Continuing with an external analysis

Good day everyone, I hope you’re all doing well and had a great week.

In any project that requires change on a large scale, an inescapable part of that process is the initial diagnostic. I’ve written about the PESTEL tool and how you can use it to analyse the external environment and how the Value Chain helps you understand the component parts of your business and the value each link brings towards your final profit.

In this issue, I continue the diagnostic to better understand the market in which you operate or are targeting. This article assumes you’ve read the previous articles and that you know or have determined your segmentation — the specific, detailed definition of your customers or potential customers. I know it is another blob of theory, but it’s important to start with the fundamentals, whether you’re are digital or not! The digital specific stuff is coming soon, I promise 😄.

On to the issue. Remember you can discuss it on the Slack. Have a good weekend.

Photo by William Iven on Unsplash

When you operate a business, detailed knowledge of the market in which you reside is important to have on an ongoing basis, particularly with Digital Transformation, as by definition, Digital Transformation is constantly evolving.

Digital Transformation more closely resembles a penalty shootout whereby not only the goalposts move, but the participating teams are constantly changing, and the rules of the shootout are modified in relation to the who scored or not, when and how. 

The framework I introduce in this issue is, once again from Michael Porter who else? It’s called the Fire Forces Framework, first published in the HBR in 1979 and it is as relevant today as it was then. Broken down into five components the Five Forces Framework (5F) is sometimes used with a 6th component and renamed 5F+1. Here I look at each component in detail.

Threat of new entrants

Unless your business has a serious moat to prevent attacks from competitors, you are under threat. Any market that generates profits for businesses will automatically be subject to the potential threat of a new entrant. In this scenario, there are only two outcomes, either the market expands or is already big enough to support several businesses providing the same products or services, or the competitor will eat away at your market, reducing your profits. If profitability falls to zero, a situation called perfect competition, the industry will eventually cease to exist or run at a bare minimum.

A good example of this effect can be seen in the PC industry. The original IBM PC was a premium device and commanded healthy profits for IBM. The commoditisation of the PC industry — for reasons I’ll not discuss here although suffice to say the widespread availability of designs and OSes played their part — led the industry to the inevitable path of lower and lower costs to the client, which were financed by lower and lower costs of sales (COS) and hence lower and lower quality of the final product.

So, what are some of the threats you need to take into account, and how do you counteract them?

Some markets inherently have barriers to entry — i.e. start-up costs, certifications, regulations etc. — like those of professional services (Lawyers, Accountants for example) and markets where regulation are a necessity. The drug industry is highly regulated for obvious reasons and a recent example of how that industry is ‘protected’ (and rightly so) is the scandal of Theranos (1). The book Bad Blood does a remarkable job of telling the story, thoroughly recommended.

Some industries are approved monopolies, like government institutions, and others just require huge start-up costs. Where Digital Transformation is disruptive is that it enables businesses to start up with much lower costs and have a presence that is comparable even the largest corporation on the planet. If your business is a brick and mortar business you should be examining in detail how new digital businesses might be able to provide the same thing as you, only with lower COS.

Another area to examine is the network effect and the switching costs that businesses like Facebook enjoy. Because of the network effect — all your friends are on it and any new acquaintances are probably on it — Facebook benefits from the fact that you’ll find it hard to quit Facebook because you will essentially isolate yourself. In a less nefarious representation, a business that develops and expands its moat providing value to the customer will reap the benefits of sales and profit.

Threat of substitutes

Any industry has its potential substitutes, for example, the telephony industry started out with landlines, but today’s landscape offers users with alternatives using a different technology, mobile phones using cellular technology and in some cases satellite technology.

When analysing your products and services with respect to substitutes or potential substitutes, a number of factors need to be considered. For example, a buyer’s susceptibility or readiness to purchase a substitute may be based on brand loyalty but legal barriers may exist — think Huawei. The US 5G market is just getting started and built out. Huawei has been outright banned from providing critical infrastructure in the US (and other regions like Australia and Japan) because of its links to the Chinese government.

As in the case of the threat of new entrants, switching costs are to be considered here. In fact, a great example is the ride-hailing services first developed in large US cities, like Lyft and Uber. The existing taxi companies relied too much on the barriers to entry being immutable, regulation. Once regulation allowed for individuals to supply transport services for the general public, their industry imploded. It cost nothing to try an Uber over an existing cab service, in fact in most cases it was cheaper and faster. The average percentage of riders waiting less than 5 minutes for a traditional taxi was around 37%, with Uber that figure jumped to 90% (2).

Bargaining power of customers

The bargaining power of customers is best understood as the power consumers of the product or service have to put the business under pressure. The antidote businesses employ to counter this pressure are designed to reduce buyer power and often imply sophisticated fidelity programs, increasing value for the customer and other moats as describes above. The thing to remember most is that a customer who has many choices is a powerful customer.

Things to consider from a digital perspective are those factors that influence your potential buyers’ decision to purchase from you or not. Unfortunately, in a digital world selling purely digital goods, your competition is international by definition. Customers are inherently more powerful than say a small shop in a village all alone where customers have but no choice than to frequent it. If you are selling physical goods using online methods, considering the value you bring to your customers, your differentiation vis a vis the competition and the impact of your COGS amongst others is important to analyse and determine. The Value Chain analysis can help you do this, particularly if you extend the analysis beyond your business, by understanding where you fit in a large value chain of goods and services.

Bargaining power of suppliers

Just like the bargaining power of customers, it’s best to think of suppliers in terms of their potential to exercise pressure on your business. It’s additionally important to define what suppliers are should be included in this analysis. Suppliers are not just the distributor from whom you purchase your raw materials or packaged goods for resale, your suppliers are also your employees who supply services for a price (often intangible like working conditions, work hours, holiday days etc.). Many of the same factors discussed above are just as relevant here, however, you need to look at them from the supplier perspective.

Competitive rivalry

Now that I’ve discussed the factors that influence the specific market being analysed, the competitive rivalry is fairly simple to determine by using the knowledge gained above we can determine for example, how many competitors there are in the market, their relative power, whether the market can support multiple rivals or just one monopoly, whether the moats are deep and wide or shallow and narrow. As an overview, it should tell you about the attractiveness in your market. If you’re thinking of opening a general store on a strip mall of general stores (an extreme example I grant you) it should be obvious that the competitive rivalry is going to be intense, and don’t forget will almost certainly entrain the death of one or more general stores in the same area. Alternatively, if your product or service is sufficiently distinguished and the business model adapted to provide value for the customer with relatively few or no competitors, the rivalry is low to inexistent. But beware! I mentioned in the opening, things change, and with Digital Transformation, things change fast. This analysis needs to be kept up-to-date frequently.

The +1 — Public Powers

Although mentioned in the threat of new entrants and substitutes, public powers, i.e., the state and its various structures that may make it more difficult for you and your competition to operate. The food industry is a good example where state laws about the cleanliness, the cold chain and other rules ensure safety for the consumers but inversely put up barriers to entry for potential businesses. These legal constraints should be separated from the powers and threats as they are not dependent upon the industry and can change for political reasons and not necessarily other concerns. Keeping them in mind when analysing your market can help you identify potential future risks, just look at the Uber/Taxi business mentioned above.

Last Word

Remember, the forces being exerted on each of the above components can be both positive and negative. If you, for example, are an incumbent in the telephony industry and government regulations are strengthened, your first thought may be that it is an inconvenience and a cost for you, but deeper analysis will probably show that it is even more of a difficulty for potential competition and will defect strengthen your position. The GDPR regulations will do nothing but strengthen Facebook’s position. I’ll not do a deep dive as to why, suffice to say that GDPR requires infrastructure and software development beyond the means of smaller social networks, thus making Facebook even more resistant to competition.

Diagrammatically represented, the Porter 5F model typically looks like this:

As ever, feel free to use this as a starting point for your own analysis, or call me.

Reading List

Pros and cons of countries going cashless - ICT Pulse

Photo by Gerd Altmann on Pixabay

A good article on the strengths and weaknesses of a cashless economy. Michele Marius’s site is a great resource to get an overview of what iOS happening in the ICT world in the Caribbean. She additionally has a podcast and I will be a guest on it in the near future. I’ll link to it once it is released.

5G is here! Can it deliver on Affordable Access to close the digital divide? - Web Foundation

Talking about substitutes in the Porter 5F model, 5G could be considered a substitute for traditional broadband services using ADSL. The promise of 5G is faster speeds, lower latency, better density (a big problem for 3/4G) and further distance coverage. This article looks at its impact in developing regions and how it may or may not help those regions catch up or even surpass the existing infrastructures in developed regions. I’m sceptical, but admit the potential is there.

Photo by Mario Caruso on Unsplash

A 'Blockchain Bandit' Is Guessing Private Keys and Scoring Millions - Wired

A fascinating story of the theft of “secure” blockchain protected cryptocurrencies.

Bednarek tried putting a dollar's worth of ether into a weak key address that the thief had previously emptied. Within seconds, it was snatched up and transferred to the bandit's account. Bednarek then tried putting a dollar into a new, previously unused weak key address. It, too, was emptied in seconds, this time transferred into an account that held just a few thousand dollars worth of ether. But Bednarek could see in the pending transactions on the Ethereum blockchain that the more successful ether bandit had attempted to grab it as well. Someone had beaten him to it by mere milliseconds. The thieves seemed to have a vast, pre-generated list of keys, and were scanning them with inhuman, automated speed.

Photo by Stanislaw Zarychta on Unsplash

The Future is Digital Newsletter is intended for a single recipient, but I encourage you to forward it to people you feel may be interested in the subject matter.

Thanks for being a supporter, I wish you an excellent day.

1 No, not Thanos!

2 Source: Hit Refresh

... and its obesity problem

Hello everyone.

Back on track today after an eventful few weeks. I’m really happy to be writing this and hope you like this weeks’ discussion. As I mentioned in the recap Issue a couple of weeks back, this Issue is about a thought I’ve have had for quite some time. In fact, if I’m honest it started some time in the 1980s. I was on a day trip from school visit to an automated car assembly line in the West Midlands in the UK. We were asked to think about how automated manufacturing was likely to change the workforce. But I couldn’t stop thinking about how … well, let’s get in to that in this Issue.

Thank you.

The technology that changed everything

Since man started building things to sell for profit, he’s found more ingenious ways to accelerate the task, which in turn generates more revenue, better profits and larger sales distribution. In early manufacturing more people meant more productivity, a simple equation that brought immediate returns. The mills of the north of England are testament to that simplistic philosophy, as the mills grew bigger so did their output. Their slow automation during the Industrial Revolution and the introduction of technology like the Multiple Spindle Jenny (invented in 1764) increased the production capacity of a single worker. Richard Roberts’ power loom first appeared in 1830 and provided a semi-automatic loom that took productivity even further. By 1894, even this loom had been modified to become almost fully automated with extra functionality invented and tacked on.

Robots

As technology advanced, we were able to design and build human replacement robots to assemble products. Some of the most revolutionary of the time were semi-automated car assembly lines like the one I visited in the 1980s. They required less manual staff and more skilled workers to operate, control and optimise the robots that were, in place of humans, picking things up off the supply rack, positioning and finally welding.

Welding robots in a Ford plant in Germany circa 1980 - Source CNN

We see here the first shoots of my argument; semi-skilled workers have all but replaced skilled/specialised workers to operate the machines.

These types of robots were installed at a cost of around $100K each but had a long lifetime and were able to work shift hours much longer than humans, allowing an amortisation over just a few years, despite high maintenance costs. Unimation was the first company to commercialise industrial robots in 1962, the fruit of work from John Devon who in 1954 patented the first designs of what were then called Programmable Transfer Machines.

Robots were quickly popularised in Europe by the likes of ABB Robotics and KUKA Robotics in about 1973. Use cases at the time included bending, polishing and grinding pipes. They were particularly useful in cleanroom environments where they could operate without all the constraints that are placed upon humans to prevent dust ingress. ABB’s robots were the first to be controlled by electrical microprocessors (see Issue 2) but soon the entire robotics industry caught up, producing fully software-controlled robots in the early 1980s. 

Advanced Manufacturing Robots

Despite their having many successes in manufacturing and other manually repeatable tasks, robots have had and continue to have notable failures. One that comes to mind is the beautiful plant Steve Jobs had built to assemble his new computer, called the NeXT, in Palo Alto, a stone’s throw away from his old employer Apple.

Just take a look at this promotional video produced by NeXT, entitled The Machine to Build the Machines.

https://www.youtube.com/watch?v=sT6aphdX0rI

NeXT’s Surface Mount technology Industrial Robots in action - Source: NeXT

All very impressive, but multiple failures and the personal capriciousness of Steve Jobs rendered the plant inefficient with it not fully living up to its promise of beating the Japanese plants of the time. Declining sales hit the final nail in the coffin of the futuristic plant without it ever being tested to capacity in real life production. It did show however, that it was possible and in a few short years robotic manufacturing plants became virtually fully automated. This had the effect that jobs in the lower-skilled bracket were displaced and abandoned, with high skillsets required to operate and maintain assembly lines.

However, in typical Apple fashion the latest generation robots used, not in the building process, but in the destruction and recycling process, are second to none in the world and subject to study by academics and other businesses researching how to better recycle modern electronics goods. This article at CNET talks about it in detail.

Software Is Eating the World

In the Wall Street Journal on August 20th in 2011, Marc Andreessen of Andreessen Horowitz wrote an essay entitled Why Software Is Eating the World:

More and more major businesses and industries are being run on software and delivered as online services — from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not. 

Why is this happening now?

Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale.

As humans, we’ve gone from fully manual processes being developed and standardised, moving through semi-automated systems aiding humans perform tasks more efficiently and effectively, to semi-automated robots replacing manual tasks right up to today’s fully software driven robots eliminating, in many cases, the need for humans in the manufacturing process. The next level of automation is in the use of Artificial Intelligence (AI).

At the two levels top and bottom the source components and finished products have essentially stayed unchanged — of course the products produced today have no relation to those products hundreds of years ago — but the fact that humans had stuff and made stuff has not changed in thousands of years. The layer in between, the manufacturing layer, has conversely seen change upon change as technology has developed. I’ve attempted to depict this in the diagram below:

The Change in the Manufacturing Layer

This change in manufacturing layer has brought about a change in company structure. Low-skilled low-pay jobs are being replaced by highly skilled jobs paying higher salaries. But it’s not just salaries, responsibilities have also increased. As a line manager for a spindle maker, the responsibility was limited to the line and the workers occupying it. In the new plants, managers are responsible for much more and decisions have more implications for both productivity and efficiency, with knock-on effects that may cause the loss of hundreds of thousands of dollars. And, being that there are no low-skilled workers anymore, everyone has essentially become a manager. This is what I termed Management Obesity, a factory with only managers and no workers.

We’ve gone from a pyramid structure of management and workers to one with a portlier girth.

The old management structure versus today’s

It’s not limited to only manufacturing either. In much of the service industry, offices have become more and more staffed by managers of things and processes and not necessarily people. Many of today’s tasks in modern offices didn’t even exist 5 years ago, Marketing, Social Media Manager, Community Manager, Technical Officers, Environmental Departments, I could go on. These jobs often involve skills that are, as we can see in the table below, ripe for replacement by AI.

Potential for automation - Source: Fortune.com (McKinsey&Company)

But it’s not all bad news. Truly human skills are still desired, and it is in these that you need to develop alongside your Digital Transformation process as referenced in the table of desired skills and threatened skills in the AI age.

Wtih thanks to JF Nantel, ESSEC Business School

It’s been a long-winded way to say that today’s Management Obesity is about to be disrupted by AI and it is the management layer that will take the brunt of the change. With much of the manual labour already removed, the next layer up in the stack is the natural target. And because software is eating the world, anyone who is not developing, supporting or otherwise facilitating the use of software will find it increasingly more difficult to find employment in the future. This is what I saw back in the 80s.

Side Note - Issac Asimov’s Robot Laws

The science fiction writer and scientist Isaac Asimov invented what he termed “The Three Laws of Robotics”. A novel entitled “Runaround” introduced the rules and they subhave subsequently been used as underlying themes in all of his robotic tales, like the successful film adaptation “I, Robot”.

First Law: A robot may not injure a human being or, through inaction, allow a human being to come to harm.

Second Law: A robot must obey the orders given it by human beings except where such orders would conflict with the First Law.

Third Law: A robot must protect its own existence as long as such protection does not conflict with the First or Second Laws.

Recommended Reading

Player Piano, Kurt Vonnegut. It’s a novel about this future, I’ll let you discover it.

Reading List

Apple iPhones get recycled in this secretive lab. Now it's opening up - CNET

Source: cnet.com

Speaking of robots, I couldn’t pass up on this article that clearly articulates how, in some cases, robots can have an extremely positive effect. Sit back and enjoy the article.

Will AI kill developing world growth? - BBC

Source: BBC

A thoughtful piece about the impacts of technology and specifically AI in going economies. Worth your time.

Caribbean voices rising in global Internet governance - SightLine

SightLine is a really good resource to learn about Internet Infrastructure related news. This article is a great report on the recent ARIN meeting held in Barbados on the 10th to the 11th of April 2019.

The Future is Digital Newsletter is intended for your enjoyment, and I encourage you to forward it to as many people you feel may be interested.

Thanks for being a supporter, I wish you an excellent day.

Comments and feedback

Hi all,

I’ve received some feedback from subscribers requesting a way to comment and give feedback on issues. I mentioned a few weeks back that I was testing a dedication Slack to the newsletter. That testing is complete and I am happy to announce that it is open to everyone.

If you wish to join the conversation, simply click the link below to gain access : Join thefutureisdigital Slack

Please note this link will expire on 19/05/2019.

Best regards and I look forward to the discussion.

Matthew

Continuing the analysis

Good day.

I’ll get straight in to this week’s topic, with the idea being that it is a continuation of what I started last week. This is the second instalment of a series designed to directly and practically help you with your own Digital Transformation. On to this issue.

To get the best out of this Issue, I recommend reading Part 1 first.

Last week we looked at a simple but effective framework tool, the PESTEL, that is designed to give you a broader look at the market around you and the issues that may or may not affect your business. This issue takes brief look at Michael Porter’s Value Chain model. I’ve talked about the value chain previously, and how it needs to be taken in to account when designing products and services, so I thought I’d develop exactly what it is here. Whole books have been written about the subject, but as the tool is fairly simple to use at its most basic level, it’s worth learning and using regularly.

Investopedia defines the Value Chain as:

A value chain is a business model that describes the full range of activities needed to create a product or service. For companies that produce goods, a value chain comprises the steps that involve bringing a product from conception to distribution, and everything in between—such as procuring raw materials, manufacturing functions, and marketing activities.

A company conducts a value-chain analysis by evaluating the detailed procedures involved in each step of its business. The purpose of value-chain analyses is to increase production efficiency so that a company may deliver maximum value for the least possible cost.

Essentially, Michael Porter’s Value Chain model allows you to break down your business into sections and attribute to each section their relative value and contribution to the end result, the value add of your products and services. As an example, someone who sells fruits and vegetables may have a fairly simple value chain where elements like logistics and marketing are the principle value creators of the business. A product like Apple iPhone, I think we can all see, is a very different proposition, with and extremely complex value chain.

The value chain is represented as a graphic where all the distinct parts contribute to the right-hand side, which is the profit. This graphic shows the most common representation of the value chain:

Denis Fadeev CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)

There are two distinct sections; Support Activities, Primary Activities that are in play in any business that generate value helping generate revenue, and hence margin.

Support Activities

Support Activities, as the name suggests, are all the activities in a business that are required to assist and make more efficient the primary activities of the business. Michael Porter broke them down in to four sub-sections:

Firm Infrastructure: Consisting of business elements such as Accounting, Finance, Legal, PR, General Management, Facilities Management, Security, etc.

Human Resources Management: All elements of hiring, firing, on-boarding, training, personal development, salaries, etc.

Technology Development: Includes Computer hardware and software, networking, IT support, etc.

Procurement: Buying goods and services for use in the day to day running of the business and additionally parts that make up the finished product being sold to the final client.

Primary Activities

Inbound Logistics: Inbound Logistics receives raw materials, stocks them and deals with inventory, aiding the operations activity to become more efficient.

Operations: Unlike the Support Activities that can be loosely defined as Operations, these are the operations required to transform the product or service from the raw materials to the finished product, often manufacturing etc.

Outbound Logistics: These are the activities that fulfil an order for the customer and usually include stock and warehousing, distribution, reseller networks, final mile delivery, etc.

Marketing and Sales: Marketing and Sales are there to get the customer to the sale stage in the pipeline. That includes segmentation, marketing, online influence and presence, advertising, pricing, etc.

Service: Service is the activities required to support and maintain the product or service after its initial sale in a way that enhances its long term value for the customer. That can be online help, repair, servicing, etc.

To best utilise the model at first, it’s important not to get too deep into dissecting the entire business, start with one important product or service and break that down. Repeat the process with others, by creating multiple value chains. From there you may be able to identify similarities and synergies between products and services. I’ll talk about what to do at this point in the future.

You should be careful to not think only of the pieces that you do well, in fact much of the value obtained by this analysis is derived from mixing the exercise with the SW parts of a SWOT analysis. To recap, SWOT is Strengths, Weaknesses, Opportunities and Threats.

Honestly looking at the strengths and weaknesses of your business and where they map to the value chain, either as Support Activities or Primary Activities, will be crucial in the next stages of determining your digital strategy going forward.

Here’s a quick representation of the above discussion I quickly put together using PowerPoint:

For further reading on the Value Chain, I’d suggest reading Competitive Advantage: Creating and Sustaining Superior Performance, Michael E. Porter, he additionally introduces his Competitive Forces Model, which is also useful to determine the viability of one market or another.

I’d be honoured to help you in your own Digital Transformation journey. Hit reply to this email if you would like to discuss further.

Reading List

CTU 30th anniversary: FutureScape to highlight achievements in Caribbean - CARICOM

Caribbean FutureScape, a technology immersion event, is the first ever being staged in the Caribbean, and will take place from 29th April to 1st May 2019, at the Hyatt Regency, Port of Spain, Trinidad and Tobago.

I’ll report back on what the main takeaways were from the event.

One Year In: How our $5B investment in IoT and intelligent edge is accelerating customer, partner and solution innovation - The Official Microsoft Blog

IoT and Intelligent Edge technology, I believe, is one of the most important parts of the Digital Transformation process. You need to measure, and measure what matters, to take better decisions based on analysis of data collected.

Caribbean voices rising in global Internet governance - SightLine

If you’re searching for the next wave of Internet development to come from the Caribbean, an international conference recently held in Bridgetown is a good place to start. Hosted by the American Registry for Internet Numbers (ARIN), it gathered Internet stakeholders from across the Caribbean and North America for high-level talks under the theme “Caribbean priorities for the global Internet,” from April 10 to 12. 

The Future is Digital Newsletter is intended to be shared as widely as you see fit, and I encourage you to forward it to people you feel may be interested in these matters, CEOs, Business Leaders, Influencers. Thank you.

Thanks for being a supporter. Best regards.

Let’s start with the basics

Good Morning everyone.

A big welcome to all the new subscribers, it’s a privilege to have you here. Please share with as much of your entourage as you can. Thank you.

As promised, this is the start of a series dedicated to helping you in a practical manner, start and develop your Digital Transformation.

On to this issue.

In order to start your Digital Transformation journey, an initial diagnostic is necessary to understand the digital penetration in your business operations. Most of us have email, file servers and dedicated financial software (billing, accounts etc.). But I have found that these are mostly self-contained applications silos that don’t offer any value outside their basic usage. Digital Transformation helps to resolve this situation, enabling benefit from potential synergies. Simply put — Synergy is the creation of a whole that is greater than the simple sum of its parts. Classical strategy analysis is sufficient to start the process, with more digital specific strategies developed as you progress.

Once you have completed these analyses, the next thing to do is to determine what strategic directions you would like to pursue. You don’t need to definitively decide immediately; you can try small scale tests to determine their success and scale out as and when appropriate. Additionally, at this point, it is important to determine what KPIs to measure and follow, as this will help you determine if the test is successful or not. They will additionally be useful to determine the success of full roll out too, work done here is not lost.

After the first two steps, it’s time to determine what projects to start, when and then plan them for implementation and rollout.

Photo by Startaê Team on Unsplash

Basic Diagnostics

In classic business strategy, an initial diagnostic is required to look at the internal elements of your business and the external factors that have an impact on your business. These are called micro and macro analyse, and they are quite simple to perform. However, having them undertaken by an external party is more likely to ensure an objective result.

The most recognised tools used are called PESTEL, Michael Porter’s Value Chain and SWOT analysis. I’ll look at them individually in this series, and work through some examples.

PESTEL

So-called, PESTEL, is a framework that aims to help you think about the factors that affect your business from the exterior. PESTEL is an acronym for the part of the framework; Political, Economic, Social, Technological, Environmental and Legal. Using PESTEL, we try to identify the things taking place in the market, like growth, decline, trends, legal threats, environmental factors and so on. Let’s look at each part individually.

Political

What is important with the political factors, is to think about the impacts the political environment may have one your business, be it good or bad. Some political decisions have important effects on a business — no, I’m not going to mention Brexit ;) — and it is important to note the political position and determine what affects may impact you. There are many examples, but one that gained major attention in the media was the GDPR, General Data Protection Regulation, implemented in Europe but having global implications to businesses that had European customers. The end result was a Technological impact and cost, but the impetus was political.

To go about this, you need to research a lot about your political environment and also have a good understanding of the political environments that may affect you in the future. In the Caribbean, we are obviously affected locally by associations like CARICOM, OECS etc, but wider-ranging impacts may be felt from Europe and the US. The French West Indies are actually Europe… Its closer than you may think!

Economic

Clearly, it’s important to take in to account the economic climate both locally and more generally in your region, which gives you a better understanding of the issues of region. Again, research is the name of the game and you should avail yourself of the latest economic reports and papers in you region, then interpret them to get a handle on factors that may directly impact you, like the dollar/local currency exchange rates and their historical tendencies, tax rates, unemployment rates, level of training by population type etc. 

Social

Sociological changes are happening at a pace never before seen. Generation Y and Z have social attitudes that are alien to Generation X or the baby boomers. Populations are getting older and people are living longer. These are the types of indices required to understand the impact on business. A young child these days thinks nothing of listening to music, whilst watching YouTube, all simultaneously playing Fortnite. Technology has enabled this, but youngsters have embraced and enhanced it.

Tehnological

As a technology nerd since the 80s, I have seen lots of technological changes in consumer products and also businesses. But nothing has evolved so rapidly and so completely as the changes that were enabled by the Internet. The internet enabled bigger, more distributed, and more importantly, more connected applications that we a fantasy only a couple of decades ago. Technologies like, IoT, CRM, Cloud Computing and Data Visualisation (there are many more) are important to recognise, as they may provide strategic advantages to you or your competitors.

Environmental

In an age of climate change concern, an eye on your environmental impact and what impacts may be as of a consequence if you chose one strategy over another. More and more clients, be that B2C or B2B, are requesting environmental impact assessment reports before signing contracts or purchasing products. It’s important here to note current factors and think about how they can be improved upon. Eventually standards like ISO, might be useful to discuss at this point too. Depending on your business, there are standards available to help you better align with the wishes of your customers. ISO 9001, Quality Management, is a classic, but others more specific exist, for example a client of mine would benefit from ISO 41001, which deals with Facilities Management.

Legal

Lastly, looking at the legal landscape may help you understand your roles and responsibilities in your region in a deeper manner. As highlighted above, the GDPR had political effects, technological effects, but was implemented and enacted through legal means. Other legislation and regulation need to be identified here. If your region is anything like mine, the number of texts proposed and finally made to law has exploded over the last few years. Even local laws may have a substantial effect on your business. Take for example a restaurant implanted in the town centre, a simple change to parking laws may substantially increase or decrease the number of clients passing through, and consequently your revenue.

I’ve designed a simplified example PESTEL analysis diagram, for a hypothetical fast food restaurant chain called McCowen’s. Feel free to use it and modify it as you see fit.

Simplified PESTEL for fictitious Fast Food Restaurant McCowen’s

Next issue, we’ll take a look at Porter’s Value Chain, hope to see you then.

Available for Consulting

As a consultant, I am available to perform this analysis with you. In fact, I’ve noticed that outside eyes are an excellent complement and better indicator of reality than those clouded by the viewpoint of the inside. Contact me (hit reply to this email) if you would like to discuss further, I’d be honoured to help.

Reading List

Carpooling saves more than 1.6 million tonnes of CO2 a year, whilst doubling the number of people traveling - BlaBlaCar

European carpooling service BlaBlaCar, using its blog, cites a study conducted by BIPE that concludes that its digital product — a carpooling aggregator — has doubled car occupancy to 3.9 persons per car (1.9 per car without BlaBlaCar) whilst simultaneously reducing CO2 emissions by 26%. This is a long way behind bus emissions and occupancy rates of around 60% on average but is a step in the right direction. This could only be enabled by Digital Transformation.

Woebot - Should This Exist

Sometimes Digital Transformation crops up in unexpected quarters. This is a great example, where AI is being used for counselling, helping those affected by depression and other mental illnesses. It doesn’t replace therapists, but I’ll let you listen to the podcast for yourselves. A full transcript is available for those who prefer to read. 

The scooter wars are actually a century old - Fast company

In 1916 a suffragette called Lady Florence Norman travelled regularly to her office on a motor scooter her husband had purchased as a birthday present. A fascinating look at the technology and societal impacts.

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