It’s useful to begin by splitting the business environment into two. While the exercise isn’t easily divided into two components the process does allow you; to more easily see the links between the two.
1. How does your food service business function, within the hospitality sector.
2. How does your business operate within the wider business or macro-environment.
The hospitality sector and macro-environment are dynamically interdependent. Changes in the macro-environment (the whole economy) do and will influence the hospitality sector as a whole in turn your current and future competitors.
A useful analysis tool to group related factors within the macro environment is PESTLE an acronym for Political, Economic, Socio-cultural, Technological, Legal and Ecological. STEP is an alternative Analysis tool – based on
Fahey and Narayanan, 1986.
Application of such a tool should reveal opportunities as well as threats for example:
- Britain has a growing an aging population most have a greater disposable income than their children and their parents. Catering for this demographic group might be more profitable.
- UK Government and EU polices such as privatisation, ecological issues, monetary union.
- Global economic effects influence exchange, interest rates, the level of business activity both nationally and regional.
- Technology automating back office activities, communications.
It’s worth noting when using analysis tools there is a danger of data overload.
What’s important to recognise are the possible combined impact of a number of influences?
In other words crystal ball analysis is and can be no more than ‘maybe outcomes’.
Nevertheless if you have an appreciation of the possibilities, you are far less likely to find yourself completely surprised by the unforeseen.
To effectively apply your outward (external) analysis you need to answer questions such as:
- Are we successful, why, how can you be more successful?
- Is our success due to growing market need?
- Will the market continue to develop?
- If growth continues will customers continue to purchase our product service?
- Is affordability a purchasing factor?
- If costs are a deciding factor is it possible to maintain current cost and profit margins?
- What vulnerabilities are you susceptible too with regard to policy and or price?
- How can your product life cycles be extended?
Interactions between PESTLE elements
At first glance the foodservice sector may think environmental and ecological elements have little influence upon the sector. Think again, technological development such as cars burning fossil fuels leads to global warming. Legislation, to tackle global warming leads to energy pricing increases. In turn your costs as suppliers pass on their costs. Consumers concerns over genetically modified foods forces politicians to legislate. Such legislation reduces market supply in turn prices are forced up
Application of PESTLE elements may forewarn you of changes
Most businesses are aware or they should be aware of the main external influences that affect them. Factors such as weather, legislation, local business activity, changes in fashion, technological developments. For example a major local employer plans to close inevitably demand for leisure based business will be affected. If a new tourist attraction opens, this may increase demand for local accommodation, local food services. Perhaps the council plans to restrict parking or introduce meter parking.
There are developments that are less likely to be identified as having impact think back to the introduction of the personal computer to name one. Alternatively the Gulf States nationalising oil, if you can remember 1973 then you have an idea of what could happen.
The point to the exercise is to recognise the reasons for your current success or developments that might take you off course or more positively what opportunities you can take advantage of to build upon your achievements. The most challenging influences to identify are those that appear at first to be absolutely irrelevant yet when combined they constitute a very significant influence. It’s possible no one person or department will be able to combine the factors because of the dynamic interlinking that occurs across many aspects of the organisation.
Summarising the above; simply composing a sanitised list of influences won’t reveal dynamic interlinking influences. There needs to be cross functional cross-departmental interlinking creative forums to examine the potential influences. Models such as Kotler 1980, 4 levels of the environment – Grant’s resources and capabilities and competitive environment models to name just three will help you to uncover macro-environment influences.
Grant, 1991 – RESOURCES AND CAPABILITIES
Resources are inputs into the production process –
They are the basic units of analysis…But, on their own, few resources are productive.
Productive activity requires the co-operation and co-ordination of teams of resources.
A capability is the capacity for a team of resources to perform some task or activity.
While resources are the sources of a firm’s capabilities, capabilities are the main sources of its competitive advantage.