The macro-environment is composed of forces that are external to the firm. Although the degree of impact varies, these forces affect all industries and the firms competing in them.
An external environment of an organization includes forces that it can readily affect as well as forces that largely lay beyond its influence. The latter set of forces are said to exist within the macro-environment. Because this environment often has a substantial influence on an organization’s level of success, firms must track trends and events as they evolve and anticipate their implications.
The challenge to each firm is to scan, forecast, and assess the elements in each force to predict their effects on it. Effective scanning, forecasting, and assessing are vital to the firm’s efforts to recognize trends and events, classify them as strategic factors, and then evaluate them as opportunities and threats.
PESTEL analysis is one important tool that firms can rely on to organize forces within the macro-environment and to identify how these forces influence industries and the firms within them.
PESTEL is an anagram, meaning it is a word created by using parts of other words. In particular, PESTEL reflects the names of the six forces of the macro-environment: (1) political, (2) economic, (3) social, (4) technological, (5) environmental, and (6) legal.
Firms carefully examine each of these six segments to identify major opportunities and threats and adjust their firms’ strategies accordingly.
Macro Force 1: Political-Legal Force
Political-legal force allocates power and provides constraints to organizations.
Trends and events may not only have a significant impact on the level of competition within an industry but also on which strategies can actually be successful. Political and legal factors, therefore, can represent key opportunities or threats for both small and large organizations.
Government bureaucracy can create multiple laws and regulations that make it impossible for an organization to operate profitably in some countries or industries. Many companies have altered or abandoned strategies because of political or legal actions.
Federal, state, local, and foreign governments are major regulators, deregulators, subsidizers, employers, and customers of organizations.
Macro Force 2: Economic Force
Economic force regulates the exchange of materials, money, and information.
Emerging trends in this force can have a significant impact on business activities. They have a direct impact on the potential attractiveness of various strategies.
Important components of economic force are GDP, interest rates, inflation rates, currency markets, and the global financial system.
Macro Force 3: Social Force
Social force regulates the values and customs of society.
Organizations that look into the future can find many different opportunities to offer products and services based on the social characteristics of the industries it is operating.
Significant trends of this force currently include (1) increasing environmental awareness, (2) growing health consciousness, (3) expanding seniors’ market, (4) declining mass market, (5) changing pace and location of life, (6) changing household composition, and (7) increasing diversity of the workforce.
Macro Force 4: Technological Force
Technological force generates problem-solving inventions.
Trends and events in technological force may cause a great impact on multiple industries.
Technological advancements can dramatically affect organizations’ products, services, markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, and competitive positions.
These advancements can generally create new competitive advantages that are more powerful than existing advantages. Firms should pursue strategies that take advantage of technological opportunities to achieve sustainable, competitive advantages in the marketplace.
Significant trends of this force include (1) portal information devices, (2) alternative energy sources, (3) virtual personal assistants, (4) genetically altered organisms, or (5) smart robots.
Macro Force 5: Environmental Force
Environmental force includes global resources, wildlife, and climate that are a part of existence on Earth.
The ability of an organization to pursue long-term sustainability is dependent not only upon the economic and social system that it operates directly within but also on the natural environment in which the organization is embedded.
The natural environment is often viewed as a free resource that is to be taken or fought over. Once they are controlled by a person or organization, it becomes an asset that can be sold, bought, or shared.
Trends in environmental force highly correlate to a firm’s performance. An organization must not only closely study the environmental force for possible strategic factors but also consider the impact of its activities upon the environment and include them in consideration for the strategic decision-making process.
Resources
Further Reading
- Macro Environment Analysis (whatmakesagoodleader.com)
- What Is Macro Environment? (pestleanalysis.com)
- What is Macro Environment? Definition and Examples (marketingtutor.net)
- Strategic Analysis & Planning Series: Macro External Analysis (equimanagement.com)
Related Concepts
References
- Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2019). Strategic Management: Concepts and Cases: Competitiveness and Globalization (MindTap Course List) (13th ed.). Cengage Learning.
- Mastering Strategic Management. (2016, January 18). Open Textbooks for Hong Kong.
- Wheelen, T. L. (2021). Strategic Management and Business Policy: Toward Global Sustainability 13th (thirteenth) edition Text Only. Prentice Hall.