Macro-Environmental Analysis Revisited

The macro-environment analysis is typically the starting point in the planning process. The traditional tool used is the PESTLE analysis (political, economic, social, technological, legal and environmental/ecological). The idea being to identify how the current environment and potential changes to it may affect the organisation. The response being the consequent development and deployment of strategies to counter such externalities.

Whilst the PESTLE is commonly used in external environmental analysis, users must be aware of its limitation. Indeed, it should not be viewed as a snap shot but rather, it's full benefits are realised when the trends are interrogated. Further, one must guard against voluminous narratives which are unrelated to the business or organization under consideration. Instead the PESTLE analysis should be focused to key drivers, otherwise the exercise becomes too generalist, lacking the critical analysis specific to the organization.

In addition, scenario planning should be be used to analyse the PESTLE. The roots of scenario planning lay in studies of military strategy when possible scenarios associated with thermonuclear war were considered. The key challenge was to think the unthinkable. Possible scenarios to consider for example would be what if the country runs of power, fuel, skills or money (currency). Scenario planning is especially useful in situations where the future is both uncertain and to a large extent, uncontrollable.

The other pitfall is to conduct the environmental analysis as if the country exists in a total silo. Things have changed and it certainly is a global village. In recent years we have experienced some emerging trends that may not necessarily be picked up by a PESTEL analysis, for example: globalisation; micro-segmentation; dis-intermediation; and dematerialisation.

Globalisation has had a major impact on the macro-environment and still continues to create changes. Supply chains have been re-engineered with, for example, computer chips being manufactured in Taiwan, monitors in Japan, and final computer assembly elsewhere. Off-shoring of call-centres has become synonymous with the Finance Sector. R&D has become globalised with particular sectors of expertise appearing in clusters around the world. Software design has become a 24 hour a day process, with work moving across time zones as we make use of a virtual workplace.

Although micro-segmentation issues might be picked up in the technology dimension of a PESTEL analysis, information databases have enabled consumer focus at a very individual level. Store/loyalty cards track consumer behaviour at the micro-segment level, and the emergence of numerous designer labels has enabled the identification of micro-segments in terms of brand identification. This trend has emerged at a macro level and brings in various dimensions of the PESTEL framework, incorporating changes in technology, social attitudes, etc. and showing how interaction between these dimensions can bring about emergent macro level trends.

Another trend that has changed the landscape of many industries is that of dis-intermediation – the disappearance of the ‘middle-man’. The internet has been a major player in this trend, but again, it is not just the technology, but the way in which disruptive technologies have revolutionised how people interact. We have seen the disappearance of channel intermediaries; brokers, travel agents, publishers, etc. and in the last 5 to 10 years there has been an unprecedented growth in telephone and on-line purchasing.

Another major emerging trend has been that of de-materialisation. At a basic level, we have seen the radical change from paper based communications to electronic. This has had a major impact on everyone involved in paper-based communications. If we add in an environmental dimension to this, there is an ecological pressure to move to electronic forms of communication. And we can soon spot the social and technological pressures in this direction. And it is not just paper. Knowledge has replaced land, capital, and materials to potentially become the most valuable assets with which to generate value.

Finally, planning is a process and tools such as PESTLE analysis represent only a start. The analysis of industry competitiveness (Porter's 5 Forces) and competitor analysis form an important part of the planning process.

We can therefore identify three discrete levels of the external environment:

• macro environment
• industry environment
• market/competitor environment

Whichever level of the external environment we are considering, some factors will provide us with opportunities while others will provide us with threats. However, in order to identify these, each of these different levels also requires its own specific analytical frameworks.

Good luck!