Chapter 3: Macro-environmental analysis Flashcards
What is the macro-environment? And what is a macro-environment analysis?
The macro-environment consist of broad environmental factors that impact, to a greater or lesser extent, many organisations, industries and sectors
The point of a macro-environment analysis is to identify the key drivers for change, to trace these drivers down to industries or sectors, and then to consider implications for the strategies of specific organisations.
What factors does PESTEL highlight?
Six environmental factors –> Political, Economic, Social, Technological , ecological and legal.
Describe Pestel
Pestel is a tool to analyse the broad macro-environment and i likely to both feed into forcast and scenario analysis. Pestel works like a checklist to encurage a comprehensive analysis of factors.
Organisations need to consider both markets and non markets.
The market environment - (suppliers, customers, competitors) are primary economic factors. In the market companies compete for resources, revenues and profit. Strategies regarding price, innovation and quality are common.
The non-market environment - (Social, political, legal and ecological factors) Typically involves interactions with non-governmental organisations (NGOs), politicians, government departments, regulators, political activists, campaign groups and the media. (Extra relevant for organisations dependent on government and regulators)
Describe the Political part in PESTEL
Highlights the role of state and other political factors in the macro-environment.
Two important steps in political analysis
1. Evalutating the importance of political factors
2. Political risk analysis - Analysis of threats and opportunities from political change
Describe the economic part in PESTEL
Macro-economic factors - Currency exchange rates, interest rates, fluctuationg economic growth rates around the world
Economic cycle - Key concept to analyse the macro-economic trends - Key is to identify cyclical turning points
Long term decisions –> Asses where thgey stand in the overall cycle
Discretionary spend industries - Where spending having strong cyclical effects = Spending can be put off for a year
High fixed cost industries - Airlines, hotels - Suffer from economic downturns –> Can lead to price war (Airlines selling cheaper tickets to fill its seats –> every airline lower prices)
Describe the Social part in PESTEL
Two impacts upon organisations
1. Can influence the specific nature of demand and supply, within the overall economic growth rate
2. They can shape the innovativeness power and effectiveness of organisations
Key aspects that can shape demand and supply
Demographics
Distrubution - wealth
Geogrephy - Concentrated to specific locations
Culture - Changing attitudes
What is an organisational field within “Social”?
An organisational field is a community of organisations that interact more frequently with one another than with those outside the field
Describe the Technological part in PESTEL
Metaverse, nanotechnology –> whose impacts can spread far beyond single industries
Five primary indicators of innovative activity
Research and development budgets - Budgets from companies –> taken from annual reports
Patenting activity: Firms active in patenting new technologies can be identified on national patent registers
Citation analysis - Cited by other organisations
New product announcements - organisations typically publicise their new product plans in press releases
Media coverage - Industry media will cover the latest stories from the industry
Describe the ecological part in PESTEL
Pollution, waste and climate change
There are three sorts of challanges an organisation may need to meet when considering ecological issues in the macro-environment
Direct pollution obligations - Cleaning up and minimising the production of pollutants –> having clean production and supply and distribution
Product stewardship - Managing ecological issues throught the organisations value chain and the whole life cycle of a product
Sustainable development - Constraints on the over exploitation of particular sources of raw materials –> Can the product be produced indefinitely in the future
Describe the Legal part in PESTEL
REgulations regarding - Labour, environmental and consumer regulation, etc.
Liberal market economies
Coordinated market economies
Developmental market economies
What are key drivers for change?
The environmental factors likely to have a high impact on industries and sectors, and the success or failure of strategies within them
What is forecasting?
Forecasting takes three fundamental approches to the future based on varying degrees of certainty: single point, range and multiple-futures forecasting
Name the three approches to forecasting and explain them!
- Single-point forecasting –> confident about the future (only one forecast number)
- Range forecasting - Less certainty –> range of different outcomes (Different probability to the outcomes)
- Alternative futures forecasting - Even less certainty –> focus on a set of possible outcomes yet distinct futures
What three concepts help managers keep focus on both major trends and possible turning points, that might invalidate forecasts?
Megatrends - Large PESTEL movements that are typically slow to form but influence many areas. (Aging population in the western world affect social care, retail spending…)
Inflexition points - Trends shift in direction –> Turning sharply upward or downwards
Weak signals - Advanced signs of future trends that help identifying inflexion points
What are scenarios?
Scenarios offer plausible alternative views of how the macro-environment might develop in the future, typically in the long term.
What is scenario analysis?
Scenario analysis is typically used in conditions of high uncertainty
Five steps in scenario analysis
1. Defining scenario scope (Scope = Subject of the scenario analysis)
- Identifying the key drivers for change - Impact, uncertainty, mutual independence
- Developing scenario “Stories”
- Identifying impacts
- Monitor progress
