Strategic planning is affected not only by internal and external variables but also by the macro environment. A framework that serves to scan external macro environment factors in which business or organizations operate is grouped into the four factors of Political, Economic, Social and Technological and referred to as PEST analysis. These macro environment factors affect business and organizations in their operations so that they have to be incorporated into the strategic planning framework.
Political Factors are government regulations and government legal issues that define formal and informal rules under which the firm must operate. Business and organizations whether they like it or not are affected by government regulations and the accompanying legal issues. Regulation has a way of limiting certain business expansion moves and legal issues may place business and organizations in legal battles that may slow if not bring business operations to a standstill.
Government regulations and legal issues like tax policy is a factor that affects tremendously business or organizations. An increase in the tax rate will immediately have a rippling effect, affecting the cost structure and the cash position. Employment regulations like automatic wage increase and entry-level minimum wages also affect decisions that relate to the strategic plan. They dictate the allowable number of people that business or organizations can hire for a particular operation.
In a world where everyone is concerned about environment issues, environmental regulation do affect the way business or organizations operate. An industry that produces a lot of waste as a by-product of the production process may discover that environmental issues will cause a steep increase in its waste treatment and disposal expenditure due to certain regulations.
Trade restriction and tariffs are things that oftentimes prevent business and organizations from entering a particular nation or a particular market segment. National governments often practice protectionism as a way of assuring the survival of local business or organizations. Strategic plans that may miss analyzing this factor may discover too late that they can be immobilized due to government trade restrictions and tariffs.
Economic factors affect the purchasing power of the customer. It also affects business or organizations cost of capital. Economic factors and variables are indicators of some sweeping movements in the customer base. A rise in the unemployment rate may indicate that a segment in the customer base has practically lost purchasing power. A rise in employment rate on the other hand, may indicate that a segment in the market has gained purchasing power and has something to fuel disposable spending.
Economic factors such as the economic growth rate, the interest rates, the currency exchange rates and the inflation rate are factors that strategic planning should never overlook. The economic growth rate is an overall indicator of government performance and a positive figure will provide a positive outlook for business or organizations. This will indicate that government in general has done its job well affecting the business and other sectors of the nation.
Business or organizational spending and expansion are tied to the interest rate. A high rate may prove too costly and may discourage many from implementing particular strategic plans and moves. A lower rate may encourage business to expand and to reposition itself. A lower rate may also encourage the purchase of items of greater value on credit due to the advantages of the lower interest rates.
The inflation rate directly affects the purchasing power of the customer and is a factor that strategic planning consider. A substantial drop in the purchasing will mean fewer goods sold for the same amount of currency. High inflation rates may cause sales figures to stagnate if not drop precipitously into dangerous levels.
Social factors are demographic and cultural considerations that affect potential market size and customer needs. A demographic map may reveal a change in the composition of certain age groups like an increase in the retirement age population and this in turn may affect future supply of manpower. A nation with a large immigrant population may discover that certain products or brand names may be taboo to them and if strategic planning fails to identify it sooner, a product or brand name may be launched and may be a disaster due to the cultural factor.
Health consciousness is a social factor that is sweeping across the world. What formerly fat was considered healthy, not anymore. Business or organizations in any industry are in one way or another affected by this. Their strategic planning has to incorporate this social factor. This social factor affects the food industry food labels may have to contain certain health information, if affects the fitness industry “exercise and health enhancing equipment has to be designed and redesigned for this emerging factor and it affects certain kinds of spending “people may decide to ride on bicycles instead of driving their cars.
The population growth rate is another social factor worthy of attention. Producers of infant products: toys, clothes and food may find themselves struggling when the national birth rate drops. Advance information on this social factor may help strategic planning decide when and where to go. In a scenario of a substantial drop in national birth rate, the wisest thing to do might be to concentrate on nations and markets where the birth rate is high and has the potential to go higher.
Age distribution and career attitudes are other social factors that affect business or organizations. Nations that experience a rise in the young working population are apt to the challenge for more business and industry openings because it can provide the necessary manpower. The attitude of many young workers to switch workplaces frequently due to compensation factors may be a wake up call to business or organizations that their salary standards may need revision and recalculation.
Technological factors are those that affect the industry and workplace. Factors like increased efficiency due to automation or increased dependency of computerization may well be interesting as it is brought to strategic planning. Since our world is technologically driven these factors affect the entire nation as a whole not just industry or the workplace.
Research and development activity is a must to keep up with technology and the workplace. This factor may influence the workplace in that research and development may develop intelligent automation to perform certain things and so start getting rid of people or it may develop gadgets that will allow anyone to work anywhere depending on which industry you belong.
Technological change is by far the single factor that may affect everything. Technology has been changing so rapidly it is changing the way we live, the way we work and the way we direct our lives. People, workers and organizations in the west pride themselves in the technology connection; they are connected to one another via wireless technology, computer technology, satellite technology and so on. However, those in the east and those in the third world countries are not far behind. Mobile phones are not luxuries but necessities in Asia and Africa. Equipment manufacturers are even testing their equipments in Asia, knowing that technological change is these areas would mean long-term profits for business or organizations.
The PEST factors of political, economic, social and technological combined with the macro environmental are external factors that strategic planning must not fail to consider. These factors may alter certain perceptions in the SWOT analysis; factors strategic planning must not miss to increase its rate of success.