The Macro Environment Analysis
Assignment ID Number AFFGEHU83939HD Type of Document Essay Writing Format APA/MLA/Harvard Academic Level Masters/University References/Sources 4 References
The Macro Environment Analysis
“What every strategic manager should know!”
The Macro Environment Analysis is traditionally the first step of a strategic analysis; it is sometimes referred to as an external analysis, a pest analysis or a pestle analysis.
The purpose of the Macro Environment Analysis is to identify possible opportunities and threats to your industry as a whole that are outside the control of your industry. (Note: You will often be forecasting trends – like “interest rates will remain static” which may or may not be the case)
When completing a macro environment analyses you will be seeking to answer the questions “what will affect the growth of our industry as a whole” and “What is the likely impact of all of the things that affect the growth of your industry”
For example: An aging population is a demographic trend in many western counties, which will result in an increase in the total number of caravans sold – if you are in the caravan industry you should expect to see growth in the total size of your industry.
These opportunities and threats may affect many industries, such as possible interest rate rises, but you should only be interested if interest rate rises will affect your industry.
For example: If you are in the greeting card industry and fluctuations in interest rates will not affect the size of your industry then you do not need to consider interest rates in your macro environment analysis. (However if you are heavily geared or have large borrowings you will need to consider interest rates in your internal analysis)
Strategic Leadership and the 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 parities
- 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 to do a Macro Environment Analysis
A macro environmental analysis can be completed alone or in a brainstorming session, however you may like to do some research before starting.
To simplify the Macro Environment Analysis the following 6 broad heading will provide some structure, a good start is to list all of the trends you can think of or can find and indicate whether they will have a positive impact or negative impact on the size of your industry.
- Macroeconomic Trends:The macroeconomic environment analysis will identify trends such as changes in personal disposable income, interest rates, inflation and unemployment rates.
- Competitive Trends:The competitive environment includes current competitors, new entrants, and departing firms. The type and degree of competitors’ resources, market focus, and diversification in large part defines the firm’s opportunities and threats. It must therefore anticipate and adapt to an ever-evolving “competitive landscape.”
- Legal/Regulatory Trends:The macro-legal/regulatory environment analysis will identify changes in the position politicians take on issues. A current example is a shift towards greener policies in the developed world. The regulatory environment analysis is closely linked to the political environment (politicians tend to make the laws), but also includes trends in court decisions such as liability compensation.
- Technological Trends:The macro technological environment analysis will identify changes in the application of technology. A current example is a shift towards online transactions and in some areas a shift away from online transactions.
- Natural Environmental Trends:The natural environment encompasses all of the raw materials employed by the firm as well as the environmental conditions (pollution, climate change, general surplus or scarcity) that impact the performance and efficiency of the firm.
- Social/Cultural Trends:The macro social/cultural environment analysis will identify trends in society’s beliefs, behaviors, values and norms. Such as the number of part time workers, attitudes towards global warming, make-up of the family structure.
- Demographic Trends:The macro demographic analysis will identify trends in population growth at relevant ages for your industry (There may be zero population growth in general but high growth in the number of people over 65), the population location.
The final step of the macro environmental analysis is to summarize the opportunities and threats to determine if you should expect growth, stability or decline in the size of your industry. You may find that you have some trends that have the potential to have a significant impact on your industry such as an interest rate rise may cause a drop in demand for the building industry for these trends it is worth completing scenario planning or contingency planning and keeping a watchful eye on the progress of the trend.
Knowledge for the good leader: Pest analysis and Pestle analysis (sometimes misspelt as Pestal Analysis)
These two have only been included so that if anyone asks you if you know how to do a pest analysis you will know that is has nothing to do with mice, cockroaches or ants.
The P.E.S.T. analysis is the same as the macro environment analysis but used the acronym P.E.S.T. to help you remember the headings
And the P.E.S.T.L.E Analysis is same as the macro environment analysis but used the acronym P.E.S.T.L.E. to help you remember the headings (sometimes people misspell pestle analysis and write pestal analysis – now you can correct them)
- Environmental (Environmental issues, global warming, pollution etcetera)
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