Looking for a context

One of the weaknesses of both internal assessments and extended essays that I read relates to the lack of context. As a reader, I sometimes reach the end of an investigation unclear as to the place of the organisation within its market and/or the extent of the problem that organisation is facing. This means that there is no clear business rationale for the study. The student needs to present a well evidenced and sourced situational analysis of the firm and also a detailed description of the market and economic environment in which it operates.

Students often present both SWOT and PEST analyses in their reports. I believe that the factors mentioned in the opportunities and threats section of the SWOT and within the economics section of a PEST should be explored in more depth as these provide the basis for the rationale of a study and the focus for further research.

In some of the projects I have assessed recently, the authors have placed factors, such as interest, inflation and tax rates as both potential weaknesses and threats without any attempt to support this placement with real evidence or data. It is certainly true that for businesses these underlying factors are extremely important in the setting of strategies and their implemention through operational decisions. However, the student needs to provide some, or all, of the following to make inclusion of any of these factors relevant to their research question:

  • The present level of interest, inflation, tax etc.
  • Trends over recent months and years
  • Forecasts of future changes from reliable sources, such as respected economists or economic journals
  • The susceptibility of the firm under investigation to any, or all of these influences, in terms of customer sensitivity to marketing elements, such as price

Unsurprisingly, reports in recent examination sessions have identified the issue of recession as a significant factor in the success, or otherwise, of an organisation and its products or services. Again, when this is included the student should really attempt to quantify the importance to the firm under investigation, and whether this is more or less significant to that firm than to its competitors. Clearly, recession affects some industries more than others, with counter-cyclical industries possibly thriving in a downturn. These subtleties should be understood. In addition, the student should define their terms and explain what is meant by a recession and its potential impact on businesses.

In the UK this week, the Office for National Statistics (ONS) published its latest data on Gross Domestic Product (GDP), showing that the UK economy grew by 1% in the three months to September, 2012. However, this single figure hides a number of anomalies; for example the service sector grew faster than the average at 1.3%, while the construction sector shrunk by 2.5%. So the student, when using such data, would have to recognise that headline economic data will mean different things for different industries and firms. In addition, GDP is an historic figure looking back on the previous 3 months, but not describing what is happening to the economy now nor what is predicted to happen in the future. Trends are, therefore, relevant in that an improvement in a figure over the last 3 months does not describe the full nature of the market in which the firm is operating. One commentator neatly explained the latest GDP figures using the following analogy of a car:

If, before the recession a car  was travelling at a speed of 100 kilometres per hour, this dropped to 50 kp/h in the recession. It has now risen to 55 kp/h, but this is still much lower than before the recession began and there could yet be further congestion around the corner to slow the speed again.

In other words, one set of figures is not a story, it simply describes a point in time.

Sources:

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