Macro Environment Analysis: this short article explains Macro Environment Analysis in a practical way. Next to what it is, this article also why it is important, tools and methods, examples and tips. Enjoy reading!
Macro Environment Analysis: this short article explains Macro Environment Analysis in a practical way. Next to what it is, this article also why it is important, tools and methods, examples and tips. Enjoy reading!
Macro environment analysis is part of strategic management in many organizations and involves identifying and analyzing potential opportunities and dangers that arise in the macro-environment. Its main purpose is to provide management with accurate information to help them make operational decisions.
An organization’s macro-environment refers to all major, uncontrollable, external forces of a company that directly or indirectly influence decision-making. These are often economic, demographic, technological, political, natural, cultural, social or legal forces.
This analysis and related work is typically performed by business analysts. They make recommendations based on their research into environmental forces. In practice, these are mainly related to politics, economics, demography and technology.
The purpose of performing and evaluating a this type of analysis is to answer the following two important questions:
The macro environment analysis attempts to predict future trends based on current knowledge. This makes it extremely difficult: situations change and forecasts will therefore often deviate.
The most popular and used tool for performing macro environment analysis is the PEST Analysis, or PESTEL Analysis. PESTEL is an acronym for Political, Economic, Social, Technological, Legal and Environmental.
A current example of political macro-analysis is the shift towards greener government policies in the developed world.
With upcoming elections, we look at a variation in the policies of different parties and the impact of these positions on, for example, the industry. These factors say a lot about the way in which companies will be bound by new laws and regulations in the future when it comes to sustainability.
In an economic sense, the macro environment refers to the set of conditions that exist in the economy as a whole, rather than at the micro level, such as a sector or region.
An analysis on the economic macro environment often includes identifying trends in gross domestic product (GDP), employment, spending, monetary & fiscal policy, inflation, and more. The economic macro environment is closely linked to the business cycle.
The social macro-analysis mainly focuses on identifying trends in the beliefs, behaviours, values and norms and other characteristics of societies.
Examples of matters that are analyzed in the social macro-analysis are the number of part-time workers, the composition of family structures, trends in population growth and people’s attitude towards sustainability.
The purpose of a technology macro analysis is to identify trends in the development and application of technology. An example of this is the shift from online purchases versus traditional purchases in brick-and-mortar marketplaces and stores.
Legal macro-analysis is closely linked to politics. This is because politicians are the people who make laws. Legal macro analyses further include identifying trends in court decisions. Most organizations need to be constantly aware of changes in, for example, employment law.
Analyses are also performed on the environment. The results of these analyses say something about the extent to which the climate will affect the industry.
Another example of an effective method to help perform a macro-environment analysis is the DESTEP Analysis.
A well-known example when it comes to demographic macro-analysis is the example of aging in Western cultures. This demographic trend is the result of prosperity and the trend that people are living longer on average.
An aging population means that there are more and more retirees. Retirees are the biggest buyers of motorhomes in some countries. This trend should therefore lead to an increase in the total number of motorhomes sold. The reality is that this may not be the case in some years, for example due to the impact of corona measures.
Naturally, multiple business analysts from companies such as Amazon and Apple closely monitor the macro environment, scanning for trends. A PESTEL Analysis provides insight into the operational challenges facing large companies. Some examples are listed below per element of the PESTEL framework.
Political factors play an important role in conducting a macro analysis. Take the following into account:
Economic macro factors such as inflation, interest rates, exchange rates and the state of the business cycle are very important for determining the strategy. In any case, Apple, Amazon and other giants take into account at least the following things:
The culture within a society also influences the corporate culture in that society. When working together between different cultures, it is therefore important that these differences are known and respected.
Shared beliefs and attitudes of people play a big role at Apple when it comes to how marketers shape a marketing message. Other social factors that play a big role for Apple are:
Different regions and markets have different standards and agreements when it comes to environmental standards that can affect a company’s profitability. Before a company like Apple or Amazon enters a new market, it must carefully evaluate these standards. Some of the factors to consider are:
In some countries, the legal framework is not robust enough to protect an organization’s intellectual property rights.
A company should therefore carefully evaluate whether entering such markets could lead to a loss of competitive advantage. Some factors to take into account are:
