Week 2 Lecture: Macro Environment and Megatrends Analysis PDF

Week 2: Lecture Macro Environment and Megatrends Analysis SG7001: Managing Strategy, Operations and Partnerships Prepared by: Dr Shohail Choudhury Welcome! Week 2 Content PESTEL Framework Forecasting Scenario Analysis Peter Fisk’s 5 Megatrends Chapter 2 Macro-environment analys...

Week 2: Lecture Macro Environment and Megatrends Analysis SG7001: Managing Strategy, Operations and Partnerships Prepared by: Dr Shohail Choudhury Welcome! Week 2 Content PESTEL Framework Forecasting Scenario Analysis Peter Fisk’s 5 Megatrends Chapter 2 Macro-environment analysis  Intended Learning outcomes After attending this week, you should be able to: Analyse the broad macro-environment of organisations in terms of PESTEL Evaluate different approaches to environmental forecasting. Construct alternative scenarios in order to address possible environmental changes. Analyse the impact of Megatrends on businesses.  Organisational Environment Organisations depend upon their environments for their survival. Here environments are being understood in their widest sense – to include political, economic, social, technological and legal factors as well as ecological ones. These environmental factors supply both opportunities and threats. Legal quarantines imposed during the 2020 covid-19 crisis hurt traditional cinemas and theatres, but boosted streaming services such as Netflix. The social clustering of millennials in high-rent cities has prompted the emergence of new co-living businesses, such as Roomi or SpareRoom, offering cheap and flexible accommodation. PESTEL Framework A tool to analyse the macro environment of an organisation  Layers of the business environment Environments can be considered in terms of a series of ‘layers’, The macro-environment consists of broad environmental factors that impact to a greater or lesser extent many organisations, industries and sectors. For example, the effects of macroenvironmental factors such as the internet, economic growth rates, climate change and aging populations go far beyond one industry or sector, impacting a wide range of activities from tourism to agriculture.  The PESTEL framework PESTEL analysis highlights six environmental factors in particular: political, economic, social, technological, ecological and legal. Organisations need to consider: The market environment (e.g. suppliers, customers and competitors). This Photo by Unknown Author is licensed under CC BY-NC-ND The nonmarket environment (e.g. NGOs, Government, media and campaigngroups).  The PESTEL framework The PESTEL framework categorises environmental factors into six key types: Political Economic Social Technological Ecological Legal PESTEL helps to provide a list of potentially important issues influencing strategy. It is important to assess the impact of each factor. Political factors Political factors include: The role of the state, for example, 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). Political factors Where the state is important or exposure to civil society organisations is high, then political factors should be important in any PESTEL analysis. Economic factors Business cycles. Personal Expansion and Interest rates. disposable Contraction of income. economy. Differential Unemployment growth rates Exchange rates. rates. around the world. Economic factors Some industries are particularly vulnerable to economic cycles: Discretionary spend industries (e.g. housing, cars). High fixed cost industries (e.g. airlines, hotels). Social factors Social factors include: Demographics Wealth distribution Geography Culture Social networks within an ‘organisational field’  Social factors within organisational field Sociograms are maps of potentially important social (or economic) connections within an organisational field. Maps can help assess the effectiveness of networks and identify who is the most powerful and innovative within them.  Sociogram of social networks within an organisational field Power and innovation increase with: Network density – the number of interconnections between members. Central hub positions – when a particular organisation interacts with many other members. Broker positions – an organisation that connects otherwise separate groups/ organisations. © 2021 Pearson Education Limited. All Rights Reserved.  Technological factors Technological factors include: There are five primary indicators of innovative activity: New discoveries and technology developments. Research and development budgets. Examples include developments on the Patenting activity. Internet, nano-technology or the rise of Citation analysis. new composite materials. New product announcements. Media coverage. Ecological factors 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.  Ecological factors 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. Legal factors Labour, environmental and consumer regulations. Taxation and reporting requirements. Rules on ownership. Competition regulations. Regulation of corporate governance. 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. Using the PESTEL framework Apply selectively – Identify factors which are identify specific factors important currently but which impact on the also consider which will industry, market and become more important organisation in question. in the next few years. Use data to support the Identify opportunities points and analyse trends and threats – using up-to-date the main point of the information. exercise. Forecasting  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. Forecasting under conditions of uncertainty  Forecast approaches Single-point forecasting is where organisations have such confidence about the future that they will provide just one forecast number. Range forecasting is where organisations have less certainty, suggesting a range of possible outcomes with different degrees of probability and a central projection identified as the most probable. Alternative futures forecasting typically involves even less certainty, focusing on a set of possible yet distinct futures with radically different outcomes. Alternative futures can be fed into scenario analyses though not as simple forecasts. Scenario Analysis  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 for change. Offer more than a single view. An organisation will typically develop a few alternative scenarios (2–4) to explore and evaluate future strategic options. Scenario analysis is used in industries with long planning horizons, for example, the oil industry or airlines industry.  Carrying out scenario analysis 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.  Carrying out scenario analysis 1 2 3 Develop scenario Identify the Monitor progress: ‘stories’: That is, impact of each Identify indicators coherent and scenario on the that might give an plausible organisation and early warning of descriptions of the evaluate future the way the environment that strategies in the environment is result from light of the changing and opposing outcomes. anticipated monitor such scenarios. indicators.  The scenario process While there are many ways to carry out scenario analyses, the process often follows five basic steps Directions of Change  Directions of change Megatrends – large-scale changes that are slow to form but influence many other activities over decades to come. Examples include ageing populations and global warming. Inflexion points – when trends shift sharply upwards or downwards. For example, 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. Peter Fisk’s 5 Megatrends 1. Shifting economic power 2. Climate change and resource scarcity 3. Technological breakthrough 4. Demographics and social change 5. Rapid urbanisation Importance of megatrends to set business strategy Megatrends Definition: Large-scale, long-term movements Impact multiple areas over decades Set direction for various factors Significance of Megatrends: Influence numerous aspects Validate forecast consistency  Summary Environmental influences can be thought of as layers around an organisation, with the outer layer making up the macro-environment, the middle layer making up the industry or sector and the inner layer strategic groups and market segments. The macro-environment can be analysed in terms of the PESTEL factors – political, economic, social, technological, ecological and legal. Macro-environmental 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. Thank you all! Read the book chapters and get ready for the seminar. READING AND RESOURCES CORE: Whittington, R., Regnér, P., Angwin, D., Scholes, K., & Johnson, G. (2023). Exploring strategy (13th ed.). Harlow: Pearson. Slack, N., & Brandon-Jones, A. (2021). Operations and process management (6th ed.). Harlow: Pearson. OTHER RESOURCES AND FORMS: Grant, R. M., & Jordan, J. J. (2015). Foundations of strategy (2nd ed.). Chichester: Wiley. Grant, R. M. (2021). Contemporary strategy analysis (10th ed.). Chichester: Wiley. Henry, A. E. (2018). Understanding strategic management. Oxford: Oxford University Press. Kastalli, I. V., & Neely, A. (2014). Collaborate to innovate: How business ecosystems unleash business value. Executive Briefing. Mintzberg, H., Ahlstrand, B., & Lampel, J. B. (2008). Strategy safari: The complete guide through the wilds of strategic management (2nd ed.). New York: Free Press. Paroutis, S., Heracleous, L., & Angwin, D. (2016). Practicing strategy (2nd ed.). London: Sage Publications Ltd. Week1 Intro to the Module Slides Read the book chapters and get ready for the seminar.  Lectures (2hrs.) and Seminars (3hrs) Lectures 2 hours, theories and concepts on the topic. Must attend every lecture. Read prepare section on Moodle before each lecture. Also complete the recommended reading later. Seminars 3 hours. You will practice applying the theories and concepts taught in the lectures. Moodle Quizzes: You will learn and take the quizzes (at least 3) which covers your 30% marks. Cannot miss. You will participate in activities where you will learn from your peers and how to work in teams. You cannot afford to miss. Your opportunity to get feedback from your tutor!  Teaching Before each on-campus class, read, watch, method: Prepare share, explore, and complete the learning activities available on the module Moodle site. What you need to do to learn? During each on-campus class, watch, listen, Engage and take notes, collaborate, and present and evaluate. After each on-campus class, share, complete, Consolidate and explore by completing the learning activities available on the module Moodle site. Moodle : Our Learning Platform Moodle is our online learning platform. It's where you'll find all your course materials, organised for easy access. You should start by looking at the materials in the "Module Introduction" section. Please read the entire Module handbook including assessment part. Assessment Information Available in your Module Handbook and Assessment Guide  ASSESSMENT TASKS No Assessment Weighting Extent Modality Deadline To submit on: Task 1 Classroom quizzes 30% 3 Quizzes Individual Week 5, 7, Turnitin and activities. and 9. (Time constrained, in class with tutor) 2 A strategic 70% Report Individual 3rd Jan Turnitin report for an (4500 2024 organisation. words) Formative 500 words Individual ---- Turnitin Feedback on Week 10 Report: Week 10 Teaching Plan Lectures, Seminars, Quizzes, Assessment and Feedback  Week C/F Topic Assessment 1 02 Oct 23 Introduction to the module Introduction to Strategic Management 2 09 Oct 23 Macro-Environment and Megatrends Analysis 3 16 Oct 23 Industry and Sector Analysis 4 23 Oct 23 Resources and Capabilities Analysis and Mock Moodle Quiz Achieving Competitive Advantage 5 30 Oct 23 Stakeholders, Governance and CSR Moodle Quiz 1 History and Culture 6 06 Nov 23 Corporate Strategy 7 13 Nov 23 Business Strategy Moodle Quiz 2 8 20 Nov 23 Strategy Evaluation 9 27 Nov 23 Development Moodle Quiz 3 10 04 Dec 23 Operations & Quality Abstract (500 words) Submission 11 11 Dec 23 Ecosystems and Partnerships - Partnerships, Mergers, Acquisitions, and Strategic Alliances 12 18 Dec 23 Review of module learning outcomes: Tools and Frameworks to design a Strategic Plan  READING AND RESOURCES (Core) Slack, N., & Brandon-Jones, A. (2021). Operations and process management (6th ed.). Harlow: Pearson. Whittington, Angwin, D., R., Regnér, P., Johnson, G. & Scholes, K., (2023). Exploring strategy (13th ed.). Harlow: Pearson.