ASSUMPTIONS

Reported by:
James Vincent R. De Dios
 Assumptions

the best present estimates of the impact of

major external factors, over which the manager
has little if any control, but which may exert a
significant impact on performance or the ability
to achieve desired results.
Dale McConkey
 External Environment
An external environment is composed of all
the outside factors or influences that impact
the operation of business.
Conditions, entities, events, and factors
surrounding an organization that influence its
activities and choices, and determine its
opportunities and threats.
External Environment

General Environment
Socio-Cultural /
demographic Technological

Industry A
Industry B

Economic

New
Entrants
Your Industry Substitutes

Suppliers
Customers Politico-Legal
Environment Competitor

You
The External Environment is made up of 3 parts:
1. The General Environment
2. The Industry Environment
3. The Competitor Environment
The General Environment
The factors and conditions that generally affect
everyone in an industry or market in more or less
similar manner.
5 segments:
1. Socio-Cultural / Demographic
2. Technological
3. Economic
4. Environment
5. Politico-Legal
The General Environment:
(S) Socio-Cultural / Demographic
A set of beliefs, customs, practices and behavior that
exists within the population.
o Lifestyle changes
o Client activism
o Rate of family formation
o Growth rate of population
o Age distribution of population
o Regional shifts in population
o Life expectancies
o Birth rates
o Attitudes toward business
o Buying habits
o Attitudes toward quality
o Level of education
The General Environment:
(T) Technological Segment
Consists of the institution and activities involved in
creating new knowledge and translating that
knowledge into new outputs, products , processes and
materials.
o Product innovations
o Transport
o Energy
o Communication technologies
o Focus of private and government-supported R&D
expenditures
The General Environment:
(E) Economic Segment
Refers to the nature and direction of the economy in
which a firm compete or may compete.
Firms seek to compete in relatively stable economies
with strong growth potential. In general, however, the
worlds current economic environment is quite uncertain.
Elements of economic segment include:
o Interest rates
o Inflation rates
o Taxes
o International trade
o Entrepreneurship
o Availability of jobs
The General Environment:
(E) Environmental Segment
Include ecological and environmental aspects.
Elements of the environmental segment include:
o Calamities o Water pollution
o Pollution control o Ozone depletion
o Energy conservation o Endangered species
o Recycling o Traffic congestion
o Waste management o Inner-city environments
o Air pollution
The General Environment:
(P) Politico-Legal Segment
Government actions which affects the operations
of a company or business.
Elements of politico-legal segment include:
o Government regulations or
deregulations
o Changes in tax laws
o Special tariffs
o Political action committees
o Voter participation rates
o Number, severity, and location
of government protests
o Number of patents
o Changes in patent laws
o Environmental protection laws
o Level of defense expenditures
o Legislation on equal
employment
o Antitrust legislation
o Importexport regulations
o Government fiscal and monetary
policy changes
o Political conditions in foreign
countries
o Special local, state, and federal
laws
o Lobbying activities
o Size of government budgets
o Location and severity of terrorist
activities
o Local, state, and national
elections
o Level of government subsidies
The Industry Environment
An industry is a group of firms that produce
similar products or offer similar services that are
close substitutes.
Compared with the general environment, the
industry environment has a more direct effect on
a firms:
- Strategic competitiveness
- Ability to earn above-average returns
An industrys profit potential ( and thus
attractiveness) is explained by Porters 5 Forces
Model
The Industry Environment:
Porters Five Forces Model
1. Threat of Entry
2. Bargaining Power of Buyers
3. Bargaining Power of Suppliers
4. Threat of Substitutes
5. The Intensity of Rivalry
The Competitor Environment
The term "competitor environment" refers to
the number and types of companies against
which a given business competes in its industry.
Direct competitors are those that sell very
similar goods and services.
Indirect competitors are those that sell
unrelated goods and services, but to similar
target markets.
Competitor Analysis
Competitor analysis is an assessment of the
strength and weaknesses of current and
potential competitor. This analysis provides both
an offensive and defensive strategic context to
identify opportunities and threats.
Competitor Analysis
The ethical gathering of needed information and data
that provides insight into competitors:
Future objectives
- What drives the competitor
Current strategy
- What the competitor is doing and can do
Assumptions
- What the competitor belives about its own
firm and the industry
Capabilities
- Competitors capabilities, strengths & weaknesses
 Importance of Assumptions
Planning would be impossible without
assumptions.
Assumptions serve as checkpoints on the validity
of strategies based on the best information.
Without reasonable assumptions, the strategy
formulation process could not proceed effectively.
Firms that have the best information generally
make the most accurate assumptions, which can
lead to major competitive advantages.
Thank You