Strategic Analysis and Planning Series II: Macro External Analysis

What happens globally, nationally and in your area can affect how you position your equine veterinary business.
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What happens globally, nationally and in your area can affect how you position your equine veterinary business.

The macro piece of a strategic analysis is an evaluation of the global influences that might have an effect on business results; these are factors that exist outside of the individual practice being analyzed and that are not necessarily associated with the equine veterinary industry. The external environment refers to factors that influence a firm’s operation, over which the firm has little if any influence. They are: economic, political/regulatory, demographic, socio-cultural, technology and natural environment. In many instances, these elements interact with each other.

A complete strategic analysis begins by considering each of these factors in turn.

Economic

The state of the economy will generally have a strong impact on consumers and most industries, as will the specific regional economic conditions that include the cost of doing business in that area. It is important to have an awareness of whether the regional, national and global environment is in an inflationary or deflationary period, if interest rates are rising or declining, whether consumer confidence is rising or falling, and whether disposable incomes are doing the same. As a market that relies heavily on disposable income, the equine industry and equine veterinary industry are very dependent on the performance of the economy.

It is important to determine whether current economic conditions allow consumers to have the confidence to spend and the ability to service their existing debts. Once this information is gathered, then use whatever additional economic information is relevant for the equine veterinary industry and your specific veterinary firm. 

Luxury items such as horses will often be perceived differently than necessities during different stages of economic growth and decline. Your client mix will often determine how market conditions will affect your practice. 

Analysis of economic conditions will determine whether an opportunity, threat or neutral impact currently exists or is forecasted for the future. As certain segments of the equine industry are global, it is also relevant to consider the economic status of those regions where a practice conducts business or plans to in the future.

At the time of this writing, the stock market was at heights never before seen, rising above 20,000 for the first time in history. Consumer confidence in December 2016 was sharply higher, continuing a gain seen throughout the fall. Real (adjusted) median income has fought its way back to $56,500 after many years of stagnation, rising 5.2% in 2015, according to the New York Times. Interest rates are low, with the current U.S. Prime rate at 3.75%. While there is considerable uncertainty about the long-term stability of these economic factors, they are undeniably positive as we begin 2017.

Political/Regulatory

The political and regulatory factors are grouped together because they are so intertwined it is difficult to pull them apart. The dominant political institutions, whether Democratic or Republican, tend to view the roles of government and business differently, thus often regulate businesses differently. For instance, defense contractors usually appreciate a Republican majority, while environmental firms usually fare better under a Democratic majority. Democrats might favor increased spending for government programs, while Republicans are more likely to push tax benefits. What is key to consider is how the “ruling party” is likely to impact regulations that loosen or tighten regulation of health industries.

Clearly, one of the most remarkable impacts sweeping the globe currently is the merger and acquisition movement. In the veterinary industry, pharmaceutical companies (e.g., Merial and Boehringer Ingelheim) have merged in an effort to reap economies in mature markets and remain competitive in the face of substantial global competition. Recently we have seen more merger and acquisition activity than ever before, forming new, large veterinary corporations.

What is important to note is that in many cases, shareholders, the U.S. government, the European Union, and perhaps even other global alliances can block merger and acquisition activity. Also, the tone for regulation can shift with a change in political orientation. 

Globally, foreign governments, regulations and laws pose challenges for veterinarians operating abroad. Stability and control are issues in emerging nations. Knowledge of existing regulations and trade agreements is essential to a practice’s strategic operation in the global arena.

Demographics

Demographics are the statistics that describe populations. This is one of the functions of our national census. By understanding trends in shifts among age groups, regional population movement, and socio economic status, businesses can better understand whether appropriate populations exist to purchase their goods or services, are available as a labor force, and can generally afford the products or services being offered. Marketers have long understood the need to segment markets according to age and other characteristics as they market products to Baby Boomers, Generation X and Millennials.

A population posing sizable challenges is the large, older population, which currently has the largest representation in horse ownership. Some of these mature citizens will eventually live—or are living now—on fixed incomes. The successful service mix to meet their horses’ needs will differ from what exists for the smaller, younger market of horse owners. 

Understanding the needs of this older demographic, many of whom own older horses, has created the opportunity for the development of bundles of geriatric services. It might also spawn the rise of businesses that intersect retirement boarding of geriatric horses with a higher level of services and medical care for them.

Younger population groups such as the Millennials are, as a group, less involved in the equine industry. Those who are involved with horses prefer different communication methods and desire more involvement in their horses’ care. As this demographic group shifts toward living in urban areas, finding entry-level employees for equine veterinary jobs becomes more difficult, and as a result, wages rise.

Socio-Cultural

The socio-cultural factor addresses the trends, values and norms of society. As is true for demographics, shifts in social trends create opportunities and threats across industries. For instance, the change in attitude toward helmet wearing has resulted in an increase in use. It also has resulted in changes within the industry’s regulatory environment. We have seen regulation changes by the USEF and FEI, a public campaign for helmet use after several tragic head injuries (e.g., Courtney Dye), and a higher public awareness of the dangers of equine sports.

A socio-cultural trend that might create industry opportunities or threats is the increasing recognition of animals as sentient beings and the resultant public attention on equine sports. The spotlight on the abuses sometimes found in Thoroughbred racing, rodeo and Tennessee Walking horses that has occurred in recent years has raised the profile of the equine industry. While this attention could result in increased interest in participation with the noble and beautiful equine species, there is also a significant threat posed by those outside the industry creating legislation with no knowledge of equine husbandry or physiology. On a positive side, horses are increasingly recognized for their value in therapeutic activities for injured, disabled and stressed individuals.

A current socio-cultural shift to be reckoned with is the far-reaching capabilities of the internet for communication, entertainment, shopping, education, community building, etc. Consumers have become more educated and demanding, and some veterinary practices have shifted part of their business models to create immediacy and convenience, such as offering online pharmacies, appointment scheduling and access to medical records. 

What is important to note is that this trend has components in: demographics—generations of people growing up with the internet as part of their daily life; regulatory issues— to tax or not to tax online sales, and the need to create a VCPR (veterinary/client/patient relationship) for online transactions; technology—streaming video for education; and for the provision of virtual veterinary services in remote locations. 

As society continues to demonstrate its preference for hand-held digital capabilities, we can predict the continued development of all things small and digital.

Technology

Clearly technological advancements have changed—and continue to change—the nature of how veterinary firms conduct business, the services they offer and the rise and fall of partnered industries. Advances in IT allow even small practices to operate more effectively, while digital capabilities enable veterinarians to partner with other practitioners around the globe in real time and “‘just in time” for consulting and other services. 

Power is shifting to consumers, who can gain information about products and services on the internet and whose drive for convenience and variety can be met with the tap of a mouse button. Never has it been more important for equine veterinary businesses to have a presence online!

Technology can render certain products and services obsolete as substitutes proliferate and new generations of users evolve with new expectations. For example, typewriters were replaced with word processors, then PCs and laptops, and now the trend is talk to text. Overnight mail was replaced with faxes, which was replaced with email and scanning—and now through your cell phone, you can have all this arrive immediately in your pocket. Key issues to consider strategically within this digital realm are whether there are opportunities to effectively utilize or create disruptive technologies.

Disintermediation occurs when suppliers can sell their wares directly to end users, bypassing traditional intermediate sources, such as veterinary practices. The rise in online pharmacies caused a huge shift in revenue sources for veterinary practices, many of which used to derive significant cash flow from product sales. Many veterinarians have fought back by adding online pharmacy options at their practices, although they derive a significantly lower income stream than before. But as some have said, “Something beats nothing.”

The key when considering this or any socio-cultural trend is whether it will create new competitors from unpredicted directions, kill off existing practice models, and/or create a new set of criteria for veterinary businesses to abide by and innovate in. 

Technology enables work to occur more quickly and efficiently, allows for immediate communication, provides access to information, enables processes to operate near excellence and permeates the barriers between industries. It also shifts the power among players in an industry and has the potential to change industry structure and dynamics.

One of the clearest means for creating and sustaining competitive advantage is through innovation—whether process, product or service. Technology is a tool. Innovation is a strategy. But you must be clear as to how innovation really can impact current and future business—will it create operational excellence? Increase the options available to clients? Or simply increase the cost of doing business?

Natural Environment

Many veterinarians are concerned with how they impact their natural environment. Pollution, deforestation, development of land for housing (decreasing agricultural acreage), creating congestion and promoting “green” policy are just some of the issues to be considered no matter where the practice conducts business. Some veterinary practices have specific policies governing their commitment to recycling, using solar energy and using recycled goods.

Among global companies, Starbucks and Ben & Jerry's are both well known for their green policies. The natural environment is becoming a more prominent factor in the marketing of businesses. Consumers are often positively influenced by “green” initiatives.

Take-Home Message

The factors creating the macro environment have a significant impact on the crafting of a business strategy. They represent opportunities and threats as firms attempt to sight trends and proactively plan their futures.

At the conclusion of your macro analysis, you should create a two- or three-sentence summary that draws on what you believe are the most important elements for your practice that might be specific to competing in your region of the country. This is a method for allowing you to focus on the story you will build for your business through your analysis and strategic planning.