Critical Minerals And Uses Of Precious Metals Environmental Sciences Essay

Today I will supply some background information on which metals are the most built-in to our state ; these metals are widely used in mundane life, in some manner or another, by most Americans. I will besides discourse the beginning and formation of our cherished metals, every bit good as where in the state – and the universe – they are normally found and mined. As with all natural resources, the opportunity of someday running out of these metals is non merely possible, but really likely. I plan to besides discourse solutions to this hereafter job, including the usage of both man-made and naturally-occurring replacements for each type of metal. Cherished metals are considered critical for good ground. They have a broad assortment of applications in industry, engineering, jewellery, and even medical specialty. It is agreed among mineralogists that the most critical minerals which fall under the class of cherished metals are gilded, Ag, and minerals in the Pt metals group: Pt, Pd and Ir. Although the U.S. went off the gilded criterion in 1972 thanks to President Nixon, gold is still normally used in the countries of medical specialty, jewellery, electronics, and industry. The component is lissome and ductile, so it can be transformed into assorted forms and made utile in different facets of industry ; it can even be made so thin that it is about crystalline. Silver, much like gold, besides has an array of utilizations in today ‘s universe. Besides the obvious usage in the jewellery concern, Ag is besides used in dental medicine, medical specialty, electronics – Ag even has a topographic point in the industry of c ertain types of vesture. Platinum group metals, which are known as PGMs, have a broad scope of applications. Platinum is normally used in electronics, catalytic convertors, jewellery, and dental medicine tools. Palladium, which is a comparatively rare metal, is besides used chiefly in catalytic convertors. It is besides used in jewellery, and surgical and dentistry equipment. Iridium besides has many influential applications in scientific discipline and industry ; it lends its belongingss to particle natural philosophies, acetic acid production, and the industry of engines that require corrosion opposition. Beginnings, Uses, and Supply of Gold Beginning and Beginnings of Gold In naturally-occurring sedimentations, gold ( atomic symbol Au ) is found in the signifier of single nuggets ; it is besides found as grains and flakes in certain stones, or as venas. A vena is a mass of crystallised mineral found within a stone, normally formed as a consequence of deposition from after the necessary mineral elements are carried to the topographic point via an aqueous solution and precipitated out of the solution. Alternately, gold can be found in alluvial sedimentations – by and large as nuggets – which are unconsolidated sedimentations of deposit that have been eroded or otherwise shaped by H2O outside of a marine environment. By and large the gold found in ores is really little, but in some exceeding instances, really big nuggets have been found. Gold that occurs together with either vitreous silica or sulphide minerals – such as fool's gold, besides known as â€Å" Fool ‘s Gold † – is called a load sedimentation. Because g old has such a low thaw temperature compared to other metals, it is readily carried by hydrothermal solutions as a consequence of chilling magma, and so solidifies alongside the vitreous silica. One of the best topographic points to happen gold sedimentations is near the invasion of environing stone by a cooled magma organic structure. These lode sedimentations normally form inside clefts ( known as crevices ) within a slab of stone. Gold can besides be recycled from scrap stuff, and 190 dozenss of gold were recovered this manner in 2009 in the U.S. The most common geographic locations for gold excavation worldwide are southeasterly Australia, East Asia, parts of South America and Africa, and parts of the United States. Gold militias are highest in South Africa ( 6,000 dozenss ) , Australia ( 5,800 dozenss ) , and Russia ( 6,000 dozenss ) . Militias are different from mined measures because the gold in militias is held by a cardinal bank of a peculiar state, and used purely for payment to other states or organisations. The U.S. shops about 3,000 dozenss of gold in its pecuniary militias. Along with the Treasury ‘s Stockpile, the Department of Defense runs a Cherished Metallic elements Recovery Program ( PMRP ) , which works to achieve cherished metals for economic intents. Specifically, the DOD recovers cherished metals from metal bearing stuffs such as photographic and X-ray stuff ( from infirmaries, printing installations, exposure labs ) ; metal dust collected from vacuity sweepers ; and scrap/waste metals from industrial workss. The PMRP focuses on the metals discussed in this testimony, every bit good as Os, Rh, and Ru. Harmonizing to the British Geological Survey, as of 2005 the top location for gold excavation was South Africa, with a sum of about 294 dozenss produced. In 2008, the gold excavation industry in South Africa produced 2260 dozenss. But even though much of the universe ‘s gold comes from South Africa and China, there is some to be found in the U.S. The most abundant beginnings of coal in the U.S. are found in mines in South Dakota and Nevada. Uses of Gold The most common usage of gold today is for the industry of jewellery. Gold is besides an ideal industrial metal due to its opposition to corrosion, every bit good as its electrical conduction for usage in machine equipment and electronics parts. Harmonizing to the U.S. Geological Survey ( USGS ) , approximately 90 % of gold brought into the market yearly ends up in manufactured merchandises, while the staying part of it goes to both private investors and pecuniary militias. In 2009, 72 % of mined gold was used for jewellery, 7 % was used for electronics, and 21 % went into dental equipment and other assorted utilizations. Domestic Supply of Gold In January of this twelvemonth, the USGS published a trade good study on gold for the old twelvemonth ( 2009 ) . Harmonizing to this study, gold was retrieved at 50 load mines, every bit good as a few placer mines, all of which are in Alaska. As a side note, the difference between the two types of mines is that a load mine occurs within solid stones ( for illustration, in a vena ) , while a topographic point mine is an alluvial sedimentation – normally of sand or crushed rock – which besides contains of import minerals and metals such as gold. Smaller placer mines in Alaska and a few of the western United States besides yielded gold. A smaller sum of the 2009 gold supply besides came as by-products from Cu excavation operations. In the last few old ages, the purchase of gilded jewellery has decreased well, doing monetary values to increase. Last twelvemonth, gold mines in Nevada showed significant lessening in production, while a mine in Montana and another in Nevada closed, to farther cut down production. In 2009, the mean monetary value of gilded jewellery rose over 20 % higher than the mean monetary value in 2008. Due to recent labour jobs in gilded mines of South Africa, the rubric of top gold manufacturer shifted to China, with Australia and the U.S. following near behind. Although comparatively important sums of gold are mined here in the U.S. , a good part of it comes from these international beginnings. Last twelvemonth, 210 dozenss of gold were mined in the U.S. , and gold militias in the U.S. totaled 3,000 dozenss. Import Beginnings of Gold Although China is presently the universe ‘s top manufacturer of gold, none of our imported gold comes from at that place. Alternatively, the gold import statistics are broken down as follows ( for the old ages 2005-2008, the most recent records from the USGS ) : Canada – 30 % Peru – 29 % Mexico – 16 % Chile – 9 % Other – 16 % Beginnings, Uses, and Supply of Silver Beginning and Beginnings of Silver Silver ( atomic symbol Ag ) , a soft passage metal, of course occurs as an metal with gold ; it is besides found in its native signifier, and in ores along with S and arsenous anhydride. However, the chief beginnings of Ag are really copper, lead, and nickel ores, which are mined in parts of South America, Mexico, China, Australia, and eastern European states such as Serbia and Poland. Mines which produce the highest planetary sums of Ag are located in Mexico, Australia, Russia, Peru, and, here in the U.S. , in Alaska. Silver, like most metals, organize compounds with sulphides inside the Earth ‘s crust. Metal sulfides which have dissolved in hot, piquant H2O within the crust finally precipitate as different minerals when they come into contact with ice chest H2O or air. Silver precipitates as a mixture with these other sulphides, which is how it is finally found at or closer to the Earth ‘s surface. It is usually found as a constituent of hydrothermal venas. Silver occurs natively, and is comparatively pure in this signifier. It besides occurs as ores, such as argenite ( Ag2S ) and chlorargyrite ( AgCl ) , and is recovered as a consequence of the Cu refinement procedure. Uses of Silver Silver is largely used for the intents of jewellery, utensils, industrial equipment, coins and decorations, and picture taking. The USGS notes that Ag has the highest thermal and electric conduction of all the metals. Pure Ag besides exhibits the whitest colour of any metal, every bit good as the highest optical coefficient of reflection. Because it has such powerful optical belongingss, it is used often to do mirrors. The USGS besides notes that the most common single-end usage of Ag is picture taking ; in this country, Ag can be found on photo paper, movie, and in darkroom and exposure lab chemicals used for publishing exposure. However, the demand for Ag in picture taking has declined significantly, from 2,290 dozenss in 1999 to around 900 dozenss in 2009 ; this is likely due to the rapid passage from traditional 35mm picture taking to digital picture taking worldwide. Harmonizing to the USGS, Ag is even used in vesture to decrease olfactory property. Domestic Supply of Silver In a mineral trade good sum-up of 2009 published in January 2010, the USGS provinces that the U.S. mined about 1,230 dozenss of silver- this supply of Ag was deserving about $ 520 million. As with gold, most of the state ‘s Ag comes from Alaska, with Nevada coming in at a close second. Last twelvemonth, 1,500 dozenss of Ag were recovered through refinement, including bit metal. The USGS notes that unlike gold, there is no authorities reserve of Ag. In the 1950s when the authorities reserve of Ag was at its highest, the U.S. Treasury was in ownership of the cheapest Ag, while any silver outside the Treasury significantly rose in monetary value. Since the authorities ‘s Ag was so inexpensive, demand increased steadily until the reserve disappeared wholly. Since Ag is no longer used to do American coins, there merely is no demand for authorities reserve. Aside from the measures of Ag we mine in the U.S. , we besides to a great extent on Ag imports from other states. Import Beginnings of Silver Over half of the Ag used in our today really comes from Mexico, with important sums coming from Canada and South America every bit good. Between 2005 and 2008, the import of Ag into the U.S. can be broken down as follows: Mexico – 54 % Canada – 26 % Peru – 15 % Chile – 3 % Other – 2 % Two-thirdss of the universe ‘s Ag trade goods came from treating Cu, gold and lead-zinc ores in 2009. From 2005-2008, the U.S. exported a sum of 3,850 metric dozenss of Ag to other states. More late, in 2009, we merely exported 360 dozenss to other states. Beginnings, Uses, and Supply of Platinum Beginning and Beginnings of Platinum The three most common and of import members of the Platinum Group Metals are Pt, Pd, and Ir. Platinum ( atomic symbol Pt ) is another malleable passage metal. Platinum is an improbably rare metal, and occurs at a concentration of merely 0.005 parts per million ( ppm ) in the Earth ‘s crust. The celebrated Bushveld Complex in South Africa is the top modesty of Pt in the universe. Harmonizing to the USGS, in 2009 South Africa produced the highest sum of Pt – 80 % of the universe ‘s Pt trade good, to be exact. Russia produced the 2nd highest sum of Pt that twelvemonth, at merely 11 % . Platinum can be found natively or as an metal with Ir. An metal is a solid solution of two or metals, in which the atom of one metal occupies unfastened infinites between the atoms of the other metal. Both Pt and Ir occur in perceptibly greater copiousness at the site of big meteorite impacts. This can be explained by the fact that the Moon and other extraterrestrial organic structures – particularly meteorites – incorporate a much higher copiousness of Pt and Ir than any topographic point on this planet. On Earth, Pt combined with other PGMs are frequently found in alluvial sedimentations. Some little Pt militias located in North America include the Sudbury Basin in Ontario, Canada, and the Absaroka Mountain scope in Montana. Uses of Platinum Platinum is a various metal that is really immune to staining, doing it another metal that is ideally suited for jewellery. It besides has first-class catalytic and electrical belongingss. Platinum has many utilizations in the chemical industry as a accelerator, and is used often in the production of fertilisers and explosives. Platinum even plays a function in the crude oil industry, in the refinement of petroleum oil and the production of gasolene. Harmonizing to the USGS, since 1979, the automotive industry has been the primary user of all PGMs, particularly Pt. PGMs are used often in catalytic convertors to keep acceptable exhaust emanation criterions. Platinum is a common metal used in jewellery industry and watch-making. Domestic Supply of Platinum and Other PGMs The lone two runing PGM mines in the U.S. as of 2009 were the Stillwater and East-Boulder mines in Montana. Combined, these mines produced 3,800 dozenss of Pt, 12,500 dozenss of Pd, and 1,300 dozenss of Ir in 2009. Small sums of PGMs may frequently be recovered from Cu excavation processes ; and, as with most metals, PGMs are recovered and recycled from other bit metal. Approximately 18 dozenss of PGMs were recovered in this mode last twelvemonth. About 900,000 dozenss of PGMs are presently in militias ; this means that they could be extracted for economic intents at a clip of much greater demand. Estimates of militias merely see the stuff that can realistically be recovered. The worsening economic system over the last few old ages has caused a reduced demand in car gross revenues, which in bend has caused less of a demand in PGMs since they are widely used in autos ‘ catalytic convertors. However, as research continues for the usage of fuel cells in autos, the demand for PGMs may increase once more – Pd is an cheap option to platinum in the accelerators of such autos. Import Beginnings of Platinum and Other PGMs The USGS provides a dislocation of imported PGMs from other economically of import states: Platinum: South Africa – 27 % Germany – 17 % U.K. – 12 % Canada – 5 % Other – 39 % Palladium: Russia – 46 % South Africa – 21 % U.K. – 17 % Belgium – 4 % Other – 12 % Beginnings and Uses of Palladium Beginning and Beginnings of Palladium Palladium ( atomic symbol Pd ) is another PGM considered to be a rare component. It is pale Ag in colour, bearing a close resemblance to platinum but with a much lower denseness and runing point. In fact, out of all the PGMs, Pd exhibits both the lowest denseness and runing point. Ore sedimentations of Pd are non common, but like the Pt, Pd has been found in its highest copiousness in the Bushveld Complex of South Africa. In North America, it can be found in the Sudbury Basin in Ontario and the Stillwater Complex in Montana. These â€Å" composites † are known superimposed pyrogenic invasions ( LIIs ) or layered mafic intrustions ( LMIs ) . These abbreviations can be used interchangeably, since â€Å" mafic † is a descriptive term for an pyrogenic stone that is dark in colour and rich in Fe and Mg. LIIs are big, superimposed organic structures of pyrogenic stone found in ancient cratons. A craton is a really old, stable subdivision of the Continental crust. The formation of LMIs requires a big volume of magma over a short period of clip, happening within the Continental crust so that they finally become exposed at the surface due to eroding. Layering of these invasions occurs from alterations in mineralogy and texture. Most LMIs, including the Bushveld Complex and Sudbury Basin, are Precambrian in age. ( The Precambrian encompasses the creative activity of earth 4.6 billion old ages ago to about 542 million old ages ago. Precambrian minerals and stones are the oldest on Earth. ) Uses of Palladium Palladium ‘s chief usage today is in catalytic convertors, due to its really stable electrical belongingss and optimum catalytic belongingss. This metal is used to fabricate medical and dental medicine equipment aircraft flicker stopper, and, like Pt, jewellery and tickers. It makes a good jewellery replacement for white gold and Pt, particularly since its picket Ag colour is natural and it is reasonably hard to state the three metals apart merely by looking at them. Up until comparatively late, Pd ‘s chief usage in the jewellery trade was as an metal to assistance in doing white gold. In the electronic industry, Pd and palladium-silver metals are used to do platings in common electronics. Palladium, every bit good as the other cherished metals, is particularly of import in electronics because of how frequently computing machines are used in merely about every facet of life today – in occupations, research, schools, and places. Metallic elements with superior elect rical belongingss are used to do computing machine french friess implemented in CPUs, cell phones, and iPods, merely to call a few devices most people use day-to-day. Palladium can be one of the by-products of atomic fission, and can be recovered – though non needfully in important sums – from spent atomic fuel. Beginnings and Uses of Iridium Beginning and Beginnings of Iridium Iridium ( atomic symbol Ir ) is the 3rd most familiar and widely-used PGM. Although it is highly rare in the Earth ‘s crust, hint sums can still be found. Iridium is a well-known PGM due to its abnormally high concentration in a bed of clay at the Cretaceous-Tertiary boundary ( normally abbreviated as the K-T boundary ) . As celebrated earlier in my testimony, Ir ( along with Pt ) is found at much higher concentrations in meteorites than anyplace on Earth ; this cognition is one of the cardinal pieces of back uping grounds for a meteorite impact at the terminal of the Cretaceous Period ( about 65 million old ages ago ) , which finally would hold caused the dinosaurs to travel extinct. One of the rarest elements on Earth, Ir occurs at 0.001 ppm in the Earth ‘s crust – whereas in meteorites, the concentration is significantly greater at 0.5 ppm. As with Pt and Pd, the highest concentrations of Ir are found in the Bushveld Complex in South Africa. Very little sums of this metal are found in the U.S. and the remainder of the universe, most notably in impact crater and pyrogenic invasions. Along with its other PGM relations, Ir is often found in Cu and nickel metal. Since all three of these cherished metals portion similar physical and chemical features, it comes as no surprise that they are normally found together and portion similar utilizations in industry and fabrication patterns. Uses of Iridium Iridium is acquired through the excavation processes of Ni and Cu, and is a by-product of the two. As with Pt, Ir is really immune to corrosion and wear, so it finds many utilizations in assorted industries. Iridium by itself is used in direct-ignition engines, where its first-class catalytic belongingss come in utile and let the engines to run decently. Natural Substitutes for Cherished Metallic elements With the possibility of our cherished metals resources going depleted, we are now turning even more towards the usage of naturally-occurring replacements for these peculiar metals. Silver and PGMs make suited replacements for gold, particularly in the industry of jewellery. Harmonizing to the USGS, base metals reinforced by gold metals have excellent usage in electronics. This method is besides used in jewellery, and allows a jewelry maker to sell the merchandise as gold while utilizing less of the metal itself. Stainless steel is a common replacement for Ag. In fact, most mean kitchen utensils are no longer made of Ag ; a speedy hunt for â€Å" silverware † on any common shopping web site will demo that most kitchen utensils are made of unstained steel instead than Ag. In picture taking, many factors now contribute to the cutback of Ag usage, including movie with diminished Ag content and digital picture taking. Aluminum and Rh are normally used to replace Ag in mirrors and other brooding surfaces. Many of the common PGMs frequently substitute for each other. For illustration, some car shapers have begun utilizing Pd in topographic point of Pt – which is more expensive – in catalytic convertors. Additionally, shapers of electronic constituents are cut downing the sum of Pd used by replacing base metals or silver-palladium metals that contain somewhat less Pd. We can surely populate without jewellery, but in such a technology-dominated society, we about can non populate without electronics, particularly computing machines ; and, although it works for some people, it would be unrealistic to believe we can populate without cars. Therefore, it is particularly of import to be cognizant of the supply of, and replacements for, cherished metals, since they are used on a regular basis in these facets of life. Recommendations for Policy Related to Cherished Metallic elements An appraisal of critical minerals conducted by the National Research Council in 2008 offered basic suggestions that can be applied to cherished metals every bit good: Identify critical metals and merchandises made from them that are important to industry and engineering. Address the beginnings of cherished metals and the planetary production/use of their terminal merchandises. Address any geologic, technologic, economic or political restrictions on the handiness of cherished metals. Acknowledge the effects of any breaks in the supply of cherished metals in the economic system and work force. These recommendations serve as a foundation and a starting point for farther research on cherished metal use: how they are acquired, when and why they might run out, the effects of acquisition ( excavation ) and what the U.S. authorities can make to turn to these issues. Our state ‘s metal resources are limited and will finally run out. Unlike fresh H2O, which is easy recycled thanks to H2O renewal workss, the per centum of metals we get from recycling is smaller than the per centum we attain from excavation. Mineral formation is a slow geologic procedure, so the refilling of these resources any clip in the close hereafter is non even an thought to see. Logically, if we mine at a faster gait than that at which the minerals are of course replaced, finally these resources will be depleted. For the clip being, we are able to trust on other states to export cherished metals to the U.S. , but their resources are limited as good. We need to take action to guarantee that we preserve these resources. As I have discussed in this testimony, these cherished metals serve a broad array of intents, and it would be a shame for them to run out in our life-time, which is a possibility. We need to measure how long we have before our resources run out. Government bureaus that deal with mineral issues, such as the U.S. Geological Survey, are responsible for carry oning mineral resource appraisals and mineral-environmental appraisals. These appraisals can help the Bureau of Land Management and U.S. Forest Service to better manage land usage for excavation intents. The Mineral Resource Program ( MRP ) of the USGS is in charge of supplying information and research about the usage and supply of our minerals, including cherished metals. In 2003, the National Research Council ( NRC ) addressed four undertakings of the federal authorities in mineral scientific disciplines: Supply an indifferent beginning of information, accessible to the populace. Conduct general research on mineral resources. Support of minerals-related international activities that benefit the U.S. Advise, when necessary, on minerals use and direction. The MRP besides takes into history the sum of undiscovered metals that are likely located in an country. When an initial study was completed as portion of the MRP, the USGS admitted that it was during a clip of significant passage within the bureau ; this included decrease in staff members, important restructuring of the Geologic Division, decrease in installations, and alterations both in ends and leading – all marks that more updated appraisals of our metal resources need to take topographic point. A new MRP survey should turn to our state ‘s present and long-run metal demands. The precedence for an updated survey should be to supply scientific evidences that would let for informed decision-making as to how much of the state ‘s land should go on to be used for excavation, and how we can run into future metal demands despite low resources in the U.S. Mining minerals and metals has negative impacts on the environment. When metals are mined, important sums of toxins are released into the environment, particularly into the dirt and groundwater. Pollution of dirt and H2O is considered secondary taint, and is damaging to agriculture and works life, every bit good as our imbibing H2O supply. The processing and refinement on metal ores can besides foul the air. In recent old ages, with subjects like planetary clime alteration taking centre phase, environmental impacts of merely about anything should ever be taken into history. Consideration of environmental effects is of import in guaranting that land is non overused for mining even more than it is overused for other patterns such as agribusiness. Furthermore, it would be good to analyze how metal sedimentations behave geochemically when exposed to enduring procedures, every bit good as the environmental effects of these reactions. If this affair contributes at all to the lessening in o ur mineral supply, research on the topic may let us to forestall this lessening. A new MRP survey should sketch possible results of environmental impacts of metal excavation, which should be taken into consideration by the BLM when doing land-use determinations. Additionally, research demands to research the possibility of utilizing man-made ( semisynthetic ) substitutes for these cherished metals. When makers want to be use replacements for a certain metal, they by and large use a different naturally-occurring metal. Since we are at hazard of utilizing up our metal resources, it would be good to develop man-made versions of gold, Ag, and PGMs. These replacements should possess the same desirable qualities, including catalytic and electrical conduction. Another manner to cut back on metals usage is to recycle. Many states, including the U.S. , already used recycled stuff from bit metal, but merely little per centums of metals used today come from recycled beginnings. In 2009, 190 dozenss of gold came from recycled bit metal in the U.S. , compared to 210 dozenss mined. Merely 17,000 kgs ( merely 17 metric dozenss ) of PGMs were recovered from bit metal in the U.S. last twelvemonth, compared to 16,300 dozenss that came from mines. The exclusion is silver: in 2009, 1,500 dozenss of Ag in the U.S. came from recycled stuff, exceling the 1,230 dozenss that were mined. Even though metals are recycled, bureaus like the USGS can rede makers on new ways to retrieve even more material from bit metal. Metal processing workss should besides work to implement new ways of treating natural mined metals so that less of the metals are lost before being refined into the concluding merchandise. Not merely would that scheme be economical, but it would b e much less uneconomical excessively. Development and execution of synthetics, increased recycling, and more efficient metals treating might someday even let the U.S. to halt excavation all together, which in bend would cut down any harmful effects on the environment. The USGS, and any other federal organisations chosen to roll up and form critical minerals informations, should hold more authorization when it comes to policies affecting the recovery and usage of cherished metals. Surveies to better our usage of metals, as outlined above, should have the proper support, and multiple federal bureaus need to work together to spread out basic scientific research, and to advance the usage of new thoughts and engineering to better understand the effects, effects, and benefits of cherished metal use. Decision Cherished metals – specifically gold, Ag, and the platinum-group metals – serve many valuable intents in our economic system and our day-to-day lives. But merely as our oil resources will finally run out, so our cherished metals will someday go depleted every bit good. Until farther surveies are conducted, we will go on to be limited in our apprehension of how rapidly these cherished metal resources will run out. We must besides research any possible major environmental injury that may come from mining these metals, and what, if anything, we can make to extenuate such injury.

Expressionism in Early 20th Century Art

Aspects of all the avian-garden movements contributed to the emergence of expressionism. Expressionism refers to art that is the result of the artist's unique inner or personal vision that often has an emotional dimension. This contrasts with art focused on the visual description of the empirical world. This was a rejection of Renaissance sensibilities that had governed the western art world for the previous 500 years. The term expressionism was popularized in the avian-garden Journal Deer Strum.The editor Hearth Walden proclaimed: â€Å"We call art of this century Expressionism in order to distinguish it from what is not art. We are thoroughly aware that artists of previous centuries also sought expression. Only they did not know how to formulate it. † There are several movements of the 20th century that are classified as expressionist. Some of this expressionist art evokes visceral emotional responses from the viewer, whereas other such artworks rely on the artist introspect ive revelations.Often the expressionists offended viewers and even critics, but the sought empathy – connection between the internal states of artists and viewers – not sympathy. Dada With war as a backdrop, many artists contributed to an artistic and literary movement hat became known as Dada. This movement emerged, in large part, in reaction to an insane spectacle of collective homicide. They were â€Å"utterly revolted by the butchery of the World War. Dada was international in scope beginning in New York and Switzerland and spreading to other areas.Dada was more off mindset or attitude than a singular identifiable style. The Dadaists believed reason and logic had been responsible for the unmitigated disaster of world war, and they concluded that the only route to salvation was through political anarchy, the irrational, and the intuitive. Thus, an element of absurdity is a cornerstone of Dada. Dada is a term unrelated to the movement, choosing the word randomly fro m the dictionary. The word is French for â€Å"hobby horse. It satisfied the Dadaists desire for something irrational and nonsensical The pessimism and disgust of these artists surfaced in their disdain for convention and tradition, characterized by a concerted and sustained attempt to undermine cherished notions and assumptions about art. Although the artist's cynicism and pessimism inspired Dada, what developed was phenomenally influential and powerful. By attacking convention and logic, the Dada artist's unlocked new avenues for creative invention, allowing artists to push boundaries farther than previous movements.Dada was in its submissiveness, extraordinarily avian-garden and very liberating. In addition to disdain, a current of humor and the whimsical, along with irreverence flows through much of the art. This can be seen in Duchess's Mona Lisa, and Francis Pica's, Portrait of Cezanne. The views of the Dadaists mirrored those of Sigmund Freud, Carl Jung, and others. In its e mphasis on the spontaneous and the intuitive, Dada had interest in the exploration of the subconscious that Freud promoted. Images rising out of the subconscious mind had a truth of their own, they believed, independent of conventional vision.Jean Arp (1887-1966) pioneered the use of chance in composing his images. Tiring of the Cubist look in his collages, Arp took sheets of paper, tore them roughly into squares, haphazardly dropped them to a sheet of paper on the floor, and glued them into the resulting arrangement. The rectangular shapes unified the design, which Arp no doubt enhanced by adjusting the random arrangement to a quasi-grid. Even with some altering, chance had introduced an imbalance that seemed to Arp to store to his work a certain mysterious vitality he wanted.Collage Arranged According to the Laws of Chance is a work done using this method. The operations of chance were for Dadaists a crucial part of this kind of improvisation. Chance could restore to a work of art its primeval magic power and find a way back to the immediacy it had lost through contact with Classicism. Rap's reliance on chance when creating his compositions reinforced the anarchy and submissiveness inherent in Dada. The most influential of the Dadaists was Frenchman Marcel Decamp (1887-1968), he central artist in the New York Dada and active in Paris at the end of Dada.In 1913 he exhibited his first â€Å"ready-made† sculptures, which were mass produced common, found objects the artist selected and sometimes â€Å"rectified† by modifying their substance or combining them with another object. Such works, he insisted, were created free from any consideration of either good or bad taste, qualities shaped by a society he and other Dada artists found bankrupt. Perhaps his most outrageous work was Fountain, a porcelain urinal presented on its back and signed â€Å"R. Mute† and dated.The artist's signature was in fact a witty pseudonym derived from the Moot plu mbing company's name and that of the Mute and Jeff comic strip. Decamp did not select the object for exhibition for its aesthetic qualities. The â€Å"artiness† of this work lies in the artist's choice of his object, which has the effect of conferring the status of art on it and forces the viewer to see the object in a new light. Decamp wrote, after Fountain was rejected from an injured show, â€Å"Whether Mr.. Mute with his own hands made the fountain or not has no importance. He chose it.He took an ordinary article of life, placed it so that its useful significance separated under a new title and point of view – created a new thought for that object. Decamp (and the generations of artists after him profoundly influenced by his art and especially his attitude) considered life and art matters of chance and choice freed from the conventions of society and tradition. Within his approach to art and life, each act was individual and unique. Every person's choice of found objects would be different. This philosophy of utter freedom for artists was fundamental to the history of art in the 20th century.Decamp spent much of World War I in New York, inspiring a group of American artists and collectors with his radical rethinking of the role of artists and of the nature of art. Dada spread throughout much of Western Europe, arriving as early as 1917 in Berlin, where it soon took on an activist political edge, particularly in response to the economic, social, and political chaos in the city after World War l. The Berlin artists developed a new intensity for a technique called photometer (pasting parts of many images together into one image).This technique had been in popular and private culture and was used on postcards long before the 20th century. A few years earlier, the Cubists had named the process collage. Unlike Cubist collage, the parts of Dada collage were made almost entirely of â€Å"found† details, such as pieces of magazine photographs, usually combined into deliberately ontological compositions. Collage lent itself well to the Dada desire to use chance when creating art and anti- art. One of the Berlin Dadaists who perfected the photometer technique was Hannah Hoc (1889-1978).Her works not only advanced the absurd illogic of Dada by presenting the viewer with chaotic, contradictory, and satiric compositions, but they also provided scathing and insightful commentary on two of the most dramatic developments during the Whimper Republic (1918-1933) in Germany – the redefinition of women's social roles and the explosive growth of mass print media. In, Cut with the Kitchen Knife Dada through the Last Whimper Beer Belly Cultural Epoch of Germany, Hoc arranged an eclectic mixture of cutout photos in seemingly haphazard fashion.On closer inspection, we see that Hoc carefully placed photographs of some of her fellow Dadaists among images of Marx, Lenin and other revolutionary figures in the lower right. She also pla ced cutout lettering saying â€Å"Die grosser Welt dada† (the great Dada world). She also Juxtaposed the heads of German military leaders on the bodies of exotic dancers, providing a wicked critique of German leaders. A photograph of Hooch's head appears in the lower right hand corner, Juxtaposed with a map of Europe showing the progress of women's enfranchisement.Kurt Schweitzer (1887-1948) worked non-objectively, finding visual poetry in the cast off Junk of modern society and scavenged in trash bins for materials, which he pasted and nailed together into designs such as our example Mere 19. Mere is a word that Schweitzer nonsensically derived from the word Zimmermann (commerce bank), and used as a generic title for a whole series of works. The recycled elements acquire new meanings through their new uses and locations. Elevating objects that are essentially trash to the status of high art fits well with Dada philosophy.The European Effect on American Art: Transatlantic Art istic Dialogue John Singer Sergeant, James McNeil Whistler, and Mary Cast were American arts that spent much of their productive careers in Europe, while many European artists ended their careers in the United States in anticipation and because of World War l. Visionary patrons supported the efforts of American and other artists to pursue modernist ideas. Some of the patrons were matrons or women as opposed to men. Thus there support might be labeled metronome.The art scene in America before significant European Modernist influence was quite varied yet profoundly realist. Many American artists were committed to presenting a realistic, unvarnished look at life, much like the mid-19th century French Realists. One such group has been called The Eight. They were a group of American artists who gravitated to the circle of influential and evangelical artist and teacher Robert Henry (1865-1929). Henry encouraged these artists to make â€Å"pictures from life. † These images depicted the rapidly changing urban landscape of New York City.Because these paintings captured the bleak and seedy aspects of city life, The Eight eventually became known as The Ashcan School and were referred to as â€Å"the apostles of ugliness. † John Sloan (1871-1951) wandered the streets of New York observing human drama. His main focus was on the working class, which he viewed as the embodiment of the realities of life. So immersed was Sloan into his views of the working class, that he joined the Socialist party and ran for office on their ticket. His works often depicted the down trodden, prostitutes, and drunkards.Slogan's depiction of these subjects was not as one who saw these things as immoral and evil, something to be removed, like the reformers of the day, rather, he saw them as victims of an unfair social and economic system. Sixth Avenue and 30th Street (1907), depicts the street corner of this name in New York. We see the elevated train and shops of that area. A drun ken woman in a white dress stumbles toward the viewer as a pair of well dressed ladies or street walkers look on in amusement. This scene is not uplifting nor does it show the well to do. Instead it records the everyday happenings of the working class.Sunday-Women Drying Their Hair (1913), depicts three women on the roof of their tenement taking some time to dry their hair after washing it. George Bellows (1882-1925) Bellows first achieved notice in 1908, when he and other pupils of Robert Henry organized an exhibition of mostly urban studies. While many critics considered these to be crudely painted, others found them audacious and a step beyond the work of his teacher. Bellows taught at the Art Students League of New York in 1909, although he was more interested in pursuing a career as a painter.His fame grew as he contributed to other nationally recognized Juries shows. Bellows' series of paintings portraying amateur boxing matches were arguably his signature contribution to art history. These paintings are characterized by dark atmospheres, through which the bright, roughly lain brushstrokes of the human figures vividly strike with a strong sense of motion and direction. George Lukas (1867-1933) also painted scenes of urban life. He lived what he painted. He was a boxer and had a temper which often landed him in fights. It is perhaps fitting that he died in 1933 as a result of injuries sustained in a bar fight.Huston Street painted in 1917, is an example of Lukas work that demonstrates his loose, roughly painted style. Allen Street painted in 1905, is also demonstrative of Lukas' style. Everett Shin (1876-1953) created paintings which found their subject matter in the slums as well as in middle-class cafe © society and in theatrical activities. His theater scenes were usually done in oil, his slum and lower-class pictures in pastel. Unlike John Sloan, who felt a genuine reformer's commitment to lower-class urban themes, Shin viewed the entire city as a b right, glittering spectacle to savor and to enjoy until the end of his life.His art reflects the influences of Dandier, Edgar Degas, and Jean-Louis Forman. The Armory Show and Its Legacy One of the major vehicles for disseminating information about European Artistic developments in the United States was the Armory Show, which occurred in early 1913. This large scale endeavor got its name from its location, the armory of the New York National Guard's 69th Regiment. It was organized largely by two artists Walt Kuhn and Arthur B. Davies. The Armory Show contained more than 1,600 artworks by European and American artists. Among the European artists represented wereMatisse, Derail, Picasso, Baroque, Decamp, Sandusky, Kerchief, as well as Expressionist sculpture Wilhelm Lumbermen and organic sculpture Constantine Branches. This show exposed American artists and public to the latest in European artistic developments. The Show was immediately controversial. The New York Times described the show as â€Å"pathological,† and other critics demented the exhibition be closed as a menace to public morality. The work that was most maligned was Marcel Duchess's Nude Descending a Staircase. The painting suggests a single figure in motion down a staircase in a time continuum.The work as much in common with the Cubists and Futurists. One critic described the work as â€Å"an explosion at a shingle factory,† and newspaper cartoonists had a field day lampooning the painting. De Still Utopian ideals were also expressed in Holland. De Still was a group of young artists that formed in 1917. It believed that the end of World War I was the birth off new age. The group was co-founded by Piety Mandarin (1872-1944) and Leo Van Dossiers (1883-1931). They felt this time was a balance between individual and universal values, when the machine would assure ease of living.They declared, in their first manifesto, â€Å"There is an old and a new consciousness of the age. The old one is directed toward the individual. The new one is directed toward the universal. † We must realize that life and art are no longer separate domains. That is why the â€Å"idea† of â€Å"art† as an illusion separate from real life must disappear. The word â€Å"Art† no longer meaner anything to us. In its place we demand the construction of our environment in accordance with creative laws based on fixed principle. These laws, following those of economics, mathematics, technique, and sanitation, etc. , are all leading too new, plastic unity.Mandarin felt that his style revealed the underlying eternal structure of existence. This style was based on a single principle. Deities artists reduced their artistic vocabulary to simple geometric elements. After his initial introduction to abstraction, Mandarin was attracted to contemporary theological drawings. Mandarin sought to purge his art of every overt reference to individual objects in the external world. This combination produced a conception of non-objective design he called â€Å"pure plastic art† which he believed expressed universal reality. â€Å"Art is higher than reality and has no direct relation to reality†¦To approach the spiritual in art, one will make as little use as possible of reality, because reality is opposed to the spiritual†¦ We find ourselves in the presence of an abstract art. Art should be above reality, otherwise it would have no value for man. To express his vision, Mandarin eventually limited his formal vocabulary to the three primary colors, the three primary values, and the two primary directions (horizontal and vertical). He concluded that the primary colors and values are the purist colors and therefore the perfect tools to construct harmonious composition.Composition in Red, Blue, and Yellow, is one of many paintings Mandarin created locking color planes into a grid intersecting vertical and horizontal lines. He altered the grid patterns and the size and placement of the color planes to create an internal cohesion and harmony. Mandarin worked to maintain a dynamic tension in his paintings from the size and position of lines, shapes, and colors. The Bauhaus The De Still group influenced other artists through its simplified geometric style, and its notion that art and life are one.In Germany, the architect Walter Groping (1883-1969) developed a vision of â€Å"total architecture†. This concept influenced generations of pupils through the school he directed called the Bauhaus. In 1919, Groping was appointed director of the Whimper School of Arts and Crafts. Under Groping, the school was renamed Dads Statistical Bauhaus (roughly translated as â€Å"State School of Building†) and was referred to as the Bauhaus. Groping' goal was to train artists, architects, and designers to anticipate 20th century needs. The extensive curriculum was based on certain principles.The first staunchly advocated the importance o f strong basic design and craftsmanship as fundamental to good art ND architecture. His belief that there was no essential difference between artist and craftsman, led him to place both a technical instructor and an artist in each department. Second, Groping promoted the unity of art, architecture, and design. To eliminate traditional boundaries that separated art from architecture, and art from craft, the Bauhaus offered a wide range of craft type classes in addition to the more standard courses.Third, Groping emphasized the need to produce graduates who could design progressive environments through the knowledge and need of machine age technologies and materials. This required the artist / craftsman to fully understand industrial and mass production. Groping declared, â€Å"Let us conceive and create the new building of the future, which will emphasize architecture and sculpture and painting in one unity and which will rise one day toward heaven from the hands of millions of work ers like a crystal symbol off new faith. The reference to a unity of workers reveals the undercurrent of socialism present in Germany at the time. One Bauhaus teacher who had a lasting legacy on artists was Josef Labels (1888-1976). He was a German born artist whose greatest contribution to the school as his revision of the basic design course required of all students. He required a systematic and thorough investigation of arts formal qualities; what has been termed the elements and principles of design. Labels investigated arts formal qualities in his own work.In his series, Homage to the Square, painted after he left the Bauhaus, between 1950 and 1976, encapsulates the design concepts he developed while at the Bauhaus. The series consists of hundreds of paintings, most of which were simply color variations on the same composition of concentric squares. The series reflects Labels belief that art originates in â€Å"the discrepancy between physical fact and psychic effect. Because of their consistency in composition, the works succeed in revealing the relativity and instability of color perception.Labels varied the hue (color), saturation (brightness and dullness), and value (lightness or darkness) of each square in the paintings in the series. As a result, the squares from painting to painting appear to vary in size (although they remained the same), and the sensations emanating from the paintings range from clashing dissonance to delicate serenity. Labels demonstration of the reactions of colors to one another â€Å"proved that we see colors almost never unrelated to each other. † Labels ideas about design and color were widely disseminated.In 1925, the Bauhaus moved to Odessa, Germany. Groping designed the building for the Bauhaus as a sort of architectural manifesto. The building consisted of a workshop and class areas, a dining room, theatre, gym, a wing with studio apartments, and an enclosed two story bridge housing administrative offices. Of th e major wings, the most dramatic was the Shop Block. The Nazi's tore down this building, but the main buildings were later constructed. Three stories tall, the Shop Block housed a printing shop and dye works facility, in addition to other work areas.The builder's constructed the skeleton of reinforced concrete but set these supports way back, sheathing the entire structure in glass, creating a streamlined and light effect. This designs' simplicity followed Groupie's dictum that architecture should avoid â€Å"all romantic embellishment and whimsy. † Further, he realized the â€Å"economy in the use of space† articulated in his list of principles in his interior layout of the Shop Block, which consists of large areas of free flowing undivided space. Groping believed such an open classroom approach encouraged interaction and the sharing of ideas.Groping gave students and teachers the task of designing furniture and light fixtures for the building in keeping with the comp rehensive philosophy of the Bauhaus. One memorable furniture design to emerge from the Bauhaus was the tubular steel chair crafted by the Hungarian Marcel Brewer (1902-1981). Brewer was inspired to use tubular steel while riding his bike and studying his handle bars. In keeping with Bauhaus aesthetics, his chairs have a simplified, geometric look, and the leather of cloth purports add to the chairs comfort and functionality.These chairs were also easily mass produced and thus stand as epitomes of the Bauhaus program. This reductive, spare geometric aesthetic served many purposes – artistic, practical, and social. This aesthetic was championed by the Bauhaus and De Still. This simplified artistic vocabulary was accepted because of its association with the avian-garden and progressive though, and it evoked the machine. It could be easily applied to all art forms, from stage design, to architecture, and advertising, and therefore was perfect for mass production.

Organisational Environment

2 2. 1 The General Environment The General Environment 2. 2 Scanning, Monitoring, and Forecasting Changes in the Environment Key Work Strategic decision making under conditions of uncertainty 2. 3 Scenario Planning Key Work Strategic inflection points and their impact on strategy Tools and Techniques Undertaking scenario planning 2. 4 PEST Analysis 2. 5 SWOT Analysis 2. 6 The General and the Competitive Environments Tools and Techniques Writing a PEST analysis ? Main Reference Schoemaker, P. J. H. (1995). Scenario planning: a tool for strategic hinking. Sloan Management Review, 36(2), 25. Learning Objectives After completing this chapter you should be able to: †¢ Define what constitutes the general environment †¢ Evaluate the role of scanning and monitoring in detecting environmental trends †¢ Apply scenario planning to decision making in uncertain environments †¢ Evaluate PEST as a framework for analysing the macro-environment †¢ Explain the use of SWOT anal ysis †¢ Evaluate the relationship between the general and the competitive environment 9780199581610_035_063_CH02. indd 36 2/1/11 11:03:51 AM 7 Introduction 2 In the previous chapter we looked at what strategy is and introduced a number of different perspectives on strategy formulation. We addressed the importance of values in determining why an organization exists, and looked at how an organization’s values, its vision, and its mission guide individuals’ behaviour by signposting what is important to the organization. We explained the importance of an organization being willing to change the assumptions that underpin its theory of the business if it is to adapt to changes in its environment.We also introduced a strategic management process which involves strategy analysis, strategy formulation, and strategy implementation. We noted that this essentially linear approach is useful for exposition but may not always accurately replicate decisions in the business world. With this caveat in mind we can start to evaluate some tools of analysis that can be used for strategy analysis. What happens in the general environment is important to an organization. This is because changes that take place in the general environment may point to trends that can substantially impact upon an organization’s competitive environment.These changes, sometimes called discontinuities, fractures, or tipping points, that fundamentally impact on the competitive environment will be considered in this chapter. The tools of analysis an organization can use to discern changes in its general environment will also be considered. This includes scenario planning, which will be assessed as an aid to organizational decision making in uncertain environments. The benefits and limitations of a PEST framework, which includes political, economic, social, and technological factors, will be addressed.A SWOT analysis and its links with scenario planning and PEST analysis will be brief ly discussed before being taken up in detail in a later chapter. The aim of the chapter is not simply to apply these techniques but, importantly, to understand their limitations. The chapter ends with a discussion of the links between the general and competitive environment. †¢ Section 2. 1 defines the general environment and explains its importance to the competitive environment. †¢ Section 2. evaluates the role of scanning and monitoring the general environment to try to discern discontinuities that have the potential to disrupt an organization’s competitive environment. †¢ In Section 2. 3 we assess the role of scenario planning in helping organizations to deal with uncertainty in their environment. This section also includes how to undertake scenario planning. †¢ Section 2. 4 evaluates PEST analysis as a tool for analysing the macro-environment. It shows how an organization can detect and monitor weak signals in the hope of recognizing the discontinuiti es or trends that shape the environment. †¢ In Section 2. we explain the use of SWOT analysis with reference to the general and competitive environment. †¢ The chapter concludes in Section 2. 6 with an evaluation of the relationship between the general and competitive environments. 9780199581610_035_063_CH02. indd 37 2/1/11 11:03:52 AM 38 part 2 Strategic Analysis 2. 1 The General Environment 2 The external environment facing the organization consists of both a general environment and a competitive environment. The competitive environment consists of the industry and markets in which an organization competes. The competitive environment is analysed in detail in Chapter 3.The general environment, in contrast, is often referred to as the macro-environment. This is because changes that occur here will have an effect that transcends firms and specific industries. Figure 2. 1 shows the relationship between the general environment, the competitive environment, and the organizati on. It should be noted that, other things being equal, it is the competitive environment that has the most direct and immediate impact on the organization. The General Environment Political Economic The Competitive Environment Potential Entrants Power of Buyers The Organization Power of Suppliers Competitive RivalrySubstitute Products/Services Social Technological figure 2. 1 The organization and its external environment That said, organizations must continually scan and monitor their general environment for signals, often weak or barely perceptible, which might indicate a change in their competitive environment. For example, firms in the industry that produced typewriters would have been unwise not to scan the general environment for signs of change, in this case technological change. The advent of micro-technologies was a 9780199581610_035_063_CH02. indd 9780199581610_035_063_CH02. indd 38 2/1/11 11:03:52 AM the general environment 2 lear threat to the typewriter industry, usherin g in as it did the era of the word processor. It is easy to forget that individuals who relied upon the use of the typewriter were initially sceptical about learning how to use the new technology. Nowadays one is hard pushed to see typewriters in use. In order to scan and monitor their environment, firms require tools of analysis or models that will allow them to factor in the changes in the general environment and evaluate their impact. One such approach involves scanning the environment to detect signals that will act as a signpost for future changes in the organization’s industry.In addition, an organization must monitor its environment to discern patterns and trends that are beginning to form and try to forecast the future direction of these trends. Ginter and Duncan (1990) argue that macro-environmental analysis can act as an early-warning system by giving organizations time to anticipate opportunities and threats and develop appropriate responses. Therefore, the aim of macro-environmental analysis is to aid the organization in discerning trends in the general environment which might impact upon its industry and markets.The organization is then able to formulate a strategy and use its internal resources and capabilities to position itself to exploit opportunities as they arise. At the same time the strategy will be acting to mitigate the effects of any threats. However, as we shall see in Chapter 3, there is a belief that the pace of change in the macro-environment is increasing, and is becoming more turbulent and unpredictable. This uncertainty effectively shortens the lead time an organization has to anticipate and respond to changes in its environment. 39 2. Scanning, Monitoring, and Forecasting Changes in the Environment The purpose of scanning and monitoring the general environment is to try to discern changes, however small, that have the potential to disrupt an organization’s competitive environment. Once these changes are discerned, it is up to the organization to monitor them and see if they might become a trend that can affect its industry. Clearly, experience and intuition will be involved in trying to forecast where these changes will eventually manifest themselves, or indeed if they will have any impact at all.We look at scanning, monitoring, and forecasting changes in the general environment below. 2. 2. 1 Scanning the Environment It is often said that there are two certainties in life: death and taxes. However, a third certainty can be added: change. If the external environment facing organizations was 9780199581610_035_063_CH02. indd 9780199581610_035_063_CH02. indd 39 2/1/11 11:03:52 AM 2 40 discontinuities threats faced by organizations that have the potential to undermine the way they do business weak signals barely perceptible changes in the external environment whose impact has yet to be felt 780199581610_035_063_CH02. indd 40 part 2 Strategic Analysis stable and simple to understand, then firms wo uld be faced with an enviable situation of having relatively little change or, if change occurs, it would be easy to forecast based on historic trends. Some commodity markets exhibit a relative degree of stability, making predictions or extrapolations based on past data quite reliable. However, most environmental conditions facing organizations are complex, uncertain, and prone to change. They are complex because of the sheer volume of data that exists in the environment.Therefore any analytical tool or framework can only extract and simplify a tiny proportion of this data. At the same time, any given source of data, for example economic data on the well-being of the economy, is ambiguous as it can be interpreted in a number of different ways. If past performance is no guarantee of what will occur in the future because of uneven changes and discontinuities then attempts at forecasting the future are fraught with uncertainty. Discontinuities refer to the threats faced by organization s and industries that have the potential to undermine the way they do business.We have already mentioned the typewriter industry; other examples include Amazon. com and Dell, which have both taken advantage of the Internet to change the way established products are customized and delivered to end consumers. Fahey and Narayanan (1986, quoted by Mercer 1998) suggest three goals for an analysis of the general environment. First, the analysis should provide an understanding of current and potential changes taking place in the environment. Second, it should provide important intelligence for strategic decision makers.Third, environmental analysis should facilitate and foster strategic thinking in organizations. For Fahey and Narayanan, scanning may reveal ‘actual or imminent environmental change because it explicitly focuses on areas that the organization may have previously neglected’ (see Mercer 1998). Scanning the environment as a general activity has been made far more c ost effective with the advent of the Internet. Prior to the Internet, the view was that scanning was a costly activity which could only take account of a fraction of the information that existed in an organization’s environment.By redefining search costs, the Internet has changed the economics of undertaking scanning. At the same time it has provided an opportunity to access a wealth of data which requires time and effort to structure properly. Scanning, therefore, is an opportunity for the organization to detect weak signals in the general environment before these have coalesced into a discernible pattern which might affect its competitive environment. Weak signals refer to minor changes in the external environment that an organization’s scanning of the environment may barely register. This is because their impact has yet to be felt.The key for organizations is to be able to read these signals correctly and monitor them until they coalesce into a more clearly discerni ble pattern. However, there are errors that can follow when looking for patterns. The first is that the organization may fail to identify these signals. The second is that the organization may discern a pattern that is not there but is based on the assumptions and mental models that managers carry in their heads. We saw in Chapter 1 how senior management’s reliance on its existing theory of the business can affect the success of the organization by blindsiding them to changes /1/11 11:03:52 AM the general environment 41 taking place in the environment. Ansoff (1984) makes the point that the detection of weak signals requires senior management commitment and sensitivity on the part of the observers. This means that the organization must be diligent in continually scanning its macro-environment for weak signals. When it believes that it has discerned something significant occurring in its general environment, this broad scanning can turn into a more focused monitoring. 2 2. 2. 2 Monitoring the EnvironmentWhile scanning the environment may make organizations aware of weak signals, unless these are carefully monitored the resulting patterns will be missed. Monitoring can be seen as the activity that follows these initially disparate signals and tracks them as they grow into more clearly discernible patterns. Monitoring allows an organization to see how these general environment trends will impact on its competitive environment. Whereas scanning is a more broad-brush approach, monitoring uses a finer brush stroke.However, the two are inseparable, since without an identification of weak signals in the general environment there is no focus for an organization’s monitoring activities. One way in which an organization might monitor weak signals is to set thresholds such that any activity which occurs above the threshold will be monitored. This might include, for example, when an interest is shown by a major competitor in a particular social or technologic al change. This interest then becomes the threshold at which the organization itself starts to take an interest. 2. 2. 3 Forecasting Changes in the EnvironmentThe purpose of scanning and monitoring the general environment is to aid the organization in developing viable forecasts of future trends before they become an unmitigated threat. This is particularly useful when dealing with discontinuities which themselves will usually evolve from weak signals that exist in the environment. The objective is to use this information to develop robust strategies that ensure a degree of competitive advantage. Van der Heijden (1996) identifies three main types of uncertainty. 1. Risks. This is where past performance of similar events allows us to estimate the probabilities of future outcomes. . Structural uncertainties. This is where an event is unique enough not to offer evidence of such probabilities. 3. Unknowables. This is where we cannot even imagine the event. Most managers are capable of d ealing with the type of uncertainty that appears in the form of risks. Also, what is unknowable cannot, by definition, be forecast and 9780199581610_035_063_CH02. indd 9780199581610_035_063_CH02. indd 41 2/1/11 11:03:52 AM 42 structural uncertainties where no probable pattern of outcomes can be derived from previous experience part 2 Strategic Analysis herefore the organization must wait for the event to occur before it can react to it. This leaves structural uncertainties where no probable pattern of outcomes can be derived from previous experience. In such a situation, van der Heijden suggests scenario planning as a useful tool of analysis to help the organization make sense of an uncertain and dynamic environment that has little in the way of clear road maps. 2 For information on strategic decision making under conditions of uncertainty go to the Online Resource Centre and see the Key Work feature. www. oxfordtextbooks. co. uk/orc/henry2e/ . 3 Scenario Planning Schoemaker (1995) states that ‘scenario planning is a disciplined method for imagining possible futures’. It is ‘an internally consistent view of what the future might turn out to be’ (Porter 1985, p. 446). The oil multinational Royal Dutch Shell has used scenario planning since the 1970s to help it generate and evaluate its strategic options. Scenario planning has given Shell a better success rate in its oil forecasts than its competitors, and it was the first oil company to see overcapacity in the tanker business and Europe’s petrochemicals (Schoemaker 1995).Kahane (1992) reminds us that: In the oil industry, experts have sometimes been able to suggest, but rarely to predict, the key turning points in crude oil prices . . . The Shell approach to strategic planning is, instead of forecasts, to use scenarios, a set of stories about alternative futures. scenario a challenging, plausible, and internally consistent view of what the future might turn out to be tipping poi nt an unexpected and unpredictable event that has a major impact on an organization’s environment 9780199581610_035_063_CH02. ndd 42 These stories promote a discussion of possibilities beyond the most likely one and encourage the organization to consider ‘what if’ questions. Therefore, a scenario can be seen as a challenging, plausible, and internally consistent view of what the future might turn out to be. They are not forecasts in the sense that one is able to extrapolate using past data. However, they do deal with the future and provide a tool of analysis for the organization to structure the surfeit of information that is contained in the present.In particular, scenarios help organizations recognize the weak signals that signpost changes in its environment. It is these weak signals which precede environmental discontinuities, fractures, or strategic inflection points that help shape the competitive environment (Morgan 1988; Grove 1996). If an organization is to remain proactive in its competitive environment it must not allow the rules of the game to be changed to its detriment, that is, it must be capable of dealing with a tipping point (Gladwell 2000), an unexpected and unpredictable event that has a major impact on an organization’s environment. /1/11 11:03:53 AM the general environment 43 For a discussion of strategic inflection points and their impact on strategy go to the Online Resource Centre and see the Key Work feature. www. oxfordtextbooks. co. uk/orc/henry2e/ 2 Strategic decisions are almost always fraught with ambiguity and uncertainty which create complexity for decision makers. As human beings we are subject to biases and imperfect reasoning about uncertainty, that is, as individuals we will tend to misread events that are unlikely and either ignore or overemphasize unlikely but significant events.In an attempt to resolve these shortcomings, most companies will use some form of discounted cash flow coupled with sen sitivity analysis when analysing risky strategic decisions (Gertner 2000). The problem with these quantitative approaches is that they imbue the decision making with a false sense of objectivity and can be misleading. For example, sensitivity analysis is seen as overly simplistic in that by varying one parameter at a time it fails to incorporate any links or correlations between them.Scenario planning is an approach to decision making under conditions of uncertainty that helps to overcome many of the shortcomings of traditional decisionmaking methods; that is, scenario planning allows organizations to change several variables at the same time without keeping other variables constant. Crucially, scenario planning helps to overcome some of the biases and imperfect reasoning that human beings make under conditions of uncertainty. Scenarios are a tool of analysis to help improve the decision-making process set against the background of a number of possible future environments.They benef it the organization by readily helping managers think in a more systematic way. This allows individuals to more readily recognize change in their business environment instead of ignoring or rejecting it. Van der Heijden (1996), a former head of scenario planning at Shell, states that the benefits of scenario planning for Shell have been: †¢ More robust strategic decisions. †¢ Better thinking about the future by a ‘stretching mental model’. †¢ Enhancing corporate perception and recognizing events as a pattern (the recognition and monitoring of weak signals until they coalesce into a pattern is clearly important here). Improving communication throughout the company by providing a context for decisions. †¢ A means to provide leadership to the organization. The process of scenario planning should have the objective of positively influencing the strategy of the organization. This requires that the scenarios devised should stretch the imagination of manage ment while also remaining plausible. In order to achieve this, organizations must be prepared to invest resources in educating managers to help them make the best use of scenarios.They need to recognize that developing scenarios takes time and is most effective when managers from different 9780199581610_035_063_CH02. indd 9780199581610_035_063_CH02. indd 43 2/1/11 11:03:53 AM 44 part 2 Strategic Analysis 2 parts of the business interact. By constructing multiple scenarios, an organization can explore the consequences of uncertainty for its choice of strategies. Furthermore, an organization can formulate strategies knowing that the assumptions on which it competes, what Drucker (1995) refers to as its theory of the business, are surfaced and adequately assessed. See Case Study: Novacroft which highlights some of the difficulties of taking account of a changing environment). case study 2. 1 Novacroft—Dealing with change Over the past five years Novacroft, which designs, develop s and manages smartcards for travel and leisure-service providers, such as Transport for London, has enjoyed strong demand thanks to policies promoting public transport and Oyster-style integrated ticketing systems. But proposed public spending cuts and tough trading conditions in the travel industry make future investments more doubtful, according to Novacroft’s managing director Debra Charles. Our market should be both emerging and growing, but there are economic barriers,’ she admits. ‘Organisations, especially in the public sector, have to make savings. Our competitors are financially stretched so they are selling cheap. We must innovate to find new clients as well as saving our existing customers money. ’ Charles, who has a background in both technology and marketing, launched Novacroft in 1998 with money inherited from her parents. As the company’s name suggests, she was inspired to start a firm that would use the web to develop new ways of wo rking. I thought it would be great to create a transparent online database so that organisations could see what was happening with their money and their clients,’ she remembers. Now, the Northampton-based firm manages more than 1m customer records for clients that issue pre-paid travel tickets and other smart cards. Staff verify and process paper or online applications before loading the information onto a chip, producing plastic cards, processing payments and providing a help centre that answers cardholders’ queries. Novacroft can also analyse records ranging from call notes to scanned documents to help clients understand their customers’ habits.One of Novacroft’s highest profile contracts is to manage the concessionary Oyster cards for students, children and 16- and 17-year olds on behalf of Transport for London. As well as checking that applicants have given correct information about their age, address and place of education, the company’s helpl ine deals with questions such as how to replace lost or stolen cards. The company also manages concessionary travel cards on behalf of the Scottish government and handles online applications for Young Persons, Family and Senior Railcards for the Association of Train Operating Companies. 780199581610_035_063_CH02. indd 44 2/1/11 11:03:53 AM the general environment 2 ‘In the past, clients might have used several different firms to produce cards, provide databases and integrate systems, but we have all that under one roof,’ explains Charles, whose chief rivals are major systems integrators such as Accenture and Logica. ‘We have been successful in getting big companies on board through the tender process because we have invested in hiring and training the right people and really thinking about what the customer needs. We even self-impose penalty clauses. ’As a result, Novacroft made a substantial profit last year on a turnover of ? 6m, up from ? 4. 9m in 2007. The company has 96 employees, which rises to approximately 200 when extra staff are brought in to the call centre during the busy start to the academic year. Finding new clients by maximizing the range and quality of service is a key challenge for Novacroft. As Charles points out, in the aftermath of the bank bail-outs, pledges such as transport secretary Lord Adonis’s promise to consider incentives for train operating companies that introduce smart ticketing look far from secure. Can we really assume that these statements are facts or that money is ringfenced? ’ she says. ‘The real certainty is that the government and train operating companies have to save money. ’ In recent months Novacroft has worked on scenario planning to consider how the company might react to changing demand. The company prides itself on a ‘foxy’ approach to market conditions, moving nimbly and using all its available tools to tackle future trends. ‘We spent 14 ho urs in a hotel room thinking about what we know, what we don’t know and studying the rules of the game and our competition. Understandably, Charles is reluctant to reveal her conclusions, but she is very confident that the exercise was worthwhile. ‘We have created a massive opportunity that’s totally outside what our competitors are thinking about. ’ Some diversification into products such as money cards is likely, while building databases that clients can outsource to India is another possibility. Improving efficiency to keep prices competitive for cash-strapped public sector organisations is another priority. Since March, Charles has introduced a series of lean management techniques that have cut osts by more than ? 80,000 while maintaining service standards. For example, a study of customer service queries revealed that the number of calls processed by the help centre could be cut by improving online information. The company is also reaping the benefits of investing around ? 40,000 in staff leadership training over the past three months, she says. Charles believes that, despite the slowdown, Novacroft could achieve a turnover of up to ? 20m within the next five years. ‘We stand for innovation, service delivery and value for money—and that’s always attractive. ’ 45Source: ‘Smart ticketing business Novacroft is looking to play its cards right’ Daily Telegraph, 14 August 2009 9780199581610_035_063_CH02. indd 45 2/1/11 11:03:53 AM 46 part 2 Strategic Analysis Questions 1. In what ways might scenario planning help Novacroft to remain competitive? 2. What remedies might Novacroft pursue to reduce its reliance on public sector finance? 2 3. Comment on Debra Charles’s confidence in Novacroft’s business model. 2. 3. 1 Undertaking Scenario Planning1 Scenario planning is relevant to almost any situation in which a decision maker needs to understand how the future of his or her industry or strategic usiness unit might develop. It divides our knowledge into two areas: (1) things we think we know something about, and (2) things we consider uncertain or unknowable. The first area is based on the past and continuity. For example, an organization can make fairly safe assumptions about the direction of a country’s demographic profile. The uncertain elements include such things as future oil prices, interest rates, and the outcomes of political elections. Even here it is not necessary to account for every possible outcome, since simplifying the outcome is fine for scenario planning.Therefore, an organization might simply categorize future interest rates as high, medium, or low, rather than trying to work out every possible permutation. Also, as scenarios highlight possible futures but not specific strategy formulations, outside opinions such as those of consultants can be included in the process. A process for developing scenarios is as follows. 1. Define the scope. This involves setting the time frame and the scope of analysis. The time frame can be determined by factors such as product life cycles and rate of technological change. The scope of analysis may include products, markets, and geographical areas.Once the time frame is set, the question becomes: What knowledge would the organization benefit most from in that timescale? 2. Identify the major stakeholders. Those who can affect and are affected by the organization’s decisions. The organization needs to know their current levels of interests and power, and how these have changed over time. 3. Identify basic trends. Which political, economic, social, technological, and industry factors will have the most impact on the issues identified in Step 1? The impact of these trends on current strategy can be listed as positive, negative, or uncertain. . Identify key uncertainties. Which events that have an uncertain outcome will most affect the issues the organization is concerned with? Her e again the 9780199581610_035_063_CH02. indd 46 2/1/11 11:03:53 AM the general environment 47 organization might consider political, economic, social, and technological factors, in addition to industry factors. For example, what will characterize future consumer trends? An organization should develop possible outcomes for each of these uncertainties. These should be limited to keep the analysis simple. 2 5. Construct initial scenario themes.Once trends and uncertainties are developed, the organization has the basic building blocks for scenario planning. It can then identify extreme world views by juxtaposing all positive elements in one scenario and the negative elements in another broad scenario. 6. Check for consistency and plausibility. This involves checking to see if the trends identified are compatible with the chosen time frame. If they are not, then remove all the trends that do not fit the time frame. Do the scenarios combine outcomes of uncertainty that actually go togethe r?In other words, ensure that inconsistent outcomes are not put in a scenario, such as having full employment and zero inflation together. Lastly, have major stakeholders been placed in a position they will not tolerate or cannot change? In this case, the scenario described will probably change into another one. The key then is to identify this ultimate scenario. 7. Develop learning scenarios. Here the role is to develop relevant themes for the organization around which possible outcomes and trends can be organized. The scenarios can be given a name or title to reflect that they tell a story.This also helps individuals to remember the scenarios. At this stage the scenarios are useful for research and further learning within the organization rather than decision making. 8. Identify research needs. At this stage, further research may be required to understand uncertainties and trends more fully. This is because organizations are knowledgeable about their own competitive environment bu t less knowledgeable about other industries. Therefore, the organization may need to study changes, in technology for instance, which have yet to impact its industry but may ultimately do so. . Develop quantitative models. Once further research has been gained, the organization may wish to revisit the internal consistency of the scenarios and decide whether it might benefit from formalizing some interactions in a quantitative model. 10. Evolve towards decision scenarios. The ultimate aim of this process is to move the organization towards scenarios that can be used to test its strategy formulation and help it generate new ideas. At this point it is helpful to double check Steps 1–8 to see if the scenarios take account of the issues facing the organization.If the scenarios are useful to the organization, they might have the following characteristics: (1) they address the concerns of individuals in the organization; (2) the scenarios are internally consistent; (3) they describe fundamentally different futures 9780199581610_035_063_CH02. indd 9780199581610_035_063_CH02. indd 47 2/1/11 11:03:54 AM 48 part 2 Strategic Analysis 2 as opposed to being variations on a particular theme; and (4) each scenario describes an equilibrium state that can exist for a considerable period of time as opposed to being merely short-lived.In summary: scenario planning attempts to capture the richness and range of possibilities, stimulating decision makers to consider changes they would otherwise ignore . . . organizing . . . into narratives that are easier to grasp and use than great volumes of data. Above all . . . scenarios are aimed at challenging the prevailing mind-set. (Schoemaker 1995, p. 27) It is perhaps worth reiterating that scenarios are not intended to predict the future. They are designed to help managers deal with a highly uncertain and dynamic environment.They may be aimed at the general or competitive environment (for a discussion of why scenario analysis shou ld be applied at the industry level see Porter (1985)). Porter, whilst recognizing the value of multiple scenarios for an organization’s choice of strategy when considering scenario planning at the macro-level, argues, ‘Macroscenarios, despite their relevance, are too general to be sufficient for developing strategy in a particular industry’ (Porter 1985, p. 447). Whether this statement is accepted may depend more on the industry being addressed rather than scenario planning per se.Scenarios encourage management to ‘think the unthinkable’, to question and surface assumptions they hold about the environment, and to be prepared to view events from a radically different perspective. Scenarios are a tool of analysis that examines the impact of uncertainty on organizations and industries by explicitly identifying some of the key uncertainties—the scenario variables. For scenarios to be effective, they must encourage the creation of robust strategie s that match the organization’s limited resources with the endless challenges in the external environment.To do this, scenario planning must ensure that as many as possible of the long-term opportunities and threats facing the organization are identified and addressed. For more information on how to undertake scenario planning go to the Online Resource Centre and see the Tools and Techniques feature. www. oxfordtextbooks. co. uk/orc/henry2e/ 2. 4 PEST Analysis A useful tool when scanning the general environment is PEST analysis. This refers to political, economic, social, and technological factors. It is worth noting that some commentators include legal and environmental factors separately, preferring to extend the acronym to PESTLE.However, the legal element of the acronym can be 9780199581610_035_063_CH02. indd 48 2/1/11 11:03:54 AM the general environment 2 subsumed within the political factor. In addition, the use of the last E (which refers to environmental factors) is o ften meant to signify the effects of our lifestyles on our environment, such as the use of fossil fuels and their impact upon climate change. In this respect it can be captured within the ‘social’ factor, or indeed within all four factors in one form or another.Therefore, it is not important whether we use PEST (or STEP) or PESTLE, but to understand how this framework can be used and to be aware of its limitations. As long as the choice of acronym is clearly defined we have a consistent approach. What will PEST do for the organization? PEST analysis is simply another tool to help the organization detect and monitor those weak signals in the hope of recognizing the discontinuities or fractures shaping the environment. PEST analysis can be used to help detect trends in the external environment that will ultimately find their way into the competitive environment.It provides a link between the general and competitive environments in that weak signals in the general environm ent can become key forces for change in the competitive environment. Although we will deal with each factor in turn, it should be noted that interrelationships between the factors exist. For example, a social trend of healthier eating and consumers’ increasing distaste for factory farming (the crowding of animals and fowl in confined spaces prior to their sale for human consumption) may signal to supermarkets a change in consumer behaviour and spending patterns. 9 2. 4. 1 Political Factors The political factor of PEST deals with the effects of government policy. Inasmuch as government policy is worked out through legislation, it encompasses all legal elements of this analysis. This includes items such as government stability, taxation policy, and government regulation. Government stability is not a major issue in Western economies. However, where multinational corporations operate across international borders, the stability of governments and political systems in those countr ies needs to be taken into account.These corporations need to be assured that there will not be any sudden and detrimental changes that might jeopardize the substantial investments they will have made. The safety of their personnel operating in these countries will be paramount, as will the existence of an infrastructure which allows the efficient transfer of goods and services as well as financial assets. For instance, a government policy of deregulation or privatization has the effect of opening up markets to competition.Previously comfortable industries feel the chill wind of change, and organizations within the industry are forced to innovate and cut costs to remain competitive. This is because new entrants will often enter a market with lower cost curves and more innovative products and services owing to a better use of technology and a clearer understanding of consumer needs. To avoid being surprised, companies need to be scanning their environment for signs of change in gover nment policy which might impact on their industry. 9780199581610_035_063_CH02. indd 49 2/1/11 11:03:54 AM 2 50 corporate social responsibility ecognition that organizations need to take account of the social and ethical impact of their business decisions on the wider environment in which they compete part 2 Strategic Analysis An air or sea disaster which costs human lives may prompt tighter government regulations in the areas of health and safety, particularly where an investigation shows that the disaster could have been avoided. Companies operating within these industries should not be waiting to react to the outcome but should have worked out the ramifications of government involvement and be positioning themselves to take advantage of government regulation.The reduction in carbon dioxide emissions and new fuel consumption standards for cars came about as a result of intergovernmental regulations. This, in turn, was a result of widespread concern by consumers and environmental gr oups about climate change due to increased levels of ‘greenhouse gases’ in the atmosphere. This highlights the links between social trends and political change. Government regulation need not be something for companies to fear.Porter and van der Linde (1995) point out that environmental regulations, such as reducing pollution, may act to spur competitive companies on to innovate and reduce costs to counter the increased costs of regulation. While the US car makers fought new fuel consumption standards in the vain hope that they would go away, the Japanese and German car makers developed lighter and more fuel-efficient cars. The companies that reap the competitive benefits will be the early movers: ‘the companies that see the opportunity first and embrace innovation-based solutions’ (Porter and van der Linde 1995).To do this, managers need to develop a new mindset which recognizes environmental improvement as a competitive opportunity rather than a threat. T here is evidence across the Anglo-American economies of the UK and the US that some organizations are beginning to recognize that good business can involve corporate social responsibility (CSR). For example, the world’s leading media company, Time Warner, produced its first comprehensive report on its corporate social responsibility activities in 2006. It states: Corporate social responsibility is not an afterthought at our company. It is central to what we do.That’s because Time Warner cannot be a great company unless we are a good company . . . It’s simply good business to do so. (Time Warner 2006) In the US the Sarbanes–Oxley Act 2002 resulted from the corporate collapse of Enron, WorldCom, and Tyco. There was widespread concern that boardroom executives (including non-executives) and the accountancy profession had failed to safeguard shareholders’ interest, and in the case of Enron had actively operated to pervert that interest. Internal audito rs were seen as ineffectual and often completely unaware of what powerful executives were doing.This legislation can work to the advantage of companies that are proactive in their response to it. For example, shareholders will be more confident in investing in a company which can show that it already has stringent ethical guidelines in place and that any breach of those guidelines will be taken seriously. The Building Society Act 1986 allowed building societies in the UK to offer current accounts and financial services that were previously the preserve of banks. This had 9780199581610_035_063_CH02. indd 50 2/1/11 11:03:54 AM the general environment 51 ar-reaching effects on the financial services sector, intensifying competition for customers and leading to consolidation within the industry. A player within the industry would have been wise to conduct some form of PEST analysis in order to determine the effects of these politically driven changes within the industry and on their org anization. 2. 4. 2 Economic Factors 2 Key economic indicators include interest rates, disposable income, unemployment rates, retail price index (inflation), gross domestic product (GDP), and exchange rates. However, economic data can be notoriously fickle and ambiguous.In addition, an economic indicator can never provide a complete picture (even of the subset of data it purports to track), but rather provides a snapshot and simplification of complex economic phenomena. This makes scanning and monitoring the general environment for signs of economic shifts which might impact an organization’s industry a little difficult. The strengthening of an economy will generally benefit industries, but the extent of its effect will vary according to which economic factors are most affected. For example, the construction industry and manufacturing are most susceptible to increases in the rate of interest.Manufacturing organizations which export goods abroad will be scanning the general env ironment for signs of an appreciation in exchange rates, the effect of which will be to make it harder for them to sell their goods abroad but relatively easier for importers to sell their goods in the domestic market. In order to remain competitive, manufacturers exporting abroad will need to make efficiency gains and innovate so that they can offset the unfavourable exchange rate with a reduction in price or increase in quality. strategy focus PEST Analysis— The Construction IndustryThe construction industry worldwide is renowned for operating on narrow profit margins. Any sudden and prolonged rises in interest rates can have a profound effect on industry profitability. The key for players in this industry is to borrow funds at an interest rate which allows building projects to be completed successfully, on budget, and on time. Where there is slippage of large-scale construction projects, as was seen with the Channel Tunnel, this immediately brings into doubt their financia l viability. Any delay inevitably increases the final project cost.Investors will be acutely aware that their investment in a project has an opportunity cost, that is, their money might be better invested elsewhere. If interest rates begin to climb this 9780199581610_035_063_CH02. indd 9780199581610_035_063_CH02. indd 51 2/1/11 11:03:54 AM part 2 Strategic Analysis Construction firms already scanning and monitoring their environment can anticipate economic trends and prepare for them.  © iStockphoto. com/David Newton 2 52 exacerbates the situation, as investors will demand a greater return. The consortium of banks financing loans will want to rearrange the interest ates on offer to reflect the increased risk and changing economic conditions. UK and US banks are known for their preference for short-term financing and unwillingness to invest in the equity of construction projects, in contrast with their Japanese counterparts. This makes the monitoring of data and detecting any chang es in the environment of great importance. Investment banks will readily pick up any adverse change in the economic fundamentals of a project. Therefore, the organization must not only be aware of these changes but also have contingent plans in place for dealing with them.It also helps if the organization is aware of the interrelationships between economic variables—that a rise in inflation will probably cause the monetary authorities to consider increasing interest rates. They can then work through the ramifications of such changes on their projects. If one of the government’s political priorities is to manage the economy, we can see a relationship between economic and political factors. Construction firms already scanning and monitoring their environment will be expecting these trends and therefore be prepared.Central bankers, such as the chairman of the US Federal Reserve Bank and the Governor of the Bank of England, are faced with a number of dilemmas. For instance , the economic data they will be tracking and monitoring will contain conflicting views. This forces them to use their judgement to look for similar patterns that have occurred in the past as a basis on which they can make decisions. This is not all that they have to contend with. The balance of economic data being monitored may lead them to believe that the economy is overheating. Their response may be a quarter-point increase in interest rates.However, the time it takes to implement the interest rate rise and for this to impact on the economy may take a further six months. In that time it is conceivable that more recent economic data will point to the economy actually slowing down. Therefore, the effect of the rise in interest rates will be to accelerate 9780199581610_035_063_CH02. indd 52 2/1/11 11:03:55 AM the general environment 53 the likelihood of an economic downturn. This reinforces the need for sombre and intelligent judgement when using PEST analysis. 2. 4. 3 Social Facto rs 2Social factors include cultural changes within the environment and are often referred to as socio-cultural. In the UK, increasing consumer concern with genetically modified food (GMF) and lobbying from consumer groups forced the government to scale down its introduction of genetically modified crops. Clearly, such social trends are of great importance to companies which research and produce genetically modified products. Many have been caught unawares by the strength of consumer response and find that they must first allay consumer fears if their products are to be fully accepted.Indeed, the frozen food retailer Iceland was one of the first retailers to state emphatically that none of the food products it stocks contains genetically modified ingredients. In doing so Iceland had accurately read a change in social trends and recognized that it would influence consumer spending patterns. Other supermarkets were quick to follow. strategy focus Demographic Changes Courtesy of Johnson & Johnson The US and Western Europe face an ageing population with attendant problems for pension fund provisions. As the base of the working population continues o shrink, while advances in medical science and healthier eating ensure that people continue to live longer, companies are faced with shortfalls in the pension fund provisions they make for employee retirement. One solution is to encourage employees to take out personal pension plans that will supplement any state provision. Another solution being considered by governments is for employees to consider working for longer. In this way they can build up their pension fund to an acceptable level and avoid any shortfall. In response to a falling birth rate, companies like Johnson & Johnson, involved with the provision of baby-care products,In response to a falling birth rate, companies have effectively targeted these like Johnson & Johnson have targeted their products at an adult female baby products at an adult female audienc e. 9780199581610_035_063_CH02. indd 53 2/1/11 11:03:56 AM 54 part 2 Strategic Analysis 2 audience. For example, their baby lotion is now marketed as being kind and gentle to women’s skin, as well as that of babies. This represents a response to changes in the general environment that directly affect their industry. Retail organizations in the US and Europe are increasingly responding to the changing demographics of an ageing population by employing lder personnel. They recognize that retired employees possess a wealth of experience and respect for others that can be used to add value when serving customers. 2. 4. 4 Technological Factors Without doubt some of the major changes taking place in the general environment that are impacting the competitive environment are technological. One merely has to think about how Amazon and Dell have used the Internet to change traditional retailing within their respective industries. For instance, for a small retailer operating in a remote l ocation, the financial outlay of marketing its product to customers nationwide would prove prohibitive.However, with the advent of the Internet, a retailer can access these consumers with a basic web page advertising its wares worldwide. It is interesting to note that small family businesses find their goods being demanded far outside their national borders because of awareness of their products through the Internet. Technological factors include the rates of obsolescence, that is, the speed with which new technological discoveries supersede established technologies. The rate of change in technology and innovations has the effect of causing new industries to emerge and also changes the ways in which existing industries compete.Technological advances include the Internet, the use of sophisticated software (increasingly being used in the design and testing of automobiles), genetic engineering (see Section 2. 4. 3), and nanotechnology. The rapid rate of change of technology has changed the dynamics of industries such as newspaper publishing, banking, financial services, and insurance. This has allowed new entrants to enter the market at a lower cost base than incumbents, thereby offering more competitively priced products and services and gaining market share in the process.Direct Line insurance in the UK cuts out the insurance broker (intermediate) by providing insurance quotations direct to the consumer over the telephone. This allowed it to gain rapid market share and eventually become the marker leader. It changed the rules of the insurance industry, forcing incumbent players to follow suit or face a loss in market share. As the insurance industry becomes increasingly commoditized, differentiation becomes harder to achieve as organizations compete on price. Direct Line’s first-mover advantage is being eroded, as competing firms such as Norwich Union prove capable of competing on a price basis. 780199581610_035_063_CH02. indd 54 2/1/11 11:03:57 AM the g eneral environment 2 First Direct, a subsidiary of HSBC, pioneered the use of telephone banking in the UK. At the time competitors were slow to follow suit, but, once it was established, all players offered a telephone banking option. The same is true of Internet banking. Telephone and Internet banking provide obvious consumer benefits as the financial cost of undertaking transactions within a bank branch is far in excess of the same transaction undertaken by telephone or online.In fact, when the transaction is undertaken online the cost falls substantially. Therefore, organizations must be prepared to innovate and adopt new technologies if they wish to remain competitive. The Internet has been compared to the Industrial Revolution in terms of the changes it has brought about. The pace of change of technology is increasing. Its unpredictability is increasing. Markets are becoming increasingly turbulent. This makes it important to try to detect the weak signals which grow into discer nible patterns that have the potential to change how industries operate.Moreover, if tipping points are unexpected, we need to change our thinking via the use of scenario planning to expect the unexpected. Organizations may not be able to predict these events but they will be in a stronger competitive position to respond to them once they have occurred. While the impact of technological change and changing consumer preferences continues to challenge the business model of traditional high street retailers such as the UK’s WH Smith, such changes are not exclusively the preserve of the private sector.Organizations in the public sector also face changes, often socio-political in nature, and here too an understanding of PEST analysis can benefit the organization. (See Case Study: Radical Change in the NHS, which highlights some of the important factors driving change within the National Health Service). 55 case study 2. 2 Radical Change in the NHS Senior officials have set ‘ aggressive’ targets to reduce the number of patients referred to specialists, or treated in Accident and Emergency departments, while GPs will be asked to cut down on the amount of time spent in consultations.The plans are being issued as senior managers warned that the NHS is about to face the greatest financial pressures since its inception. They fear that when the current spending round ends in 2011, the impact of an anticipated real-terms freeze or cuts—coming as the demands on the NHS of an ageing population increase— will be devastating. The NHS Confederation, which represents NHS managers, will tell this week’s Labour Party conference that the impending challenge is so great that hospital closures and job cuts must be enforced across the country. 9780199581610_035_063_CH02. indd 55 2/1/11 11:03:57 AM iStockphoto. com/Sturti part 2 Strategic Analysis 2 56 The National Health Service It comes as two leading think tanks predict a future funding gap of between ? 20bn and ? 40bn within six years of 2011. Regional health authorities have ordered hospitals and primary care trusts to draw up plans for cuts worth billions. In London, NHS trusts have been told to divert more than half of A&E patients, and those seeing specialists, to cheaper ‘polyclinics’ run by groups of GPs. Meanwhile, family doctors will be asked to speed up their consultations, reducing the average time per patient from 12 minutes to eight.The instructions drawn up by NHS London, and seen by The Sunday Telegraph, order trusts to demonstrate that they can deliver an ‘aggressive scenario’ in response to funding pressures. Under its ‘affordability assumptions’, already-controversial plans to reduce the number of patients treated in hospital are given more demanding targets in an attempt to cut costs. Sixty per cent of activity which now takes place in A&E departments should happen in community clinics within five years, the docum ent says, along with 55 per cent of outpatient treatment.Thirty per cent of outpatient appointments will be stopped altogether. Managers say not all appointments are necessary, though many doctors argue it is impossible to know in advance which patients do not need to be seen. The number of diagnostic tests carried out will be cut by 15 per cent, while the amount of surgery will be reduced by seven per cent. Although the ‘polyclinic’ model, to reduce demand on hospitals, is supposed to shift more treatment into the community, GPs will be told to reduce their average appointment time by one third, from 12 minutes to eight.Senior managers in other regions, who will draw up their own plans later this year, said rural communities faced particular pressures, with small maternity and district general hospitals likely to struggle in the funding crisis. In a speech tonight to the Labour Party conference in Brighton, the NHS Confederation will warn that the service across the co untry faces unprecedented difficulties, which require ‘bold and decisive measures’. Its policy director Nigel Edwards told The Sunday Telegraph: ‘The NHS has never experienced a financial challenge of this magnitude or duration in its history. 9780199581610_035_063_CH02. indd 56 2/1/11 11:03:57 AM the general environment 9780199581610_035_063_CH02. indd 57 2 He said improving the operation of the NHS, and treating more patients earlier in primary care, would not be enough to balance the books. Delegates will be told: ‘Savings only start to become available when we can shut entire buildings, sites and reduce staffing numbers. ’ The organisation, which represents NHS managers, will also call for ‘uncomfortable decisions’ to be made to limit staff pay. Under a three-year deal already agreed, nurses will receive a rise of 2. 5 per cent in April. Sir Robert Naylor, chief executive of University College Hospital in London, said pay should be fr ozen for NHS staff after that point. If it was not, every one per cent pay rise could cost 10,000 job cuts, he said. The chief executive said that while he supported plans to treat more patients in the community, he was concerned that PCTs were planning to cut back on hospital services before alternatives were put in place. ‘The investment in those services has to come first or where do the patients go? he said, criticising ‘oversimplified’ analyses which failed to take account of increasing public demand. Dr Laurence Buckman, chairman of the British Medical Association’s GP committee, described the plans as ‘desperate and inadequately thought through’. Dr Buckman, who works as a GP in London, said targets to reduce outpatient appointments by 30 per cent would put patients at particular risk. He said: ‘All this means is that those people who are refused a referral to a specialist will be forced to go privately, or go nowhere. This will be difficult for doctors, but patients will be the real victims. While some specialist referrals turn out to be unnecessary, GPs only asked for a specialist opinion when they needed it, Dr Buckman said. A study by the King’s Fund and the Institute for Fiscal Studies forecasts a funding gap of between ? 20bn and ? 40bn by 2017, if funding for the NHS receives no increase, or gets a real-terms freeze which only keeps pace with inflation. Sue Slipman, director of the Foundation Trust Network, which represents the best hospitals, warned of an ‘Armageddon scenario’ which could unfold without decisive action on pay, and terms and conditions.She said: ‘There is a trade-off between saving jobs, and pay increases, and in the current climate, protecting jobs needs to be a priority. ’ Katherine Murphy, from the Patients Association, accused NHS managers of wasting billions on management and repeated organisational restructuring during the boom years of record inv estment. She said there was no evidence that plans to shift patients into the community would provide safe care. ‘Elderly patients often require intensive support which often means lots of staff, in hospitals. The need is only going to get greater—these plans look like madness,’ she said.A spokesman for NHS London said its documents provided planning scenarios, rather than forecasts, to cope with a changing economic environment. He said 57 2/1/11 11:03:58 AM 58 part 2 Strategic Analysis the NHS was investing heavily to ensure care was provided in the most appropriate setting. Source: ‘Plans for swingeing hospital cuts as NHS on brink of Armageddon’ Sunday Telegraph, 26 Sep 2009 2 Questions 1. Outline the PEST factors driving change within the NHS. 2. Which PEST factors do you consider to be the most important, and why? 3.How can an analysis of PEST factors help the government and NHS chief executives to resolve the crisis in the health service? 2. 4. 5 Limitations of PEST Analysis The economic example illustrates some of the limitations of dealing with macroenvironmental analysis. First, PEST analysis is not simply writing a ‘shopping list’—the use of disparate bullet points without any consideration of their wider ramifications. In listing the economic factors, for example, one must clearly draw out the implications of each factor on the organization’s environment.In addition, the rate of change of PEST factors in the general environment and their increasing unpredictability act to limit the use of PEST analysis. Some have argued that the competitive environment is the only true arena for the organization to analyse since it is the competitive environment that has the greatest impact on a firm’s markets and products (Porter 1985, particularly Chapter 13). Whilst there is agreement that the competitive environment has the greatest effect on an organization’s ability to achieve competitiv e advantage, it would be unwise to refrain from analysing the general environment.For information on how to write a PEST analysis go to the Online Resource Centre and see the Tools and Techniques feature. www. oxfordtextbooks. co. uk/orc/henry2e/ 2. 5 SWOT Analysis SWOT analysis refers to strengths, weaknesses, opportunities, and threats. Strengths and weaknesses refer to the organization’s internal environment over which the firm has control. Strengths are areas where the organization excels in comparison with its 9780199581610_035_063_CH02. indd 58 2/1/11 11:03:58 AM the general environment 2 competitors, while weaknesses are areas where the orga