L14 - The macroenvironment Flashcards
What are the different layers of the environment?
Macro-environment – highest level layer, broad environmental factors, PESTEL. This PESTEL analysis provides the broad ‘data’ from which to identify key drivers of change. These key drivers can be used to construct scenarios of alternative possible futures.
Industry or sector – next layer within broad general environment, organisations producing same goods or services, Porter’s five forces. Complementors identify opportunities for cooperation within and across industries
Competitors and markets – the most immediate layer surrounding organisations. The concept of strategic groups can help identify different kinds of competitors. Similarly, in the marketplace, customers’ expectations are not all the same, which can be understood through the concept of market segments . Finally, competitors’ relative positions can be analysed using the strategy canvas , helping also to identify ‘ Blue Ocean ’ opportunities in the marketplace.
What are the elements of the PESTEL framework?
Political, economic, social, technological, ecological and legal
Purpose – filter out the key drivers for change
Political - The state is often important as a direct economic actor, but there are also influences from various political movements – any specific state or civil society organisation activities that might affect your industry
Economics – MACRO-economic factors, exchange rates, business cycles (stop/start investment to prepare for down-/upturns, affects high-fixed cost industries and discretionary spend-dependent industries a lot)
Social influences include changing cultures and demographics, geographical industrial clusters (arguably in economic category too)
• Technological – identifying substitution threats, emerging new “cores/essential competences”, emerging “grand” technologies. Indicators – R&D, patent counts, citation indicators (patents and scientific papers), new product announcements
Ecological – environmental issues, e.g. direct pollution, product stewardship (design for ‘whole life’ of product; for ease of recycling/reuse, sustainable development, climate change can be included if e.g. specific state regulation
What are the key drivers for change?
The environmental factors likely to have a high impact on the future success or failure of strategy
Identifying key drivers for change helps managers
to focus on the PESTEL factors that are most important, and which must be addressed most urgently. Without a clear sense of the key drivers for change, managers will not be able
to make the decisions that allow for effective action.
What are 3 types of uncertainty?
Risk: where there is enough historical precedent, in the form of similar events, to estimate the future outcome
Structural uncertainty: known events that are so rare that there is no indication of likelihood
Unknown: where we cannot even imagine the event. There have been many of these in history.
What is forecasting?
Forecasting “takes three fundamental approaches based on varying degrees of certainty; single-point, range and multiple futures forecasting”
What are scenarios?
“Scenarios offer plausible alternative views of how the macro environment might develop in the (long-term) future“ p39
“An internal consistent view of what the future might turn out to be - not a forecast, but one possible future outcome” M. Porter
Why are scenario analyses carried out?
When the business environment has high levels of uncertainty, it is impossible to develop a single view of how environmental influences might affect an organisation’s strategies – indeed it would be dangerous to do so.
Scenario analyses are carried out to allow for different possibilities and help prevent managers
from closing their minds to alternatives.
Scenarios typically build on PESTEL analyses and key drivers for change, but do not offer a single forecast of how the environment will change.
The point is not to predict, but to encourage managers to be alert to a range of possible futures
What are the 6 basic steps of scenario analysis?
(1) Defining scenario scope – refers to the geography of the scenario analysis and the time span.
(2) Identifying the key drivers for change – e.g. use PESTEL. Two additional criteria are relevant: uncertainty , so that it is worthwhile considering
different possible scenarios: and mutual independence , so that the drivers are capable of producing significantly divergent or opposing outcomes.
(3) Developing scenario ‘stories’ - having selected
opposing key drivers for change, it is necessary to knit together plausible stories that incorporate
both key drivers and other factors into a coherent whole
(4) Identifying impacts of alternative scenarios on organisations – important for an organisation to carry out robustness checks in the face of each plausible scenario and to develop contingency plans in case they happen
(5) Establishing early warning systems – identify indicators that might give early warning about the final direction of environmental change and at the same time set up systems to monitor these
(6) Check new policies against scenarios
What are three approaches to forecasting?
Single-point forecasting: organisations have such confidence about the future that they will provide just one forecast number. Attractive as they are easy to translate into budgets
Range forecasting: less certainty, suggesting a range of possible outcomes with different probabilities. A central projection identified as the most probable
Alternative futures forecasting: even less certainty, focusing on a set of possible yet distinct futures. Discontinuous – happen or does not happen, radically different outcomes. Often fed into scenario analysis
What are 3 directions of change forecasters should keep an eye on?
Megatrends: large-scale PESTEL movements, typically sets the direction for other factors
Inflexion points: moments when trends shift in direction, e.g. turning sharply upwards or downwards. Likely to invalidate forecasts
Weak signals: advanced signs of future trends and helpful in identifying inflexion points. Unstructured and fragmented bits of into
