What are the 4 layers of the business environment?
- The business
- Competitors
- The industry/sector
- The Macro-environment
Political factors
- The role of the state
- Government policies
- Foreign trade regulations (e.g. US-China trade war)
- Political risks in foreign markets
- Changes in regional trade blocs (e.g. BREXIT)
- Exposure to civil society organizations
Economic factors
- Business cycles
- Economic growth rates
- Personal disposable income
- Interest rates
- Exchange rates
- Unemployment rates
Social Factors
- Culture
- Geography
- Demographics
- Wealth distribution
- Organisation networks within an ‘organisational field’
- The community of organisations that interact more frequently with one another than with those outside the field.
Technological factors
- New discoveries and technology developments
- Developments on the Internet
- Nano-technology
- The rise of new composite materials
Ecological factors
- Environmental protection regulations
- Pollution
- Climate change
- Renewable energy
- Global warming
- Waste disposal and recycling
Legal factors
- Labour, environmental and consumer regulations
- Taxation and reporting requirements
- Rules on ownership
- Competition regulations
- Regulation of corporate governance
What does it mean when there’s varities of capitalism?
e.g. US & UK, Japan & Germany, China & Brazil
Different types of market economies from more state-controlled like China to more collobarative efforts in Germany to more liberal in the UK.
Liberal market economies – formal & informal rules favor competition between companies (US, UK).
Coordinated market economies – encourage more coordination between companies, supported by industry associations or similar frameworks (Germany, Japan).
Developmental market economies – strong roles for the state, which own or influence companies that are important for economic development (China, Brazil).
What are KEY DRIVERS FOR CHANGE?
environmental factors that are likely to have a high impact on industries and sectors.
Examples of key drivers for change?
- The birth rate is a key driver for those planning nursery education provision.
- The rapid development of online shopping has reduced the number of retailers in the high street.
- Personal disposable income also drives demand for retailers. (recession etc)
How can the Macro-environment be analysed?
Through PESTEL factors, from which key drivers of change can be identified and managers can address these within their strategic choices.
e.g. construct alternative scenarios and plan/adapt.
Consider:
* The market environment (e.g. suppliers, customers and competitors).
* The nonmarket environment (e.g. NGOs, Government, media and campaign groups).
How to use PESTEL in an exam question?
(4 steps)
1) Apply selectively
2) Identify factors which are important currently but also consider which will become more important in the next few years.
3) Use data to support the points and analyse trends using up to date information
4) Identify opportunities and threats
What are the fundamental approaches to forecasting?
- Single point (straight line)
- Range (Probable, possible and unlikely)
- Alternative futures (single line with different spikes out to different futures)
What are three directions of change that can happen, in an economy?
- Megatrends – changes that are slow to form but influence many other activities over decades. e.g. global warming.
- Inflexion points – when trends shift sharply upwards or downwards. e.g. sub-Saharan Africa may have reached an inflexion point after decades of stagnation and may embark on a period of rapid growth.
- Weak signals – advanced signs of future trends that may help to identify inflexion points, often unstructured and fragmented bits of information. e.g. mortgage failures in California in 2007 were a weak signal for the financial crisis that hit the global economy in 2008.
What are scenarios and when are they used by organisations?
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.
Used to explore and evaluate future strategic options.
Explain the scenario process for an organisation
1) Define scope (sector, time, region)
2) Identify Key Drivers through PESTEL and forecasts
3) Develop stories based on these
4) Identify impacts if these stories happened (check current strategies and adapt if necessary)
5) Monitor progress ( SETUP INDICATORS PRIOR that may warn you of any progress towards that scenario)
Explain how to do scenario analysis
1) Identify the most relevant part of the study and use
2) Identify Key drivers for change which will have MOST impact in future which have uncertain outcomes
3) Select opposing outcomes for that key driver that lead to completely different things. e.g. global warming means faster growth of crops = more money but in future may result in inability to grow crops at that specific location due to x reason = loss of money on value of land.
What is the basic concept of the scenario cube?
You pick scenarios in the high impact, high uncertainty, high independence box. Top right.
