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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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Literature Review:

This section will mainly focused on a review of literature on external environment and the different . It contains different opinion and views from different authors about macro and micro environment. Also, it includes some arguments

Macro-Environment Analysis

Willliam Gluck and Jauch defined the business environment as the outside factors that make threats and opportunities on the organization and Wheeler emphasized the same idea of the business environment which is all external things that have impacted on the function of the company. On the other hand, Pfeffer and Salancik (1978) in their resource dependence theory (RDT) said that the environment of an organization is affected by the external resources and any organization wants to have the power must get the external resources faster than the other competitors. So, it is difficult to have an organization working in protect the environment. The surrounding environment will affect directly and indirectly on the planning and operating strategies of a project. Johanson (2008) identify that the organization is surrounded by competitors, industry and the macro-environment. He stated that macro-environment is the outer layer of the business environment and has a high and low impact on the organization's function.  Ginter and Duncan (1990) describe that macro-environment analysis consists of four main steps. Firstly, scanning process which is an alerting system to determine the potential threats and opportunities that will impact on the project. Secondly, the monitoring process is an assessment of the progress of the work and focusing on the strengths and weakness patterns in the past and future. Thirdly, the forecasting process is an anticipating to the future trends that will make changes in the environment. Fourthly, the assessment process is an evaluating the future changes that affect the organization.

Many people said that the economic is the only external dimension that is effecting on the organization's function. To convince those opinions, many authors emphasize that there are various dimensions of macro-environment. Starting with Thomas (1974) who state that the dimensions of macro-environment are Social, Political, Regulatory, Economic and Technology. Following with Fahey and King (1977) who said that the Economic, Political, Regulatory, Social, Culture, Technological, Energy, Marketing/industrial and Financial are the main factors of macro-environment. Preble (1985) focuses on Legal, Economic, Political, Competitive, Technological and Cultural as the main external factors on an association. Ginter and Ducan (1991) highlight the most important dimensions in external environment which are Economic, Political, Social, Technological and Regional. Costa (1995) had a new technique which is using the abbreviation (the first letter from each dimension) like PEST stand for Political, Economic, Social and Technological. The rest of authors try to use the same technique like Fleisher & Bensoussan (2002) used STEEP meant Social, Technological, Economic, Ecological and Political. The PESTEL framework (Political, Economic, Sociocultural, Technological, Environmental and Legal) was done by one group of authors who are Johanson, Whittington, Scholes, Angwin and Regner (2008). The main objectives of PESTEL framework are determining the key drivers of change and identify the threats and opportunities for the organization.

On the other hand, Campbell D. identified the limitations of using the macro-environment which are the complexity and uncertainty. Also, some organizations focus on the key driver of change and neglect the rest of changes. In the future, some of these changes maybe become a major challenge to the organization without its attenuation. To solve those flaws, the organization should concentrate on the ongoing monitoring and develop on the macro-environment to keep grow for a long period.  

Micro-Environment Analysis

Most of the managers think that the competition is just happened with the direct competitors. However, Porter (1980) in his book “How Competitive Forces Shape the Strategy” develop the five key forces framework which determine the competition between the organizations in an industry and the drivers of the profitability and attractiveness. Those forces are the main structure of micro-environment analysis which are the closest forces to an organization and have the highest impact on it. Porter (1980) develop these five forces into two level:

• Vertical-level of forces which are the power of buyers and the power of the suppliers.

• Horizontal-level of forces which are the threat of new entrants, the threat of new substitute and competitive rivalry.

However, the effects of these forces are varying between the industries. Each industry has different configuration for these forces. For example, the airline industry and the soft drink industry. All five forces are unpreferable to use in airline industry while the opposite in soft drink industry all forces are preferable to use (Porter 1979-interview with Harvard Business Review). An organization should always make a continues assessment and developing to its system and check periodically the other forces that may will lead to huge implementations on the company structure in the future. Pehrsson (2002) state the key driver of change in the profitability is the strategy competence.  

After developing the macro and micro-environment analysis, asking important question is very important to the organization which is “What if” in other word “building the scenarios”. Building the scenarios are very essential for the organization to solve the problems of complexity and uncertainty of the external environment (Campbel). Building scenarios depend on the key drivers of change in PESTEL framework and Proter's five forces. Campbel identify the five-important process to build appropriate scenarios for an organization:

• Determine the subject and time needs to implement the scenario.

• Reliance on the PESTEL and Porter's five forces to determine the key driver of change.

• Making the scenarios which is developing a procedure to face the depending on the macro and micro analysis and the key drivers of change. It is not an expectation to the future, but it is like a simulation to some future situations.

• Asking “what if” and try to find strategy for any of these scenarios.

• Making alerting system to determine early the threats on the organization.   

Macro and Micro-Environment: Similarities and Differences

Also, both the macro and micro environment are so important for decision making.

Macro-Environment Analysis

Making brief review to what happened with Saudi Binladin Group (SBG), on 11 September 2015, 107 deaths and more than 200 injuries at the Holy Mosque in Makkah because one of the crane of SBG was fallen-Al Jazeera News Agency. Because of this disaster, Saudi Arabia was pending SBG to take any projects. Also, Saudi's government cancelled the classification and rating of SBG to May 2016- AB news.

There are many factors have influenced on Saudi Binladin Group and led SBG to lose its reputation and a huge number of employees. Some of these factors are external. According to Johnson (2008), the PESTEL framework is one of the techniques uses to determine the external factors that will influence the progress of the work of an organization. The table below shows the political, economic, social, technology, ecological and legal factors that have influenced on SBG planning strategies and led to huge drop for its name in the Saudi's construction market.   

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