Forecasting and Network Characteristics

Business Strategy

• The environment creates opportunities and threats for organizations.
• Examples include: Canal+ or SKY facing challenges from new competitors (Netflix, Amazon, etc.) and Alibaba's rapid growth due to environmental factors (technology, politics, and economics).

The Strategic Position

• Macro-environment Analysis: Examining broader environmental elements impacting organizations, industries, and sectors.

Introduction

• Although the future is unpredictable, analyzing the environment is crucial for anticipating and leveraging changes for entrepreneurs and managers.

Introduction

• The macro-environment consists of broad environmental factors affecting numerous organizations, industries, and sectors. An industry/sector comprises organizations offering similar products or services (e.g., automobile or pharmaceutical industry). Markets and competitors are relevant considerations (e.g., Renault's competition includes Ford and Fiat).

Analysing The Macro-Environment

• Forecasting techniques involve identifying megatrends, inflection points (sudden shifts in direction), and weak signals (early signs of future trends) to predict potential changes. Scenario analysis, focusing on possible future conditions, is a key element when facing high uncertainty.

PESTEL Analysis

• PESTEL analysis is beneficial for forecasting and scenario development. Strategic decisions shouldn't solely focus on economic aspects; other factors like non-market aspects shouldn't be overlooked. Consider the market environment (suppliers, customers, competitors).
• The non-market environment reflects social, political, legal, and ecological factors (impacted by economic factors). Businesses, NGOs, politicians, government bodies, and regulators/activists interact within this domain. In essence, organizations need reputation, connections, and influence in these spheres.

Politics

• Two crucial steps: Identifying the importance of political factors and executing political risks analysis.
• Variables are essential, such as the state's role in economies (customer/supplier/financier) and the presence and influence of civil society organizations (lobbyists, pressure groups). Understanding political exposure helps (high/low involvement and exposure).
• Different sectors (e.g., defense, food, canals, hotels) demonstrate varying political exposures and influences.
• Political risk analysis has macro-micro and internal-external dimensions—looking at whole countries vs. specific organizations. Identifying these risks involves factors originating within a country (e.g., government changes affecting business), external forces (like oil price drops influencing relations), and knock-on effects cascading across countries.

Economics

• Macroeconomic influences (e.g., currency exchange, interest rates) and the economic cycle (fluctuations of growth) significantly affect organizations.
• Managers need to be aware of the economic cycle's potential shocks, trends toward regular cycles of growth and recession. Specific industry vulnerabilities (discretionary spending by consumers, fixed costs dependence) are significant to consider.

Social

• Social influences shape demand and supply, organization innovativeness and capacity, such as demographics (e.g., aging populations).
• Geographical concentrations affect industries and markets. Distribution of wealth affects markets/consumption. Cultural factors can impact strategies (ethical issues influencing industries). Organizational networks (connections/interconnectedness of organizations).

Social

• Sociograms map social or economic network linkages. For example, networks like connections to leading universities, firms, or venture capitalists are vital to new technology firms.
• Key network concepts include:
  • Network density: Increased through interconnections. A dense network facilitates idea and information flow.
  • Central hub positions: Key players connecting or facilitating connections between other members/organizations. Hubs are powerful due to essential inter-connection roles.
  • Broker positions: Connect apparently separate groups, often with innovative insight by linking disparate information.

Social

• The "small worlds" concept indicates the closeness of connections(one to two steps) in many interconnected networks. This can affect how organizations operate. Outsiders entering these networks may have difficulty penetrating if they aren't aided by existing, inside members.

Technology

• Technological advancements (e.g., internet, nanotechnology) impact industries and business significantly.
• Innovative activity indicators:
  • Research and Development budgets.
  • Patenting activity.
  • Citation analysis – scientific & technical papers citations.
  • New product announcements.
  • Media coverage.
• Technology roadmaps create forecasts for future product demands, identify necessary technological alternatives, and offer timetables for developments.

Ecological

• Environmental concerns (pollution, recycling) are significant and potentially challenging to organizations.
• Environmental regulations (e.g., WLTP standards) create both costs and opportunities (recycling) for organizations.
• Three sorts of challenges:
  • Direct pollution obligations: safely disposing waste and minimizing pollutants. Businesses' environmental stewardship depends on clean processes rather than managing negative consequences.
  • Product stewardship: Managing ecological implications throughout the production value chain and lifecycle of products. Organizations are also responsible for managing external suppliers and end consumers.
  • Sustainable development: Sustainability strategies aim beyond minimizing damage; they also target indefinite production capacity into the future. Sustainability frequently necessitates the careful management of resources (raw materials) and the social well-being of communities.

Ecological

• Contextual sources of pressure for organization strategy include:
  • Ecological: Certain, visible, and emotive ecological factors driving pressure.
  • Organizational field: Influencing organizations through strong or active regulators' actions. Pressure is increased by the inherent interconnectedness of organizational networks, making it harder to hide damaging behavior.
  • Internal organizations: Internal leadership/management values and beliefs influence how and to what degree an organization addresses ecological concerns.

Ecological

• Contexts and motives for ecological issues include ecological, organizational field, and internal organization points of considerations. These contextual motives can affect the competitive nature of certain organizations and their potential for strategies to grow, as well as the reputation for legitimacy, competitiveness, and responsibility.

Legal

• Legal environment (labor, environmental, consumer rules, taxation, etc.) serves as the "rules of the game". Deregulation has created chances; for instance, low-cost airlines or free schools appearing in various countries. Similarly, regulations might hinder growth.
• Considering both formal laws and less formal norms/rules is necessary, particularly since informal cultural "rules" vary significantly between countries and institutional environments.

Key Drivers

• PESTEL analysis, while informative, can generate extensive and complex issues.
• Focusing on key drivers behind those issues is prioritized over total inclusion. Recognizing which factors have significant impact and potential on business, industries, and sector strategies is important. Identifying these primary key drivers offers a strategic understanding.

Key Drivers

• Examples: Social and/or legislative changes affecting car usage, potentially impacting supermarket strategies (urbanization, smaller stores). Different environments (businesses, banks) have diverse sensitivities to these factors.

Forecasting

• Strategic decisions must involve future conditions and outcomes.
• Forecasting requires a certain level of predictability regarding the environment in which the decisions are made. A decision in a highly unpredictable environment is essentially a gamble (and not a strategy).

Approaches to Forecasting

• Forecasting methodologies depend on the level of uncertainty:
  • Single-point forecasting: A single predicted outcome (e.g., demographic trends).
  • Range forecasting: Multiple probable outcomes with varying likelihoods.
  • Alternative futures forecasting: Several possible, distinctly different outcomes are considered (not in terms of probabilities). In short, different futures are given attention. These forecasts might reflect consequences of an organization's decision (or inaction).

Directions of Change

• Three critical aspects of forecasting change:
  • Megatrends: Slow-forming but influential long-term trends impacting numerous areas.
  • Inflexion points: Turning points where trends undergo rapid transformations.
  • Weak signals: Preliminary signs of future changes, especially useful for identifying turning points.

Scenarios

• Scenarios present possible alternative futures to the macro-environment, typically focusing on the long term.
• Scenario analysis isn't a strategy in itself but rather identifies various possible future environments.
• Scenario analysis is highly valuable for high uncertainty contexts to develop insight into plausible outcomes. These different alternative future scenarios can help broaden managers thinking and understanding.

Scenarios

• Scenario analysis methods avoid presenting alternatives in terms of calculated (probabilistic) likelihoods. Instead, possibilities for diverse outcomes are investigated, which allows for examining multiple, distinct scenarios.

The Scenario Process

• A structured process for developing detailed scenarios:
  • Define scope (industry/region/years).
  • Identify key drivers (PESTEL, forecasts).
  • Develop scenario "stories".
  • Identify impacts of scenarios on strategies.
  • Monitor progress (early warning indicators).

Forecasting Methods

• The different methods of forecasting are highly crucial to understand scenarios that affect the success or failure of strategies. These forecasting methodologies may not be exclusive and it's probable that more than one method may be used in a given application.