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• Intended learning outcomes:

  • Understand and articulate answers to questions about the macro environment and its importance to organizations
  • Explain how the PESTEL framework is used to evaluate the external environment
  • Describe how Porter’s Five Forces tool is used to perform a competitive analysis of an industry
  • Define strategic groups and explain their usefulness in evaluating the competitive environment
• Panera Bread's history:

  • Founded in 1981 in Boston as the Cookie Jar
  • Merged with Au Bon Pain the following year
  • Started selling soups and fresh sandwiches, catering to emerging trends in healthy eating and the rise of "fast casual" restaurants
• Panera Bread's growth:

  • Took advantage of external forces to expand rapidly
  • Implemented digital ordering, a loyalty program, catering, and delivery services
  • Became one of America's most successful restaurant chains by 2017, with over 2000 locations and 100,000 employees
• The relationship between an organization and its environment:

  • The environment includes external conditions and forces that can influence the organization
  • The competitive environment can be broken down into the general environment (macro-environment) and the industry
  • The general environment includes social, technological, demographic, and economic trends
  • The industry (competitive environment) consists of organizations competing by providing similar goods or services
• Purchases approximately 4% of all eggs produced annually, but only 10% of the eggs produced in 2018 were cage-free
• The environment provides resources that an organization needs to create goods and services
• The environment is a source of opportunities and threats for an organization
• The environment shapes the various strategic decisions that executives make as they lead their organizations to success
• PESTEL analysis is a framework reflecting general environmental factors—political, economic, socio-cultural, technological, environmental, and legal—that can impact an organization either positively or negatively
• Executives can prevent negative outcomes and leverage positive forces by performing a PESTEL analysis to diagnose where in the general environment important opportunities and threats arise
• Political factors directly impact industries like hospitality, construction, and agriculture that rely heavily on migrant labor in its many forms
• Some businesses prospered during the COVID-19 crisis, like retailers offering deep discounts and grocery stores, leading to an increase in their customer base
• Women's contributions to the war effort during World War II helped create positive social changes in the ensuing decades
• Global warming has created the need to restrict greenhouse gases by reducing the burning of fossil fuels, leading to the rise of the electric car industry
• Legal factors like piracy of intellectual property pose a serious threat to firms creating intellectual property, with law enforcement agencies providing mechanisms to protect their rights
• Porter's Five Forces Analysis, introduced by Professor Michael Porter, is a popular analytical tool in the business world to identify profit potential in an industry by considering interactions among competitors and potential new entrants
• Five Forces Analysis is a popular analytical tool in the business world
• The purpose of Five Forces Analysis is to identify how much profit potential exists in an industry by considering the interactions among competitors, potential new entrants, substitutes for the industry’s offerings, suppliers to the industry, and the industry’s buyers
• If none of these five forces works to undermine profits in the industry, then the profit potential is very strong; if all the forces work to undermine profits, then the profit potential is very weak
• Executives can decide what strategic moves to make based on the identified profit potential in an industry
• Rivalry among competitors in an industry can be influenced by several characteristics
• Threat of potential new entrants to an industry can be affected by various factors that make it difficult for new entrants to enter
• Threat of substitutes for an industry's offerings can impact the industry's profit potential
• Power of suppliers to an industry can be influenced by characteristics that impact their power
• Power of an industry’s buyers can be impacted by various characteristics
• When using Porter’s Five Forces tool, it is important to note the strength of each force analyzed, typically ranked as Strong/High, Moderate/Medium, or Weak/Low
• Strong forces indicate high competition for profits within an industry, making it less desirable to be in, while weak forces indicate a stronger potential for profit and a more desirable industry to be in
• A mixture of strong and weak forces means there is profit potential, but competitive forces within the industry can dilute the profit potential
• Understanding the nature of strategic groups within an industry is important because the members of a firm’s group are usually that firm’s closest rivals