Macro Analysis Notes

Macro Analysis – Outside-in thinking

  • This material presents Macro Analysis as an outside-in approach to strategy, emphasising that external environmental factors shape where and how an organisation competes.

  • Core quote (illustrating the idea that not all differences matter):

    • “Things are always different – the art is figuring out which differences matter.” — Laszlo Birinyi, Investments Manager.

  • Key aim: Use macro insights to identify opportunities and threats, informing decisions about where to play (markets/sectors) and how to win (competitive approach).

  • Central framework introduced: PESTEL analysis to categorise external environmental factors that influence industry growth and strategy success or failure.

Where will we play and how will we win – Outside-in thinking

  • Emphasis on outside-in thinking to determine strategic direction.

  • PESTEL analysis categorises external factors and helps identify opportunities and threats for an organisation.

  • These macro factors influence industry growth and the success or failure of strategies; important to assess the impact of each factor.

PESTEL framework

  • PESTEL factors: Politics, Economics, Social, Technology, Ecological, Legal.

  • Use: Identify key drivers of change and assess opportunities and threats to address in strategy.

  • Macro environment layers: outer macro-environment, middle industry/sector, inner strategic groups and market segments.

  • Purpose: Provide a structured lens for external analysis that informs forecasting and strategic planning.

Political factors

  • The role of the state as an owner, customer or supplier

  • Government policy

  • Taxation

  • Foreign trade

  • Political risk in foreign markets

  • Changes in trade blocks (e.g., BREXIT)

  • Civil society movements and issues including sustainability, environmentalists, campaign groups, social media

Economic factors

  • Business cycles

  • Interest rates

  • Disposable income

  • Exchange rates

  • Unemployment rates

  • Some industries more vulnerable to economic cycles:

    • Discretionary spend industries (e.g., housing, cars)

    • High fixed cost industries (e.g., airlines, hotels)

Social factors

  • Changing cultures and demographics (e.g., ageing population in Western societies)

  • Income distribution

  • Lifestyle changes

  • Consumerism

  • Changes in culture and fashion

  • Social networks within an organisational field (e.g. with regulators, campaign groups, trade unions)

Technological factors

  • New discoveries and technology developments, including:

    • The internet of things

    • Mobile network (5G)

    • Nano-technology

    • Artificial intelligence

    • Data analytics

    • New composite materials such as carbon fibre

  • Indicators of innovative activity:

    • Research and development budgets

    • Patenting activity

    • New product announcements

    • Media coverage

Ecological factors

  • Environmental sustainability and protection regulations

  • Energy: shift from fossil fuels to renewables

  • Global warming

  • Waste disposal and recycling

  • Ecological challenges confronting organisations:

    • 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

  • Consider not only formal laws and regulations but also more informal norms or expected (normal, ethical) behaviours

PESTEL factors that are likely to have a high impact on industries and sectors

  • High-impact drivers vary by industry or market.

  • Example: Retailers – technology and social changes driving a move to online shopping; personal disposable income also drives demand for retailers.

Applying the PESTEL framework in your assignment

  • Apply selectively; identify factors important now and in the future.

  • Use data to support points and analyse trends.

  • Assign ratings (positive, neutral, negative) to each factor, then an overall rating for the factor, and an overall rating for the PESTEL influence on the industry.

  • Identify opportunities and threats – the main point of the exercise! (Use PESTEL to structure your analysis.)

Industry contexts highlighted

  • The oil industry

  • The health sector

  • Global industry fundamentals

Forecasting and strategic foresight

  • Strategic decisions involve forecasts about future conditions and outcomes; PESTEL factors feed into these forecasts.

  • Forecasting is notoriously difficult because organisations often aim to surprise competitors.

  • Three fundamental forecasting approaches based on degrees of certainty:

    • Single-point forecasting

    • Range forecasting

    • Multiple-futures forecasting

Forecasting under conditions of uncertainty

  • Emphasizes planning under uncertainty and considering multiple potential futures rather than a single predicted outcome.

Megatrends, inflection points, weak signals, directions of change

  • Megatrends – large-scale changes that are slow to form but influence many activities over decades (e.g., ageing populations, global warming).

  • Inflexion points – when trends shift sharply upwards or downwards.

  • Weak signals – early indications of future trends that help identify inflexion points; example: mortgage failures in California in 2007 were a weak signal for the 2008 financial crisis.

  • Directions of change – plausible views of how the environment might develop, based on drivers of change with a high level of uncertainty.

Scenario planning

  • Build on PESTEL analysis and drivers for change.

  • Offer more than one view; scenarios provide a few plausible futures to explore strategic options.

  • Scenario analysis is particularly useful in industries with long planning horizons (e.g., oil industry or airlines).

Macro-environment layers and summary

  • Environmental influences are layered: outer macro-environment, middle industry/sector, inner strategic groups and market segments.

  • The macro-environment is analyzed via PESTEL factors: political, economic, social, technological, ecological and legal.

  • A PESTEL analysis identifies key drivers of change and opportunities and threats to address in strategy.

  • Summary point: PESTEL serves as a foundational tool for scanning the external environment to inform strategy development and forecasting.