Corporate Strategy: Analysis of External/Macro Environment

The external environment relates to an organization’s macro / external factors that impact on a businesses indirectly. Management has no or little control over these factors. These macro / external factors reside outside the business, which can lead to opportunities or threats.

Management must continually scan, assess and analyse the macro / external environment and identify those factors that could have an impact on the company. Example of these factors that could have a positive or negative impact on the business are:

• Aspects such as legislation, economic cycles, market and product trends, customer preferences, etc.
• Entities and persons outside of the business such as competitors, customers, the government, trade unions and community groups
• Ecological factors or alternatively contemporary issues such as corporate citizenship

The objective of scanning the environment is to identify potential threats and opportunities as they emerge, and to gauge their impact on the industry and on the company itself.

Relationship between Macro Environment, Industry and Company

Techniques to Analyse External/Macro Environment

PESTEL Technique

Scenario Analysis and Forecasting

Forcasting

FORECASTING:

Forecasting is about predicting future events and estimating what the impact on the business will be. One looks at historical data and trends in the data (i.e. statistical or other) and then apply these trends to predict possible outcomes in the near future.

Situations where Forecasts are typically used by business are:

• Predict – Want to increase market-share and predict the effect on income
• Predict – What Influences will affect new product sales
• Predict – What influences will affect declines in sales
• Predict – How will absenteeism affect productivity

Sources used in Forecasts but not limited to:

• Economic indicators i.e changes in retail sales and numbers of vehicle sales
• Data of past performance
• Data of past trends
• Input from experts

The general rule is forecasts attempt to be unbiased and are:

• Optimistic, expect good results times
• Pessimistic, expect results that may not be positive
• Neutral, expect results to closely follow the current economic cycle