PEST and SWOT and 5 Forces in Relation to the Meta Model
Robin Matthews
DRAFT
PEST and SWOTanalysis and 5 Forces (M. E. Porter 1990)are staple diet of student consulting reports.Presented merely as a list of just about everything that can be fitted into the boxes, the acronyms PEST, SWOT and 5, I think they are useless, and without an impact analysis and assessment of immediate and long run priorities, doubly useless. I also wonder, how a Board of Directors, in a real situation paying big money, would respond to this level of analysis.
Yet the techniques are popular. Maybe I am being unfair. Google records about 7 million results on PEST, 27 million results on SWOT and 182 million results on 5 forces. They appear management textbooks, are taught on student courses ranging from GCSE commerce, undergraduate to MBA. I shouldn’t be surprised if they were taught in primary schools. But are they are appropriate at doctoral level?
They do give a limited representation of the current system state of an organisation. They can be incorporated into the meta model in figure 1[1].
Figure 1
A starting point for a critical review of the three techniques is to notice the correspondence between them. They are relational techniques. Sensible competitive analysis has to take account of a firms strength and weaknesses in relation to other firms. This means comparing payoffs and examining inner dynamics, and the influence of outer dynamics. The term payoff is borrowed from game theory to include monetary and non-monetary returns to stakeholders, and the need to balance their often conflicting interests. Thus agency theory forms part of the analysis of payoffs.
The strength and weaknesses of a firm relative to others is an important component of inner dynamics. The resource based view (RBV)(Barney, 2001), focuses on a firm’s resources or assets and claims that firms seek to use assets in a unique way in order to gain competitive advantage. The RBV approach sees combining assets and building synergies between them, as more important than the assets in themselves.
The capabilities or competence approach, they are more or less equivalent, stress the importance of management’s ability to develop routines, architectures and structures that create synergies. Peters and Waterman (1983)in the McKinsey approach, see these capabilities as part of an organisation’s hard systems. They emphasisesoft systems, (Checkland 2011) culture, norms and leadership style as important sources of uniqueness. Teece and Pisano treat capabilities as dynamic, emphasising that the system state of an organisation is not static but subject to constant change. (Teece and Pisano 1994)
Hard and soft systems analysis illustrates the importance of organisational grammar (Matthews, 2011) in figure 1. Two components of grammar are morphology and syntax. Morphology in the context of organisational grammar describes the aspects of an organisation that we choose to focus on. Putting it another way we could say that payoffs, inner dynamics and outer dynamics, and their components are names. Syntax turns names into interrelated systems. If we think of strategy as a game, syntax corresponds to the rules of the game.
Syntax and morphology are only part of grammar. Grammar also includes the media of communication. These are numerous, possibly too numerous to be countable. Figure 3 illustrates just some of the media of communication. Suppose for example we think of organising communication within an organisation in such a way as to create synergies. Communication is formal and informal. It involves hard systems, IT systems, intranets and the Internet, rules, hierarchies, telecoms, and soft systems, organisational culture, values and norms, the mind sets of members of an organisation and in fact the mind sets of all stakeholders, ethnic influences.
All of this takes place in an environment of outer dynamics. And outer dynamics, has its own grammar, which to some extent reinforces the grammar of inner dynamics and to some extent introduces conflict with the grammar of inner dynamics. Government regulation, taxation and subsidieschange the distribution of payoffs with payoffs. The instability of the macro economy causes constant change within an organisation. And outer dynamics, like inner dynamics consists of sets of interacting influences, demography, politics, technological change, ecology and economics to name but a few.
Competitor behaviour is part of outer dynamics. One of the insights of game theory (Rubinstein and Osborne 1994),quite obvious when one thinks about it, is that the outcome of one firms’ strategy depends on the responses of other firms. More often than not, this is forgotten. Just as poker players will bankrupt themselves if they make their decisions solely on the basis of their own cards, so firms will go bust if they act as if strategies of other firms are irrelevant.
Relatively recently strategic thinking has learned from the natural sciences. Wright introduced the metaphor of landscapes into Darwinian analysis and Kaufmann has extended his work by formulating a theory in which competitive strategy has to accommodate to the ruggedness of landscapes. (Kauffman 1993)
A huge gap in the discussion so far of the literature related to the meta model, is that it might imply that firms are passive in their response to competition and their outer dynamics in general. We should stress the importance of anti-competitive behaviour; creating barriers to the entry of new competitors, gaining market share in order to gain leverage over pricing, introducing product differentiation to gain substantial market share or segment share to gain an advantageous competitive position and encroach on consumer surplus.
The previous paragraphs illustrate the complexity of organisations and their environment. Thus a literature review takes us into the realm of complexity. We have described organisations as being made up of large numbers of systems, hard and soft. Within each system there are large numbers of interacting subsystems. Again using the metaphor of game theory, games, (Barney 2001)organisations consist of coalitions within coalitions within coalitions (Matthews 2006). Beginning at an elementary level with teams, teams are combined into projects, businesses are made up of multiple projects, corporations are made up of business or functional units and organisations themselves may form partnerships with one another, merge with one another, and collectively they are part of a global system.
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[1]Priorities and potential impact can be illustrated by an impact diagram. The radii of the 9 point Enneagram can be used as a framework for an impact analysis.