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The General/Macro Environment

Learn about external environment by acquiring information about

Competitors

Customers

Other stakeholders to build their own base of knowledge and capabilities.

Use this information then firms take action such as building new capabilities and core competencies, to buffering themselves against any negative environmental effects and to pursue opportunities as the basis for better serving their shareholder’s need.

The general environment is composed of dimensions in the broader society that influence an industry and the firms within it.

Grouped into 7 dimensions OR ‘environmental segments’ Each segment composed of elements

Demographic

• Population size• Age structure• Geographic distribution• Ethnic mix• Income distribution

Economic

• Inflation rates• Interest rates• Trade deficits or surpluses• Budget deficits or surpluses• Personal savings rate• Business savings rates• Gross domestic product

Political/legal

• Antitrust laws• Taxation laws• Deregulation philosophies• Labour training laws• Educational philosophies and policies

Sociocultural

• Women in the workforce• Workforce diversity• Attitudes about the quality of work life• Shifts in work and career preferences• Shifts in preferences regarding product and service characteristics

Technological

• Product innovations• Applications of knowledge• Focus of private and government-supported R&D expenditures• New communication technologies

Global

• Important political events• Critical global markets• Newly industrialised countries• Different cultural and institutional attributes

Physical

• Energy consumption• Practices used to develop energy sources• Renewable energy efforts• Minimising a firm’s environmental footprint• Availability of water as a resource• Producing environmentally friendly products• Reacting to natural or man-made disasters

Industry environment

5 factors

The threat of new entrants

The power of suppliers

The power of buyers

The threat of product substitutes

The intensity of rivalry among competitors

Interaction of these determine an industry’s profit potential; in turn, the industry’s profit potential influences the choices each firm makes about its strategic actions.

Challenge: locate a position within an industry where it can favourably influence the five factors or where it can successfully defend against their influence.

The greater a firm’s capacity to favourably influence its industry environment, the greater the likelihood that the firm will earn above-average returns.

Competitiveness:

Analysis of the general environment is focused on environmental trends

An analysis of the industry environment is focused on the factors and conditions influencing an industry’s profitability potential; and an analysis of competitors is focused on predicting competitors’ actions, responses and intentions.

In combination, the results of these three analyses influence the firm’s vision, mission and strategic actions.

Performance improves when the firm integrates the insights provided by analyses of the general environment, the industry environment and the competitor environment

External analysis