MICRO AND MACRO
ENVIRONMENT
15-16 _09_2020 Prof. Francesca Di Pietro
Week 1 schedule
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Learning objectives
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¨ To analyze the main characteristics of a business
organization and its external environment;
¨ To understand how firms analyze the external
environment;
¨ To understand the main actors and institutions that
affect firms’ decisions and results.
What is a business organization?
¨ A business organization as system that turns inputs into
goods and services
¨ Business organization as a sustainable system
¤ “To meet the needs of present without compromising the
ability of future generations to meet their own needs.”
(World Commission on Environment and Development, 1987)
¤ Sustainability:
n Economic (job creation)
n Environmental (natural resources and climate);
n Social (equality; human rights).
n http://www.ssfindex.com/ssi2016/wp-
content/uploads/pdf/JRCauditSSI2006_2012.pdf
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Business Environment
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¨ An environment is everything that surround a system;
¨ A business organization is a system, whose performance is
influenced by a whole range of phenomena in its environment;
¨ Open system
¤ Not all the elements can be identified
¨ A business organization generates transformation processes
¤ This transformation is not static process, but organization
must adapt to the environment and ensure constantly that
they continue to transform inputs to generate valuable
outputs
Environmental influences
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External environment
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¨ The firm’s environment is composed by all the variables
that influence firm’s decisions and results;
¨ Environmental influences can be classified
¤ According to the origin (i.e. technology, demographics)
¤ According to the degree of proximity (macro vs. micro
environment);
¨ Different levels of environmental analysis with different
intensity in the interaction:
¤ Macro environment;
¤ Micro environment;
¤ Internal environment.
Micro and Macro Environment
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Micro and Macro Environment
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¨ The external environment comprises all those forces and events
outside the organization that influence on its activities.
¨ Macro-environment:
¤ Environments’ factors, e.g. actors and institutions, that are beyond the
control of a business organization, but could still influence its
strategic decisions;
¨ Micro-environment:
¤ Environments’ factors, e.g. actors and institutions, that affects the
organization directly. It refers to the environment that most closely
linked to the firm
n This environment is not also under the full control of business.
WHY IS the environment
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IMPORTANT?
¨ Social : Healthy eating has become an important issue in the
early twenty-first century. The profits of the fast-food company
McDonald’s fell and it was forced to close branches worldwide
as consumers sought more healthy convenience food, before
the company belatedly responded to change with healthier
menu items.
¨ Political: In the airline market, companies such as Ryanair and
easyJet spotted the opportunities represented by government
deregulation and offered profitable low-cost ‘no frills’ air
services, often aimed at people who would not previously have
flown.
PESTEL analysis
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¨ PESTEL is a model examining the external
environment and the global factors that may affect
a business;
¨ It can provide a quick understanding of the external
pressures facing a business and their possible
constraints on its strategy;
¨ It is usually divided into six external influences on a
business – political, economic, social, technological,
ecological, legal
The political environment
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¨ It refers to institutions, such as local and
national governments, lobbyists and
pressure groups
¤ The stability of the political system;
¤ Tax policy, trade and tariff controls;
¤ … Governments are responsible for
protecting the public interest at large,
imposing constraints on the activities of
firms (for example, controls on pollution)
The economic environment
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¨ It provides an indication of national prosperity:
¨ Growth rates: economic growth rate is a measure of the change in
the amount of goods and services produced by a nation’s economy.
n GDP
n Disposable income
n Unemployment rate
n Average earning
n Saving ratio
n Customer spending
n Inflation rate
n Interest rates
¤ …
The social and demographic
environment
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Role of women
Leisure
Career orientation
Cultural influence:
Values
Beliefs
Religion – Islam prohibits
payment of interests; debt
is less common for
companies but more
common is equity
The technological environment
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Industry 4.0
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Ecological forces
¨ Environmental issues, environmental regulations
¨ Natural environment, global warming, climate change
¨ Customer values, market values, stakeholder/ investor values
¨ Management style, staff attitudes, organizational culture, staff
engagement
Legal environment
¨ Strength of the rule of law
¨ Current home market
legislation, future legislation
¨ European/international
legislation
¨ Regulatory bodies and
processes
¨ Environmental regulations,
employment law, consumer
protection
¨ Industry-specific regulations,
competitive regulations
The external environment and the
organization
¨ 2 subjective aspects:
¤ Actors and conditions as they are configured in the
present moment;
¤ Ways to influence actors and conditions.
¨ Compatibility between the firm and its environment:
¤ Ability to create such compatibility
Issues of concern
¨ The main problem with external PESTEL factors is that they are
continuously changing;
¨ Therefore PESTEL analysis should include a thorough analysis of
what is affecting the firm now, and what is likely to affect it in
the future;
¨ The result of a PESTEL analysis is usually a list of positive and
negative factors.
¨ “Importance
¨ - Increasing >
¨ - Unchanged =
¨ - Decreasing <
Case Discussion
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