Strategic Leadership and Macro Environment Analysis

Once you have grasped the macro environmental analysis, as a good leader you will be
continually scanning for macro factors in your daily life, activities such as watching or reading
the news, reading management magazines and when in conversation with other industry leaders
will all lead to a greater understanding of the macro environment. In addition there are a
number of things you can do to improve the depth of your understanding of the macro
environment.
 Networking with senior leaders in your industry
 Networking with political parties
 Source strategic analysis information prepared for your industry typically by a third
party provider (Normally through subscription)
 Read the financial papers
 Read management magazines
 Surf the Web for trends

How Much Information and Where From?

Sometimes a little information is enough; at times, there is need for large amounts of
information for e.g.
 The need for information increases as the scope and magnitude of the decision
under consideration increases
 The need for information increases as the urgency or timeliness of the decision
increases
 The need for information increases when the decision involves a problem as
opposed to an activity that is going well
 The need for information increases as the relationship between the decision and
some major long-range plan increases

Sources of Information
 Internal – subordinates, other managers
 External – customers, suppliers, bankers, consultants, business associates,
chance encounters, impersonal sources like trade journals, conferences and
activities of trade associations
Techniques for Analyzing Important Trends and Events
Different tools, methods, and techniques are used for environmental analysis but most
of these are said to be speculative, judgmental or guesswork. However, some of the
renowned major methods of analysis are benchmarking, scenario building and
network.

Scenario building - A descriptions of a Plausible future(s) – A set of future events or

circumstances that would affect an organization’s performance; Perceptions about
alternate future environments. It is an attempt to construct views of possible future
situations. Scenario models try to build consistent view of possible development around
identified key factors. Scenario building gives an overall picture of the total system with
the factors which affect it. The aim is to draw up a limited number of logically consistent
but different scenarios. Such an exercise has two benefits:

 First, scenario models allow managers to examine strategic options against the
scenarios thereby understanding and anticipating the risks involved in doing
their business. Scenarios can be used for sensitivity testing of possible strategies;

 Second, managers can examine the implications of scenarios so as to challenge

the taken-for-granted assumptions about the environment in which they operate.

Steps in Scenario Building

1. Identify key assumptions or forces through say, PEST analysis. Restrict
assumptions to environmental forces and keep the number low;
2. Try and understand their impact on market conditions and organizational
strategies and what the assumptions depend on;
3. Consider logically consistent possible futures on the basis of an optimistic future,
pessimistic future and a mainline future. Two to four scenarios are appropriate
to aim for;
 4. Future scenarios may be built by either:
a. Building up scenarios from the assumptions. This is feasible when the
number of assumptions is low. Different but consistent configurations of
these factors might be systematically examined to build say 3 or 4
scenarios; or
b. If number of factors being considered is larger, the tone of the scenario is
set according to optimistic and pessimistic themes. Then, from the range
of factors available, those consistent with these themes are chosen.

Either way, allocation of probabilities to factors (for scenario building)

should be avoided because it provides the scenarios with false accuracy.

The network method is used to assess organizational systems and its external
environment to find the strengths, weaknesses, opportunities and threats faced by an
organization.

Some of the major techniques of primary information collection are brainstorming,

the Delphi technique, surveys, and historical enquiry.

Brainstorming
Brainstorming is done with a group of people usually cross-functional which discuss the
problem in hand and try to come up with solutions irrespective of whether the solution
is feasible or not.

Delphi Techniques - systematic solicitation of expert opinion

Traditional Delphi techniques have been revised and the new methodology involves:
 Identifying recognized experts in the area of interest
 Seeking their cooperation and participation
 Providing the experts with an initial position paper on the status of the issue
 Personal interviews with each expert
The Delphi technique collects independent information from the experts without mixing
them.

Survey
Conducting a survey first involves the design of questions and then asking these
questions to people who become the participants.

Historical Enquiry
Historical enquiry technique is a case analysis of previous time periods. Analysis tools
can be qualitative or quantitative data. Descriptive tools such as mean, median, mode,
frequency or tools can be statistical such as ANOVA, correlation, regression, factor,
cluster, and multiple regression analysis.

For any technique adopted for macro-environmental analysis, the following principles
should be borne in mind:
1. M/E scanning should consider possible influences on the company;

2. Recognize that the purpose of the M/E analysis is not to accurately predict the
future, rather to identify factors most likely to affect the company and be
prepared to deal with them when they come;

3. The results of M/E analysis should be used pro-actively rather than the company
assuming a reactive position towards the environment.

4. In addition to understanding the plan of the M/E analysis, managers should

understand the thinking that has led to the development of the plan. It is helpful
for as many managers as possible to participate in the M/E analysis;

5. M/E scanning focuses managers’ attention on what lies outside the organization
and allows them to create an organization that can adopt and learn from that
environment.
Procedures and Organizational Structures Most Appropriate for M/E
Analysis
There are several procedural modes for M/E analysis - regular, irregular and
continuous.
1. Regular Model – comprehensive and systematic. Its focus is reflective because it
uses simple estimates of the recent past into the near future;

2. Irregular Model – ad hoc (unplanned) M/E analysis activated by some

unexpected environmental event;

3. Continuous Model – emphasizes the monitoring of various environmental sub-

systems rather than specific events. The scenario approach, while being activated
by unexpected events is continuous in nature and purpose.