats posed by pressure groups and stakeholders by this model. Opportunities are positive external options that help an organisation to accomplish its goals and objectives, but Threats are negative external forces that inhibit the ability of an organisation to accomplish its goals and objectives. For example, advertising the capabilities of Wi-fi internet services in branches, or expansion of the business to newly developed countries can be opportunities of an organisation. And, if an organisation faces loss of key staff, lack of financial resources, or increased competition, such will be threats to its core business.
Moreover, in this lecture, we studied and discussed the case of Starbucks using the SWOT model. Hence, I do not repeatedly explain once again in terms of SWOT, contrarily analyse and review those factors Starbucks may face by the PEST model and my explanation. The PEST model analyse the following four types of factors included [1]:
- Political factors
- Tax policy - Hong Kong has a low profit tax (~16.5%) which is among the lowest in the world, plus no tax on dividends and interest income [2] so that attracts more foreign investors to invest the local coffee business. It would advantage Starbucks to enlarge its business on Hong Kong branches.
- Trade restrictions and tariffs - Hong Kong still acts as a duty free port with few barriers. Under the free trade agreement ruled by the government, there are no customs tariffs paid on goods imported into Hong Kong [2]. Not only it lowers the restriction of free trade, but promotes the corporate relationships between coffee production countries and coffee retailers.
- Economic factors
- Economic growth - A continuous economic growth in Hong Kong brings a positive impact on the business of an organisation so as to keep a healthy financial status in the business.
- Inflation rate - Many countries are now facing the high inflation issue on foods such as coffee ingredients, Hong Kong cannot be excepted [3]. It increases the cost of coffees, and then the increasing cost transfers to its consumers. It affects the buying power of consumers due to more expensive coffees, and eventually reduces the revenue of the coffee business.
- Social factors (socio-cultural)
- Buyers' behaviour - Many people favour a coffee of famous brand and good company image rather than the poorer one because of offering their buying confidences. The buying confidence then affects the consumer buying pattern.
- Lifestyle changes - Lifestyles of many people have become westernize (i.e. like drinking coffee more) as they become very busy with their works. It is because they may think coffee can fresh them during the work. It implies the demand of coffee is gradually rising.
- Technological factors
- Technology incentives - Some customers are working with their notebooks while they are enjoying their coffees in Starbucks. Starbucks provides them with a high speed Wi-fi access so that they can get on-line for free and comfortable within limited hours every day.
In fact, besides these four types of factors influence to the business of an organisation, there are the other two also, Environmental factors and Legal factors. Therefore, the PEST model can be called PESTEL model.
Further Observation
From these case analyses (of SWOT in the lecture and PEST here), it can be told that there is a complementary relationship between the two models. The PEST model favours to scan such external factors come from the surrounding environment (external macro-environment) in this society such as economic growth, political rules, etc. A big difference from the PEST model, the SWOT model would help organisations to define such factors come from mainly the business itself, such as its strengths and weaknesses, and something else about the micro-environment. In the case of the simplicity of the two models, it can be therefore said the management of an organisation can have a holistic assessment on its business easily with both the SWOT and PEST models included the strengths and weakness of the organisation itself, the business alliances and competitors of the organisation, and the external environment facing.
Furthermore, Sullivan’s Framework for the internal context is one of strategic tools that helps the organisation itself to easy locate what is its role and position of IS/IT based on these two attributes, Infusion and Diffusion. Infusion implies that the degree of dependence on IS/IT of the business, and Diffusion implies that the degree of decentralization of IS/IT control in an organisation. Thus, the management of an organisation only keeps its close eyes on the business environment, and often adjust the organisational strategy by this model as it changes. It can then meet the business needs and direction.
In the following, there are my little comments on the post of the classmate.
Source: Chan King Lok’s post, Week 3 – The Strategic Framework and BPR for e-Business, URL: http://chankl-2107.blogspot.com/2012/01/week-3-strategic-framework-and-bpr-for.html
My comment: The last paragraph for Chan’s post described how e-Business strategies continuously change in the trend as technology advances rapidly. I agree the Internet evolved had been changing business strategies and communication channels with consumers and other business alliances, such as the 24x7 business transactions. It would aid to the businesses of organisations positively and then the national economic growth. It will be a virtuous circle.
[1] PESTEL Analysis of the Macro-environment, Oxford University Press. 2007., Retrieved 2009-01-27, Available at: http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm
[2] Low and Simple Tax, InvestHK,
Available at: http://www.investhk.gov.hk/static/whyhk/hong-kong-tax-rate-low-tax-system-hong-kong-profit-tax-sale-tax-salary-tax-en.html
[3] Consumer Price Indices for December 2011, The Census and Statistics Department (C&SD), Retrieved 2012-01-20,
Available at: http://www.censtatd.gov.hk/press_release/press_releases_on_statistics/index.jsp?sID=2885&sSUBID=19984&displayMode=D
