3: Macro Environmental Analysis and Scenario Planning

Environmental

Environmental protection laws Energy consumption • Disposal of waste • Regional and International Weather • Global climate change • Natural Disasters • Pollution • Employment of natural resources

Economic

GNP trends Interest rates Currency fluctuations & exchange rates Inflation Unemployment Disposal income • home economy situation • home economy trends • overseas economies and trends • general taxation issues • taxation specific to product/services • seasonality/weather issues • market and trade cycles • specific industry factors • market routes and distribution trends • inflation • interest and exchange rates • international trade/monetary issues • unemployment

Technological

Government spending on research Government and industry focus on technological effort New developments Speed of technology transfer • competing technology development • research funding • associated/dependent technologies • replacement technology/solutions • maturity of technology • manufacturing maturity and capacity • information and communications • consumer buying mechanisms/technology • technology legislation • innovation potential • technology access, licensing, patents • intellectual property issues • global communications

Legal

Monopolies legislation Employment law • Employment Law • Contract Law • Health and Safety • Licenses • Planning Permission • Copyright • Patents • International Agreements • Human Rights • Environmental Policy • Competition Law

Political

Monopolies legislation Taxation policy Foreign trade regulations Employment law Government - organisation relationship • ecological/environmental issues • current legislation home market • future legislation • European/international legislation • regulatory bodies and processes • government policies • government term and change • trading policies & regulations • funding, grants and initiatives • home market lobbying/pressure groups • international pressure groups • wars and conflict

PESTLE

Political/legal Economic Socio-cultural Technological Legal Environmental - Used to look at the future impact of environmental factors - Identify opportunities and threats

Social

Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work & leisure • lifestyle trends • demographics • consumer attitudes and opinions • media views • law changes affecting social factors • brand, company, technology image • consumer buying patterns • fashion and role models • major events and influences • buying access and trends • ethnic/religious factors • advertising and publicity • ethical issues

Forms of CSF

- Core competences - Source of competitive advantage - Performance standards - Extent of imitation in the market - Impact of attempts to out manoeuvre competitors and counteraction - Branding - Advertising - Low wages - Technological processes - Innovation - Cost Differentiation - Niche markets / specialisation - First mover - After sales service

PESTLE Vs SWOT

- PESTLE is useful before SWOT - helps identify SWOT factors - Overlap between both - PEST factors with external microenvironmental factors can be classified as opportunities and threats in a SWOT - PESTLE assesses a market, including competitors, from the standpoint of a particular proposition or a business. - SWOT is an assessment of a business or a proposition, whether your own or a competitor's. - PESTLE becomes more useful and relevant the larger and more complex the business or proposition, but even for a very small local businesses a PESTLE analysis can still throw up one or two very significant issues that might otherwise be missed. - SWOT provides feed back into economic aspects of PESTLE

Scenario Planning Process

1) Decide which trends to include, and over what time horizons. 2) Identify what forces or developments are likely to have the greatest ability to shape the future. 3) Construct a comprehensive set of future scenarios based upon differing combinations and interactions of variables. 4) Generate a fewer (3-4) scenario specific forecasts that enable an assessment of alternative futures for given strategic actions

The Organisation as a Transformation System

1. Inputs - Premises - Materials - Labour - Technology - Finance - Management 2. System (Business Organisation) - Alteration - Transportation - Storage - Inspection 3. Outputs - Goods - Services - Information - Ideas 4. Consumption

The Business Environment

1. The organisation 2. Industry competitors 3. The business environment: - political, - economic, - social, - technological & environmental - legal aspects

The Environment

Impacts on the organisation and systems: - Resources - Consumption - Feedback - Transformation of inputs - Outputs

Internal or External Relationship with firm

Internal - Strengths - Weaknesses External - Political - Economical - Social - Technological - Legal - Environmental - Opportunities - Threats

PESTLE AND SWOT - Key Differences

PESTLE - analysis most commonly measures a market. - analysis measures the market potential and situation, particularly indicating growth or decline, and thereby market attractiveness, business potential, and suitability of access - market potential and 'fit' in other words. - analysis uses six perspectives, which give a logical structure, in this case organized by the PESTLE format, that helps understanding, presentation, discussion and decision-making. SWOT - analysis measures a business unit, a proposition or idea. Considers organisation's 'Critical Success Factors'.

Purpose of PESTLE and SWOT

Purpose of strategy formulation making clearer the options and alternatives and to make easier a choice.

Macro Environment

The collection of uncontrollable forces and conditions facing a person or a company, including demographic, economic, natural, technological, political and cultural forces.

Define - CSF Critical Success Factor

The correct configuration of resources and processes to meet the demand of the market • Components of the organisation which excel • Elements which outperform the competition • This is the minimum a company must need to survive....if there are no CSF's then nobody will buy your product • It sets the firm apart from its competitors • Varies by industry and can vary by company within the same industry (competitors)

Micro Environment

The set of forces close to an organization that have direct impact on its ability to serve its customers. The microenvironment includes channel member organizations, competitors, customer markets, publics, and the capabilities of the organization itself.

Scenario Planning - Define

Undertaking a disciplined method for imagining and examining possible futures It is not a method for predicting the future - A more scientific method - Based on analysis - "Assumption is the mother of all mistakes" - An attempt to scientifically forecast an unfolding future • Scenario planning and analysis seeks to consider the possible effects of (and interactions between) various uncontrollable forces (PESTLE for example) upon the future and to test the resiliency of specific strategy alternatives. • It is most commonly found in industries considered to have highly dynamic, complex and uncertain environments and/or those industries that require heavy forward investment (e.g, energy companies)

Criticisms of Scenario Planning

• Assumption can be good, particularly if there are gaps in information • Ignores 'gut-feeling', intuition, tacit knowledge • Can hinder change if each decision has to follow a logical process of analysis and planning • Can be misinterpreted • Data can still be altered to follow a political agenda

Scenario Planning Process: Thoughts on Development

• Determine the key question • Identify major factors in the environment • Identifydrivingforces • Rank by importance & uncertainty • Developscenarios • Determineimplications • Identifyleadingindicators

CSF's and PESTLE

• Focus on the CSF's before conducting a PESTLE results in the exclusion of unnecessary information • Identify those issues which specifically affect the firm....whether opportunities or threats

Advantages of PESTLE

• Helps decision-makers to rationalise potential issues • Encourages thinking • Part of a rational, analytical process • Can identify opportunities as well as threats

Criticisms of PESTLE

• Pigeon-holing issues • Dependent on human thought and interaction • Information overload • Judgement of risk

Qualities of Good Scenarios

• Relevance • Internal Consistency • Generically different descriptions • Over time: - Actionable - Consistent

Positives of Scenario Planning

• Scientific method • Justifies reasons for change • Analytical/evaluation process is useful in group decision making situations • Usually requires a formal method of communication • Implementation could be easier if reasons (analysis) are known • Stretch and develop the thinking of key players about possible future business conditions • Encourage flexibility of thinking amongst key players • Confront conventional wisdom • Make assumptions explicit

Optimising a PESTLE

• Stick to key variables • Avoid lists.....demonstrate an understanding of the issue • Identify and interpret key variables and how they affect the firm (currently or in future) • Identify the CSF's before conducting external analysis