An organisation’s
success is influenced by factors operating in it’s internal and external
environment; an organisation can increase it’s success by adopting strategies
which manipulate these factors to it’s advantage. A successful organisation
will not only understand existing factors but also forecast change, so that it
can take advantage of change within the environments in which it operates.
Macro & Micro Environmental Factors
An organisation’s operating environment has two parts; the Macro
environment and the Micro environment.
- Macro Environment – This contains external forces
that an organisation can't directly control, instead organisations need to
manage their macro environment in a way that benefits them.
- Micro Environment - This is made up of internal
factors which means that the organisation is able to control their micro
environment.
PEST & PESTLE analysis
A PEST analysis is used to identify the external forces affecting
an organisation/making up its Macro Environment.This is a simple analysis of an
organisation’s Political, Economical, Social and Technological environment. A
PEST analysis incorporating legal and environmental factors is called a PESTLE
analysis.
Political
The first element of a PEST analysis is a
study of political factors. Political factors influence organisations in many
ways. Political factors can create advantages and opportunities for
organisations. Conversely they can place obligations and duties on organisations.
Political factors include the following types of instrument:
- Legislation such as the minimum wage or anti discrimination
laws.
- Voluntary codes and practices
- Market regulations
- Trade agreements, tariffs or restrictions
- Tax levies and tax breaks
- Type of government regime e.g. communist, democratic, dictatorship
- Voluntary codes and practices
- Market regulations
- Trade agreements, tariffs or restrictions
- Tax levies and tax breaks
- Type of government regime e.g. communist, democratic, dictatorship
Non conformance with legislative
obligations can lead to sanctions such as fines, adverse publicity and
imprisonment. Ineffective voluntary codes and practices will often lead to
governments introducing legislation to regulate the activities covered by the
codes and practices.
Economical
Economical
The second element of a PEST analysis involves a study of economic
factors. All businesses are affected by national and global economic factors.
National (and global) interest rates and fiscal policy is set around economic
conditions. The climate of the economy dictates how consumers, suppliers and
other organisational stakeholders such as suppliers and creditors behave within
society. An economy undergoing
recession will have high unemployment, low spending power and low stakeholder
confidence. Conversely a “booming” or growing economy will have low
unemployment, high spending power and high stakeholder confidence.
A successful organisation will respond to economic conditions and
stakeholder behavior. Furthermore organisations will need to review the impact
economic conditions are having on their competitors and respond accordingly. In
the current business world, organisations are affected by economies throughout
the world and not just the countries in which they are based or operate from.
For example: a global credit crunch originating in the USA contributed towards
the credit crunch in the UK in 2007/08.Cheaper labor in developing countries affects
the competitiveness of products from developed countries. An increase in
interest rates in the USA will affect the share price of UK stocks or adverse
weather conditions in India may affect the price of tea bought in an English cafe.
A truly global player has to be aware of economic conditions
across all borders and needs to ensure that it employs strategies that protect
and promote its business through economic conditions throughout the world.
Social
The third aspect of PEST focuses its attention on forces within
society such as family, friends, colleagues, neighbors and the media. Social
forces affect our attitudes, interests and opinions. These forces shape who we
are as people, the way we behave and ultimately what we purchase. For example
within the UK people's attitudes are changing towards their diet and health. As
a result the UK is seeing an increase in the number of people joining fitness
clubs and a massive growth for the demand of organic food. Products such as Wii
Fit attempt to deal with society’s concern, about children’s lack of exercise.
Population changes also have a direct impact on organisations.
Changes in the structure of a population will affect the supply and demand of
goods and services within an economy. Falling birth rates will result in
decreased demand and greater competition as the number of consumers fall.
Conversely an increase in the global population and world food shortage
predictions are currently leading to calls for greater investment in food
production. Due to food shortages African countries such as Uganda are now reconsidering
their rejection of genetically modified foods.
In summary organisations must be able to offer products and
services that aim to complement and benefit people’s lifestyle and behavior.
If organisations do not respond to changes in society they will lose market
share and demand for their products and services.
Technological
Unsurprisingly the fourth element of PEST is technology, as you
are probably aware technological advances have greatly changed the manner in
which businesses operate. Organisations use technology in many ways, they have
1.
Technology infrastructure such as the internet and other information exchange
systems including the telephone and conference calling. 2. Technology systems incorporating a multitude of software which help them manage their business.
3. Technology hardware such as mobile phones, computers, photocopiers and fax machines which transmit and record information.
Technology has created a society which expects instant results.
This technological revolution has increased the rate at which information is
exchanged between stakeholders. A faster exchange of information can benefit
businesses as they are able to react quickly to changes within their operating
environment. However an ability to react quickly also creates extra pressure as
businesses are expected to deliver on their promises within ever decreasing
time scales. For example the Internet is having a profound impact on the
marketing mix strategy of organisations. Consumers can shop 24 hours a day from
where ever they want and however they want via smart phones, laptops and
tablets.
The pace of technological change is so
fast that the average life of a computer chip is approximately 6 months.
Technology is utilized by all age groups, children are exposed to technology from birth and a new generation of technology savvy pensioners known as “silver
surfers” have emerged. Technology will continue to evolve and impact consumer
habits and expectations, organisations that ignore this will hinder success.
PESTLE
A PEST analysis is sometimes expanded to incorporate legal and
environmental factors; this is known as a pestle analysis. There are many
statutes books containing company law as almost every aspect of an
organisation’s operation is controlled through legislation from treatment of
employees through to health and safety. Legal factors are important as
organisations have to work within legislative frameworks. Legislation can
hinder business by placing onerous obligations on organisations. On the other
hand legislation can create market conditions that benefit business.
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