Using information to unlock your competitive advantage – Part 2:

How information can be used to respond to macro-environmental ‘factors’ (not forces)

Our last blog used the popular Porter’s Five Forces model of identifying industry competition to identify where (and how) information can be used across organizations to help garner a sustainable competitive advantage. However popular and widely adopted the five force model is, there are some (rather significant) limitations to its effectiveness. These include the inability of Porter’s Five Forces to account for the repercussions of macro-environmental factors on industries and the competitive standing of organizations within it (although Porter does acknowledge the presence of these temporary ‘factors’, not forces).

For those, we need to look to another (equally popular) framework; PESTEL (or PESTLE, STEEPLE, STEPE, DESTEP – we’re not making these up! – or a whole number of other combinations). Thought to have been devised by Harvard professor Francis Aguilar in his 1967 book, “Scanning the Business Environment”, the model began its life simply as PEST, but has since been added to over the years. For the focus of this blog, we will stick with PESTEL:  

P – Political
E – Economic
S – Socio-cultural
T – Technological
E – Environmental (or Ecological)
L – Legal

These macro-environmental factors can have a drastic effect on industries and the businesses within them. While difficult to influence or change, they are critical considerations in directing your strategy towards a sustainable competitive advantage. This is where information is key. Organizations and industry groups don’t often have the means to change these factors, but they can strategically maneuver to dodge or riposte their impacts… if they have the right information. 

In this blog, we’re going to look at some real-world examples of these factors in action, diving into where (and how) accurate, timely and relevant information has been used to successfully address market challenges, to turn threats into opportunities. Firstly, let’s take a closer look at these factors to get some context:


1) Political

Governments, politicians, political parties, local councils, celebrities, are all examples of political factors that can have significant impacts (or potential impacts) on business.

Real-world example In the recent US Presidential Election, both candidates campaigned on very different policy platforms. These policies could have serious consequences for the fortunes of industries, both for good or bad. Take the coal industry for example, with Trump promising to protect the US coal industry and Biden pushing for carbon-neutral power by 2035, the ramifications couldn’t have been more significant for the wider industry. 

2) Economic

Exchange rates, interest rates, business confidence, inflation, deflation, (or the dreaded) stagnation… all can play a notable part in the success of an industry. Do you trade your goods internationally? The smallest fluctuation in exchange rates can affect your margins. How’s your business’s cash flow? Interest rates can quickly influence your ability to access cash.

Real-world example The recent recession brought about by the pandemic resulted in businesses contracting significantly. The reason for this could be a number of factors; business confidence resulting in a tightening of budgets, cash-flow issues due to fluctuating interest rates, but they all primarily stemmed from the uncertainty surrounding the effects of the pandemic.

3) Socio-cultural

What’s cool? What’s not? What’s trending? What’s in fashion? Are flared jeans ‘in’ or ‘out’? These consumer trends have the power to destroy entire industries, or ignite the spark in them almost overnight from nothing – we’re looking at you, fidget spinners.

Real-world example  The global decline in meat consumption and production, brought about by the rise in flexitarians, vegetarianism, veganism, and a general increase in consumer awareness of the effects of excessive meat consumption, can be defined as one such trend.

4) Technological

Technological changes usually have two guises, innovative and disruptive. Both offer opportunities for industries – if managed correctly. An innovative change is one where we, the consumer, probably won’t notice as it won’t significantly affect our daily lives. 

Disruptive changes, on the other hand, are defined as technological innovations that “create a new market and value network and eventually disrupt an existing market and value network, displacing established market-leading firms, products, and alliances”. 

Real-world example  Smartphones. One day smartphones appeared on the scene and accelerated a mobile-app industry now valued at over US $462 Billion. Something similar is currently happening with AI – this new technology that will revolutionize how organizations are… organized. 

5) Environmental

Environmental pressures are two-fold; there are the short-term fluctuations that happen as a result of weather patterns etc. and then more long-term trends, primarily brought about by climate change that will have lasting impacts on industries.

Disruptive changes, on the other hand, are defined as technological innovations that “create a new market and value network and eventually disrupt an existing market and value network, displacing established market-leading firms, products, and alliances”. 

Real-world example  Horticulture and agriculture are two such industries that are subject to the ‘whims’ of mother nature – ‘good years’ and ‘bad years’ are just part and parcel of the business but there is an insidious trend towards extreme weather that could have lasting impacts on how both industries need to innovate for the future. 

6) Legal

Laws and regulations have a varying impact on business, depending on the industry. In some, such as the Pharmaceutical industry, the regulations almost define the market. Whereas in others, like the Media, there are very few regulations or laws on how organizations need to operate (admittedly this is less true in some countries than in others).

Real-world example  GDPR was introduced to ‘rein-in’ personal data abuses and put some structure around how and why a business could ‘process’ the personal information of individuals… living with the European Union. It is a European law, but with serious implications around the world.  


Using information to respond to the factors

At this point, you might be thinking “Wow, this is an interesting article about the difference in macro-environmental factors but what does it have to do with information?” Good question! 

The simple answer is… that although these factors aren’t easily influenced by organizations, nor industries as a whole, with the right information, these risks can be turned into strengths… these threats into opportunities. For example; 

The point is ALL of these innovations and pivots come as a result of the right information being used effectively, trends properly understood, data-driven strategies winning in the boardroom, and blue-ocean / out-of-the-box thinking. Information plays an exponentially important role in this. 

Similarly, organizations that are looking to maintain their competitive advantage and stay ahead in any industry need to be able to determine, predict and respond to market factors that, although out of their control, will affect their entire industry. That’s not possible without the right information workflow infrastructure in place, ensuring key insights aren’t being overlooked or being discovered too late to be of use. But, how do you achieve this in a world of ever-increasing information noise? It’s complex. In the simplest terms you need to be able to:

  1. Cut through the information noise and find the critical insights that will allow you to determine what the true impact of the market forces will be on your organization and your wider industry.
  2. Have the critical information you need available in a timely manner so that you are proactively responding to incoming threats or shifts, rather than reacting too late to changes that have caught you unaware. 
  3. Build an information infrastructure within your organization that gives your teams the ability to share and find the information they need, when they need it, and in a format that meets their workflow priorities.

These are  very surface-level answers, for those looking to find out specific on any of the above three points we recommend you try the following resources from InfoDesk: 


Conclusion

Information, when managed properly, gives organizations an ability to predict, analyze and respond to market forces that are out of their control and potentially turn a disastrous threat into a crowning success. Maintaining a competitive advantage requires just that. Information is the key.