Session 2: Strategic Positioning - Macroenvironment Analysis

1
Session 2
Strategic Positioning –
Macroenvironment analysis
Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
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Exploring Strategy
11th edition
Text and Cases
Part 1
The Strategic Position
Macro-environment analysis
The exploring strategy framework
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The focus of Part I: The Strategic Position
• How to analyse an organisation’s position in the

external environment – both macroenvironment and
industry or sector environment.
• How to analyse the determinants of strategic
capability – resources, competences and the linkages
between them.
• How to understand an organisation’s purposes, taking
into account corporate governance, stakeholder
expectations and business ethics.
• How to address the role of history and culture in
determining an organisation’s position.
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Learning outcomes (1)
• Analyse the broad macroenvironment of

organisations in terms of political, economic,
social, technological, environmental (‘green’)
and legal factors (PESTEL).
• Identify key drivers in this macroenvironment

and use these key drivers to construct
alternative scenarios with regard to
environmental change.
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Learning outcomes (2)
• Use and understand the PESTEL framework
• Use these various concepts and techniques in

order to recognise threats and opportunities
in the marketplace.
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Slide 2.7
Layers of the business environment
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The PESTEL framework (1)
PESTEL analysis highlights six environmental factors in
particular that influence the possible success or failure
of particular strategies: political, economic, social,
technological, ecological and legal.
Organisations need to consider:

•The market environment (e.g. suppliers,
customers and competitors).
•The non-market environment (e.g. NGOs,
Government, media and campaign groups).
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THE PESTEL FRAMEWORK
Political Economic Social

influenc influence influences
es s
Technologi Legal Ecologic

cal influenc al
influences es influenc
es 9
Political factors (1)
Political factors include:
• The role of the state e.g. as an owner, customer or
supplier of businesses.
• Government policies.
• Taxation changes.
• Foreign trade regulations.
• Political risk in foreign markets.
• Changes in trade blocks (e.g. BREXIT).
• Exposure to civil society organisations
(e.g. lobbyists, campaign groups, social media).
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Political factors (2)
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Economic factors
Economic factors include:
• Business cycles.
• Interest rates.
• Personal disposable income.
• Exchange rates.
• Unemployment rates.
• Differential growth rates around the world.
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Social factors
Social factors include:
• Changing cultures and demographics (e.g. ageing
population in Western societies).
• Income distribution.
• Lifestyle changes.
• Consumerism.
• Changes in culture and fashion.
• Social networks within an organisational field
(e.g. with regulators, campaign groups, trade unions).
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Technological factors (1)
Technological factors include:

New discoveries and technology developments.
Examples include developments on the
internet, nano-technology or the rise of new
composite materials.
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Technological factors (2 of 2)
There are five primary indicators of innovative

activity:
• Research and development budgets.
• Patenting activity.
• Citation analysis.
• New product announcements.
• Media coverage.
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Ecological factors (1 of 2)
Ecological factors: This refers to ‘green’ or

environmental issues, such as pollution, waste and
climate change.
Examples are environmental protection regulations,
energy problems, global warming, waste disposal and
recycling.
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Ecological factors (2 of 2)
Three sorts of ecological challenges that organisations
may need to meet:
• Direct pollution obligations– minimising the production
of pollutants; cleaning up and disposing of waste.
• Product stewardship – managing ecological issues
throughout the organisation’s entire value chain and the
whole life cycle of the firm’s products.
• Sustainable development – whether the product or
service can be produced indefinitely into the future.
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Legal factors
Legal factors include:

• Labour, environmental and consumer
regulations.
• Taxation and reporting requirements.
• Rules on ownership.
• Competition regulations.
• Regulation of corporate governance.
• Informal rules and norms.
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Key drivers for change
Key drivers for change:

• Key drivers for change are environmental factors that
are likely to have a high impact on industries and
sectors, and impact on the success or failure of
strategies within them.
• Typically key drivers vary by industry or market.
• For example, retailers are concerned with social
changes and customer behaviour which have driven a
move to ‘out-of-town’ shopping. Personal disposable
income also drives demand for retailers.
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Using the PESTEL framework
• Apply selectively – identify specific factors which
impact on the industry, market and organisation in
question.
• Identify factors which are important currently but also
consider which will become more important in the
next few years.
• Use data to support the points and analyse trends
using up-to-date information.
• Identify opportunities and threats – the main point of
the exercise.
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PESTEL opportunities and threats for
the oil industry
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Forecasting
• All strategic decisions involve forecasts about future
conditions and outcomes.
• PESTEL factors will feed into these forecasts.
• Accurate forecasting is notoriously difficult as
organisations are frequently trying to surprise their
competitors.
• Forecasting takes three fundamental approaches based
on varying degrees of certainty:
─ Single-point.
─ Range.
─ Multiple-futures forecasting.
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Forecasting under conditions
of uncertainty
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Why do we need all of these?
Because we need
scenarios to survive!
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Scenarios
Scenarios are plausible views of how the environment of
an organisation might develop in the future based on key
drivers of change about which there is a high level of
uncertainty.
• Build on PESTEL analysis and drivers of change
• Offer more than a single view (typically develop 2-4
alternative scenarios)
• Often used in industries with long planning horizons,
(e.g. oil or airlines)
The Lorax: How bad can I be?

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The scenario process
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Carrying out scenario analysis (1 of 2)
• Identify the most relevant scope of the study –

the relevant product/market and time span.
• Identify key drivers of change – PESTEL factors
which will have the most impact in the future
but which have uncertain outcomes and are
mutually independent.
• For each key driver select opposing outcomes
where each leads to very different
consequences.
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Carrying out scenario analysis (2 of 2)
• Develop scenario ‘stories’: That is, 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.
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BP case
https://www.youtube.com/watch?v=h316v
UuwOOg
BP case
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Summary
• Environmental influences can be thought of as layers around
an organisation, with the outer layer making up the
macroenvironment, the middle layer making up the industry
or sector and the inner layer strategic groups and market
segments.
• The macroenvironment can be analysed in terms of the
PESTEL factors – political, economic, social, technological,
ecological and legal.
• Macroenvironmental trends can be forecast according to
different levels of uncertainty, from single-point, through
ranges to multiple-futures.
• A PESTEL analysis helps identify key drivers of change, which
need to addressed in strategy. Alternative scenarios can be
constructed around key drivers.
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1

• How to analyse an organisation’s position in the

• Analyse the broad macroenvironment of

• Identify key drivers in this macroenvironment

• Use and understand the PESTEL framework

• Use these various concepts and techniques in

Layers of the business environment

Organisations need to consider:

Political Economic Social

Technologi Legal Ecologic

Technological factors include:

There are five primary indicators of innovative

Ecological factors: This refers to ‘green’ or

Legal factors include:

Key drivers for change:

The Lorax: How bad can I be?

• Identify the most relevant scope of the study –

• Develop scenario ‘stories’: That is, coherent and

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