Why is it so important to monitor changes to a firm’s broad macro environment – and how do you go about monitoring it? This article looks at the importance of monitoring environmental changes.
What is the external macro-environment?
The macro-environment is things that exist beyond the firm and industry. This includes the political, economic, social, technological, ecological, and legal factors (the PESTEL factors) that impact firms, and are things largely outside of the company’s direct control. Despite being things that companies can’t directly control though, they are still important for companies to be aware of, as they can directly impact the operations of companies.
The importance of examining macro-environmental changes
Some of the key reasons why it is important for companies to be actively monitoring their macro-environment include:
The first reason to monitor the macro-environment is that it can allow you to identify new opportunities. There may be changes to conditions that you can capitalize on, potentially with product adaptions, better targeting of your offerings, or by changing the manner in which the items are produced.
Monitoring the external environment may allow you to identify the new opportunities in advance of your competitors – potentially better placing you to capitalize on the opportunity before it becomes widely recognized. The earlier you are able to identify profit opportunities, the better placed you are to take advantage of the new possibility.
The next reason why examining the macro-environment is important is that it allows you to identify possible threats that may have a negative impact on your operations. Identifying such trends in advance can better place you to adapt your offerings so as to avoid the negative consequences of the environmental changes.
Systematic analysis of the environment – periodically examining things in the environment that are changing – can help identify more gradual changes that can potentially be missed. The danger of gradual change is that while it is not always apparent, over many years, it can have a significant cumulative impact. By putting in place practices to monitor the external environment, you can become aware of the slower changes that may over time have an increased impact on your firm.
How do you monitor macro-environmental change?
The PESTEL framework is possibly the most famous framework for analyzing changes in the macro-environment. The framework breaks the external environment into six broad buckets:
- Political factors
- Economic factors
- Social factor
- Technological factors
- Ecological factors
- Legal factors
By reflecting on changes in the factors, and how they impact your firm and industry, it may be possible to identify new opportunities or threats that your firm needs to respond to. The earlier you are able to identify such aspects the better placed your firm is likely to be relative to competitors.