Strategic Analysis
ANDYXU666
L2Themacroenvironmentvt2.pdf
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Strategic Management
Module 2 Macro Environment Analysis
Dr Xueli (Charlie) Huang
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A brief review of key points in Module 1
• Strategy
–the long-term direction of an organization.
• Three levels of strategy and their major focuses
– Corporate strategy
–Business strategy
–Functional strategy
• The strategic management process and its three
interrelated and principal activities
–Strategic analysis, strategic choice, and strategy implementation
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Opening story: What seems to account Tesla’s success?
• Tesla, Inc. (formerly Tesla Motors) is an American
automaker, energy storage company, and solar panel
manufacturer based in California.
• In February 2017, Consumer Reports named Tesla as the
top American car brand and ranked it 8th among global
carmakers.
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Elon Musk Unveils Tesla Model Y Plan in Shanghai
• Elon Musk Unveils Tesla Model Y Plan at Shanghai
Gigafatory (3’06”)
–https://www.youtube.com/watch?v=34DgYNkRpaA
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Tesla’s share price – from 8 Jane 2016 ($42.2) to 31 2021 ($705.67)
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Can pigs fly?
• “Even a pig can fly if it is put at the
centre of whirlwind” – LEI Jun,
CEO of Xiaomi (A Chinese smart
phone manufacturer)
• “Seizing the right opportunities (in
the environment)”
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Learning Objectives
After studying this module, you should be able to
• Understand the concept of environment and how it impacts on businesses
•Analyse the broad macro-environment of organisations using the PESTEL framework
– Analytical process and report structure
•Understand the key drivers of changes in the macro environment
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How do you understand this statement?
• “Business is about competition and competition is very
much like a race”.
• How can you win this race?
– External environment plays “an escalator effect” in the race.
– Internal environment (strategic capability) plays “a fit effect” in
the race.
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External environment or factors:
Macro and industry environment
Internal factors or environment
Two broad sets of factors primarily determine an
organisational performance: internal and external environment
Organisational
performance Production
Marketing
Human Resources
R&D
The firm
Logistics
Services
Info system
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What is the (external) environment of an
organisation?
• Environment refers to those aspects outside the organisation that affect the business strategy of an organisation (Hubbard, 2017)
• The environment can be broken into two levels for analytical convenience –Macro-environment (those aspects outside the industry) Outer layer
–Industry environment (those factors within the industry which affect both its profitability and the competitive position of organisations within it).
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Why is the environment important to organisations?
• The changes in the environment generate opportunities and threats
• The opportunities and threats present challenges to which organisations must respond in order to survive and/or prospect.
• Organizations need to –Scan its environment, monitor it, and collect competitive intelligence.
–Predict how environment will be changed and understand its implications.
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Why conducting external environment analysis?
• Understand how these environmental changes can
affect performance of the industries and our
organization
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Changes in the
environment Opportunities
and/or threats
Strategic
implications
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Macro-environment analysis – The PESTEL framework
• The PESTEL framework categorises environmental influences into six main types:
political, economic, social,
technological ecological (green) legal
• These factors are external to an industry, usually beyond a firm’s control
• Thus PESTEL provides a comprehensive list of influences on the possible success or failure of particular strategies.
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PESTEL
Factors (or
issues)
Opportunities or
threats
Impact of the
future industry
growth
Key driver
of change
Political
Economic
Social and cultural
Technological
Ecological
Legal
3. Overall conclusion
The logical process of macro-environment analysis
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Key trends and events in the macro
environment (1/3)
• Political –Government policy
–Government stability
–Immigration policy
–Terrorism
–Tax reform
–Foreign trade regulations (such as Free Trade Agreement)
• Economic
–Trends in GDP
–Interest rates
–Unemployment
–Consumer price index (inflation)
–Exchange rate
–Trade deficit
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How will political factors influence the Australian residential aged care
industry?
• The Commonwealth (Australian Government) fully controlled
all of the policy, administration, funding and planning for all
aged care services since 2018.
• Total government expenditure on aged care services:
Australian Government expenditure for aged care totalled
$18.1 billion in 2017–18 and is expected to increase 3% every
year in the next three years.
• Government reforms aimed at producing a more consumer-
driven, market-based aged-care system in the future
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How will economic factors influence the Australian aged care industry?
• GDP growth rate is expected to be low in the next 3 years
– Reducing Government revenue, and thus expenses (Negative)
• Coronavirus has a major negative impact on the Australian national economy
– It can increase unemployment rate (Positive??)
• Stock slump has substantially reduced the wealth of some elderly people (Negative)
• Low interest rate
– Reducing the cost of borrowing (positive)
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Key trends and events in the macro
environment (2/3) • Social
–Aging population
–Baby boomers start turning 65
–Postponement of family formation
–Greater concern for fitness and environment
–e-generation
–Greater disparities in income
levels
• Technological
– Artificial intelligent (AI)
–Internet of Things (IoTs)
– 5G technology
–3D printing
–New discovery and development
(e.g., digital, genetic and
nanotechnology)
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The impact of aging population on our society
• “This aging population is unprecedented, and its
implication will be felt through Australian society – in what
job we do, what services we need, what houses will suit,
what transport will be needed and at what cost” --
Australian Financial Review
• “We will also have to ask who get the pension and who will
fund it”
• Social and economic changes: 200 years that changed the world
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How will social and technological factors affect the Australian residential
aged care industry?
• Social Factors –Life expectancy increased to 84
–There were over 3.9 million Australians aged 65 years or older, accounting for 15.6% of the Australian population in 2018.
– An estimated 376,000 people in Australia had dementia in 2016
– Preferring to home care, rather than residential aged care
• Technological factors –The advancement of IT
– Carers can use ipad for better servicing the residents
– GPS for monitoring the movement of residents
–The development of 5G technologies – Telehealth: Remote diagnosis and caring
–Virtual Technology – It can be used for dementia treatment
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Key trends and events in the macro
environment (3/3)
• Ecological (green)
– Covid-19
–Climate change (global warming)
– Environmental protection
regulations,
– Energy consumption
– Waste disposal and re-cycling
– Renewable energy
–An inconvenient sequel (2017)
• Legal –Competition laws
–Health and safety laws
–Employment laws
–Licensing laws
–IPR laws.
–Privacy law
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How will ecological and legal factors affect the Australian aged care
industry?
• Ecological –COVID-19
– Substantially increase the cost of doing business as the residents are the most vulnerable group in the society
–Climate Change – increasing the cost of providing room temperature and living conditions
• Legal factors –The industry is heavily regulated, reflecting the dominant role of the Federal
Government in both funding and regulating the industry
– New policies and regulations – Living Longer Living Better (2013)
– the Aged Care Quality and Safety Commission Act 2018 – New Standards and Requirements (2019)
– Eight quality standards and 42 requirements
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Key drivers of change
• These are those environmental factors that are likely to have a high impact on the success or failure of strategy.
– For example:
–The birth rate is a key driver for those planning nursery education provision in the public sector;
– Technology for IT industry;
– Sociocultural changes for the fast food industry.
• Typically key drivers vary by industry or sector.
–These drivers need to be monitored closely
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The key drivers of change for the Australian aged care
industry
• The key drivers of change for the Australian aged care
industry are:
– Social factors as they have substantially increased the demand
for the residential aged care services
– Political factors as the Australian government has taken full
control over the funding and regulations for the Australian
residential industry
– Both factors need to be monitored closely for their future change
and impact on the growth of the Australian residential aged care
industry in the future.
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The purpose and level of the macro-environment
analysis
• To understand how the environmental factors affect the
growth of the particular industry and the performance of the organisation being analysed, particularly in the future through identifying key opportunities and threats in the environment and evaluating their impacts.
• The level of analysis is the industry within which the organisation operates, because these factors (opportunities and threats) are common to all firms in the industry.
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Challenge in analyzing macro environment
• The macro environment is
– Volatile: unstable and unexpected
– Uncertain: subject to change
– Complex: too many interconnected parts and variables
– Ambiguous: unclear causal relationship
• VUCA stands for Volatility, Uncertainty, Complexity,
Ambiguity
• “Black Swan” vs “Grey Rhino”
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“Black swan event” vs “Grey Rhino event”
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Black Swan event
• A black swan event is an event or occurrence that
deviates beyond what is normally expected of a situation
and is extremely difficult to predict. Black swan
events are typically random and unexpected.
–Example: COVID-19, GFC of 2008, dot-com bubble of 2001,
hyperinflation of Zimbabwe in 2008 (79.6 billion percent)
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Gray Rhino
• A "gray rhino" is a highly probable, high impact yet
neglected threat.
• Gray rhinos are not random surprises, but occur after a
series of warnings and visible evidence.
• Example:
–Trade war and the growth of world economy
– The development of AI and its impact on healthcare sectors
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Macro-environment analysis
-- A brief summary • Understanding the purpose of this analysis
– Industry growth rate in the future
• Be clear about the level (unit) of the analysis – The entire industry as a whole (a strategic group)
• Using the analytical framework – PESTEL – To use for identifying key drivers and issues and their opportunities or threats
–To analyse the implications to the industry growth
• Predicting the industry growth in the future – Drawing your conclusions
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Module 2 summary (1/2)
• 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, from which key drivers of change can be identified.
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Module 2 summary (2/2)
• Key drivers of change: These are those environmental factors that are likely to have a high impact on the success or failure of strategy.
• The most important reason for environmental analysis is to identify OPPORTUNITIES AND THREATS and predict their impact on the industry growth
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Preparation for next lecture
• Read Chapter 3 in the textbook
• Read:
– Case study: The Australian Department Store Industry
– IBISWorld Industry Report
– INDUSTRY REPORT G4111 Supermarkets and Grocery Stores in
Australia (This can be downloaded from the Library or the Course
Canvas.
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