macro-environment analysis

Question 1

what is the PESTEL framework?

Answer 1

highlights six external factors including:
- political
- economic
- social
- technological
- ecological
- legal

organisations need to consider market environment (e.g. suppliers, customers and competitors) and the non-market environment (e.g. government, media, campaign groups)

Question 2

what are political factors?

Answer 2

• the role of the state
• government policies
• foreign trade regulations
• political risks in foreign markets
• changes in regional trade blocs (e.g. BREXIT)
• exposure to civil society organisations

Question 3

what are economic factors?

Answer 3

• business cycles
• economic growth rates
• rates
• unemployment rates
• interest
• personal disposable income
• exchange rates

Question 4

what are social factors?

Answer 4

• culture
• demographics
• wealth distribution
• geography
• organisation networks within an organisational field (the community of organisations that interact more frequently with one another than with those outside the field)

Question 5

what are technological factors?

Answer 5

new discoveries and technology developments
- blockchain
- supercomputing
- generative AI
- lunar exploration

Question 6

what are ecological factors?

Answer 6

environmental issues, such as pollution, waste and climate change
- global warming
- waste disposal and recycling
- environmental protection regulations
- renewable energy

Question 7

what are legal factors?

Answer 7

• labour, environmental and customer regulations
• taxation and reporting requirements
• rules on ownership
• competition regulations
• regulation of corporate governance

Question 8

what are the varieties of capitalism?

Answer 8

• liberal market economies
• coordinated market economies
• developmental market economies

Question 9

what are liberal market economies?

Answer 9

formal and informal rules favour competition between companies (UK, USA)

Question 10

what are coordinated market economies?

Answer 10

encourages more coordination between companies, supported by industry associations (Germany, Japan)

Question 11

what are developmental market economies?

Answer 11

strong roles for the state, which own or influence companies that are important for economic development (China, Brazil)

Question 12

what are the key drivers for change?

Answer 12

external factors that are likely to have high impact on industries and sectors and may vary by industry or market (e.g. birth rate is a key driver for those planning nursery education provision)

Question 13

forecasting

Answer 13

all strategic decisions involve forecasts about future conditions and outcomes and takes 3 fundamental approaches based on varying degrees of certainty:
- single point
- range
- alternative futures

Question 14

single-point forecasting

Answer 14

for low uncertainty (straight line graph)

Question 15

range forecast

Answer 15

medium level uncertainty

Question 16

alternative futures

Answer 16

high uncertainty

Question 17

what are megatrends?

Answer 17

large-scale changes that are slow to form but influence many other activities over decades to come
- e.g. ageing populations, global warming and the wide use of ai

Question 18

what are inflexion points?

Answer 18

when trends shift sharply upwards or downwards
- e.g. the experience of working from home during the pandemic may have tipped the trend against working in the office

Question 19

what are weak signals?

Answer 19

advanced signs of future trends that may help to identify inflexion points, often unstructured and fragmented bits of information
- e.g. mortgage failures in California 2007 were a weak signal for the financial crisis in 2008

Question 20

what are scenarios?

Answer 20

possible ways an organisation’s environment might evolve in the future, based on important changes that are highly uncertain

Question 21

outline the scenario process

Answer 21

1. define the scope (industry, region, years)
2. identify key drivers (PESTEL; megatrends, inflexions, weak signals)
3. develop distinct scenario ‘stories’ (name scenarios)
4. identify impacts (check and adapt strategies)
5. monitor progress (early warning indicators)

Question 22

carrying out scenario analysis

Answer 22

• develop scenario ‘stories’: coherent and plausible descriptions of the environment that result from opposing outcomes
• identify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios
• monitor progress: identify indicators that might give an early warning of the way the environment is changing and monitor such indicators

Question 23

explain the role of AI

Answer 23

• AI can power scenario planning for real-time strategic insights
• AI-based monitoring can quickly evaluate millions of data points (news events, regulatory updates, social media, competitor announcements) and identify decisive indications of how a scenario is developing and what problems may be ahead