Chapter 2 - Macro-environment Analysis PDF

Preview

Summary

Download Chapter 2 - Macro-environment Analysis PDF

Description

MACROECONOMIC ENVIRONMENT ANALYSIS -

Environment creates both opportunities and threats for organisations Macro-environment: broad environmental factors that impact to a greater or lesser extent many organisations, industries and sectors

PESTEL ANALYSIS Highlights six environmental factors – Political, Economic, Social, Technological, Environmental and Legal. Environment includes both market and non-market factors Politics: -

Highlights the role of the state and other political factors in the macro-environment Two steps – identifying the importance of pollical factors & carrying out political risk analysis The role of the state, the exposure to civil society Political Risk Analysis o macro-micro dimension:  macro – risks associated with whole countries  public sources exist which publish relative rankings of countries’ macro political risks  micro – specific risks of particular organisations within a country  e.g. Japanese companies in China – disadvantaged due to public sentiment o internal-external dimension:  internal – factors originating within the countries – government change, pressure from local campaigning groups  external – knock on effects of events occurring outside particular countries  e.g. fall in oil prices due to political factors in Middle East in Europe

Economic: -

macro-economic factors such as currency exchange rates, interest rates and fluctuating economic growth rates around the world economic cycle: economic growth rates have an underlying tendency to rise and fall in regular cycles good economic times do no last, while bad times do lead to recovery eventually overall cycles made up of three princle sub-cycles of varryin length o The Kitchin or ‘stock cycle’  3-4 years from one peak to the next  Driven by need for firms to build up stocks of raw materials and parts as economies emerge from recessions = high purchasing gives greater boost  Lasts for about a year – spending evens out, as growth slows companies begin running down stock, purchasing less, reinforcing slowdown o The Juglar or ‘investment cycle’  7-11 years  Drven by surges of investment in capital equipment  Downturn comes once investments are made across the economy and firms are able to cut back on further investment unitl equipment depreciates  Cutbacks drain demand from the economy

Kuznets or ‘infrastructure cycle’  15-25 years  Follow the life-span of infrastructural investments  Triggered by initial surges of infrastructure invesmtnet which inturn ease off as the infrastructural needs are met perhaps for a decade or so Managers make long-term strategic decisions based upon where they stand in the overall economic cycle Some industries are particularly vulnerable to economic cycles o Discretionary Spending Industries  Purchases can easily be put off for a later date = high cyclical effect o High Fixed Cost Industries  Airlines, hotels, steel suffer due to high fixed costs o

-

Social: -

-

Has atleast two impacts upon organisations o Influence the specific nature of demand and supply within the overall economic growth rate o Shape the innovativeness, power and effectiveness of organisations Demographics – aging population in Wetern societies creates opportunites and threats for both private and public sectors Distribution – changes in wealth distribution influence the relative sizes and appeals of markets Geographic Culture – changing cultural attitudes can also raise strategic challenges Organisational Networks: o Communities of organisations that interact more frequently with one another than with those outside the field o Both economic and social o Can be analysed via sociograms – maps of potentiall important social (or economic) connections o Can help assess the effectiveness of networks and indentify who is likely to be most powerful and innovative within them  Network Density – increases effectiveness, refers to number of interconnections between members in the network  Central hub positions  Broker positions

Technological: -

Impact spreads far beyond a single industry Five primary indicators of innovative activity: o Research and development budgets o Pattenting Activitiy o Citation analysis o New product announcements o Media coverage

Ecological:

-

-

When considering ecological issues in the macro-environment there are three sorts of challenges that organisations may need to meet: o Direct Pollution Obligations – having clean processes for supply, production and distribution o Product Stewardship – managing ecological issues throughout the whole value chain and the whole lifecycle of the firm’s product, ‘end of life’ considerations o Sustainable development – creating sustainable practices to minimise externalities Importance of ecological criteria are important to organisation depend on three contextual sources of pressure: o Ecological - ecological issus are more likely to be more pressing the more impactful they are o Organisational field – pressure is influenced by how ecological issues interact with the nature of the organisational field o Internal Organisation – personal values of an organisation’s leadership

Legal: -

-

-

Legal – wide range of aspects – labour, environmental and consumer regulations, taxation, and reporting requirements Legal issues form an important part of the institutional environmental of organisations by which is meant the formal and informal rules of the game Formal/informal rules vary sufficnetly between countries to define very different institutional environments, sometimes known as the varieties of capitalism Liberal Market Economies: o Formal/informal rules favour competition, aggressive acquisitions of one company by another and free bargaining between management and labour o Companies raise funds through the financial markets o Company ownership is either entrepreneurial or widely dispersed amongst many shareholders o Support radical innovation and are receptive to foreign firms Coordinated Market Economies o Encourage coordination between companies supported by industry associations o Legal/normative constraints on hostile acquistions, various support for consentual and collective arrangements between management and labour o Tend to rely on banks for funding o Economies support steady innovation over the long run o Less easy for foreign firms to penetrate Developmental Market Economies: o Strong role of the state

KEY DRIVERS FOR CHANGE: -

Key drivers for change are the environmental factors likely to have a high impact on industries and sectors, and the success or failure of strategies within them

FORECASTING: -

-

All strategic decisions involve forecasting about future conditions and outcomes Three forecasting techniques: o Single-point forecasting:  Organisations have such confidence about the future that they provide just one forecast number  Implies a great degree of certainty  Easy to translate into budgets o Range forecasting:  Where organisations have less certainty, suggesting a range of possibilities  Different outcomes may be expressed with deifferen degrees of probability with a central projection identified as the most probable o Alternative future forecasting:  Involves even less certain forecasting  Focuses on a set of possible yet distinct futures  Alternative futures are discontinuous – either they happen or they do not with radically different outcomes  Alternatives might result from fundamental policy decisions Directions of Change: o Useful when forecasting to jeep an eye on the fundamental directions of likely change  Megatrends – large-scale PESTEL movements that slow to form but influence many activities and view possibly over decades  Inflectional points – moments when trends shift in direction – upwards or downwards, invalidate forecasts that extrapolate current trends  Weak Signals – advanced signs of future trends and are particularly helpful in identifying inflexion points

SCENARIO ANALYSIS: -

Scenarios offer plausible atlternaive views of how the macro-environemtn may develop in the future, typically in the logn-term Scenarios are not strategies in themselves – alternative possible environemts which strategies have to deal with Focus on two key drives that have high potential impact, high uncertainty and high independence from each other...