Johnson Scholes and Whittington 2008

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After reading this chapter you should be able to:

-+ Analyse the -+ Identify

broad macro-environment of organisations in terms of political, economic, social, technological, environmental (green) and legal factors (PESTEL). key drivers in this macro-environment and use these key drivers to construct alternative scenarios with regard to environmental change.

-+ Use five forces

analysis in order to define the attractiveness of industries and sectors for investment and to identify their potential for change. groups, market segments and critical success factors, and use them in order to recognise strategic gaps and opportunities in the market.

-+ Identify strategic


The environment is what gives organisations their means of survival. In the private sector, satisfied customers are what keep an organisation in business; in the public sector, it is government, clients, patients or students that typically play the same role. However, the environment is also the source of threats: for example, hostile shifts in market demand, new regulatory requirements, revolutionary technologies or the entry of new competitors. Environmental change can be fatal for organisations. To take one example, after 200 years of prosperity, print publisher Encyclopedia Britannica was nearly swept out of existence by the rise of electronic information sources, such as Microsoft's Encarta and the online Wikipedia. It is vital that managers analyse their environments carefully in order to anticipate and - if possible - influence environmental change. This chapter therefore provides frameworks for analysing changing and complex environments. These frameworks are organised in a series of 'layers' briefly introduced here and summarised in Exhibit 2.1: • The macro-environment

is the highest-level layer. This consists of broad environmental factors that impact to a greater or lesser extent on almost all organisations. Here, the PESTEL framework can be used to identify how future trends in the political, economic, social, technological, environmental ('green') and legal environments might impinge on organisations. This PESTEL analysis provides the broad 'data' from which to identify key drivers of change. These


Layers of the business environment



\(\dustry (or sector)


key drivers can be used to construct scenarios of possible futures. Scenarios consider how strategies might need to change depending on the different ways in which the business environment might change . • Industry, or sector, forms the next layer with this broad general environment. This is made up of organisations producing the same products or services....
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