Introduction
A PESTEL analysis is study of the political, economic,
socio-cultural, technological, environment and legal factors. It provides a
useful starting point to any analysis of the general environment surrounding an
organisation.
Political
The political environment consists of laws, government
agencies, and pressure groups that influence and limit various organizations
and individuals in a given society. For example is the corporate tax.
Economic
The economic environment consists of factors that affect
consumer purchasing power and spending patterns. With the generation moving
into its prime wage-earning and the number of small families headed by
dual-career couples continue to increase, organisation must pay attention to
consumer expenditure and disposable income as consumers continue to demand for
quality products and better service. Nations also vary greatly in their levels
and distribution of income e.g. GNP trend. Constant monitoring of inflation,
currency fluctuations and exchange rates is necessary so that the organisation
would not be caught short in a boom e.g. A country’s economic slowdown that
leads to retrenchment hence unemployment. With adequate warning, organisations
can take advantage of changes in the economic environment.
Cultural
The cultural environment is made up of institutions and
other forces that affect a society’s basic values, perceptions, preferences and
behaviour. People in a given society hold many beliefs and values. Although
core values are fairly persistent, cultural swings do take place. Organisations
predict cultural shifts in order to spot opportunities or threats. People also
vary in their emphasis on serving themselves versus serving others. Some people
seek personal pleasure while others seek self-realization hence organisations
must take into concern people attitudes to work and leisure. Organisations must
pay attention to income distribution as well as average income. With the more
educated workforce, lifestyle changes for the demand for quality products etc.
Technological
The technological environment is the most dramatic force
shaping our destiny. The technological environment changes rapidly and it
creates new markets and opportunities. New technology replaces old technology
hence organisations should watch the technological environment closely before
their products turn obsolete. Today’s research is usually carried out by
research teams heavily subsidise by government on their focus on technology. In
some situations, developments in nominally unrelated industries may be
applicable in the organisation.
Environment
The natural environment involves the natural resources that
are needed as inputs that affect the strategies. Such environmental trends are
the increasing pollution and carbon emissions. For example is the disposal of
chemical and nuclear wastes. Government intervention in natural resources
management is their concern and efforts to promote a clean environment. For
example, For example, tyres manufacture in china and India, it includes an
anti-dumping law. Concern for the natural environment has spawned the so-called
green movement that organisations are responding to consumer demands with
ecological safer products and more energy-efficient operations. For example is
that 3M runs a pollution prevention pays program that has led to a substantial
reduction in pollution and costs.
Legal
It refers to regulations and legislation enforced to such
as developing public policy to guide commerce, well-conceived regulation can
encourage competition and ensure fair markets for goods and services. New laws
and their enforcement will continue or increase and organisations must watch
these developments when planning their strategy.
Importance
of PESTEL analysis
It is important to study the environment surrounding the
organisation for three main reasons.
1) Most
organisations compete against each other, so a study of the environment will
provide information on the nature of competition as a step to developing
sustainable competitive advantage.
2) Most
organisations will perceive opportunities that might be explored and threats
that need to be continued. Opportunities and threats may come from government
decisions, changes in technology and social developments and many other
factors, hence not just from competitors.
3) There
are opportunities for networks and other linkages, which lead to sustainable
co-operation. Such linkages with others may strengthen an organisation in its
environment by providing mutual support.
Considerations
Before exploring specific aspects of the environmental
analysis, it is important to consider the basic conditions surrounding the
organisation. Special attention needs to be directed to the nature and strength
of the forces driving strategic change such as the dynamics of the environment.
Secondly in consideration of the factors surrounding the organisation, PESTEL
analysis can be used to explore the general environment. It is useful to draw a
distinction between the proactive outcomes and reactive outcomes when analysing
the environment.
Limitations
There are three difficulties in determining the
connection between the organisation corporate strategy and its environment.
Firstly is the prescriptive versus emergent debate.
Interpretations in the corporate strategy process imply a different status for
the same basic topic hence the difficulty to which the analysis is put to use.
Secondly is the uncertainty. Corporate strategists regard
the environment as uncertain.
Thirdly is the range of influences as every element of an
organisation’s environment influence corporate strategy hence the ability of an
organisation to cope with the existing situation.
Conclusion
To the prescriptive strategists, although the items in a
PESTEL analysis rely on past events and experience, the analysis can be used as
a forecast of the future. The past is history and corporate strategy is
concerned with future action, but the best evidence about the future may derive
from the past. Prescriptive strategists would suggest that it is worth
attempting the task because major new investments make this hidden assumption
anyway.
The emergent corporate strategists may well comment that
the future is so uncertain that prediction is useless. If this view is held, a
PESTEL analysis will fulfil a different role in interpreting past events and
their interrelationships. In practice, some emergent strategists may give words
of caution but still be tempted to predict the future. Overall, when used
wisely, the PESTEL analysis has a role in corporate strategy.
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