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Agenda and LOsWe shall be looking at the importance of analysing the
environment of business organizations through the following models:
Simple generic model (P.E.S.T.E.L.) PESTEL Exercise LoNGPESTEL Analysis STEEPLE analysis Macro/Micro/Internal Environments
The Learning Objective of this lecture is:
To describe the process of environmental analysis and understand its major tools
What do you mean by Business Environment???
the aggregate of all conditions, events and influences that surround and affect a businessCharacteristics of Business Environment: Complex Dynamic Multi-faceted Far- reaching impact
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The Organizational Environment Like individuals, organizations do not exist in a vacuum.
They are created and managed within specific contexts
Each organisation is embedded in an context or environment that comprises a wide range of institutions – economic, social, political and cultural institutions - which can affect (and are affected by) an organization and its activity
These institutions are formal and informal rules, norms and values which constitute societies such as laws, regulations, consumer preferences
This environment is often very complex and rapidly changing; and the rate of change has increased (turbulence/chaos)
Why Study Business Environment
Development of broad strategies to ensure sustainability
To foresee the impact of socio-economic changes at the national and international levels on firm’s ability
Analysis of competitor’s strategies and formulation of effective counter measures
To keep dynamic and change-ready It links with strategy and planning (refer back
to lecture 6)
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PEST:Analysing the general environment
Management’s objective in analysing the general environment is to identify those factors that are likely to be most important for their organisation; to analyse their IMPACT x PROBABILITY
Environmental analysis underpins the strategic response to OPPORTUNITIES and THREATS
PEST is an acronym and stands for Political, Economic, Social and Technological
It could be enlarged to PESTEL (to include Ecological/Environmental and Legal/regulatory factors)……
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PESTEL EXERCISE Exercise - put the following into their correct
category:
a) GNP growth b) geographical mobility c) R&D related developments d) Interest rates e) social mobility f) Health & Safety developments; g) obsolescence; h) government stability i) Green issues; j) digitisation k) EU Directives l) lifestyle changes m) demographic changes …………..and, finally, n) globalisation
PESTEL Analysis: Pharmaceutical Industry
LoNGPESTEL This model adds another dimension to
PESTEL It looks at how ‘proximate’ (close) the
impact factors are ranging from very close (Local), through National to the far distant ‘Global’
Hence ‘LoNGPESTEL’
STEEPLE Another variation to the basis PESTEL
model This time we add ‘Ethical’ (see later
lecture on business ethics) To accommodate the extra E we need to
re-configure the acronym:STEEPL+ E for Ethics
Internal/External ModelInternal Environment External Environment
Micro environment Macro environment
Economic Non Economic
Components of Internal Environment
Human Resources Company Image and Brand Equity Other Factors
Physical Assets and Facilities R & D and Technological Capabilities Marketing Resources Financial ResourcesReminder: these are the ‘strengths’ and ‘weaknesses’
in a SWOT analysis
External Environment
Includes all factors outside the organization which provide opportunities or pose threats to the organization
Uncontrollable factors – to some extent
Consists of Micro and Macro environment
Micro Environment
“It consists of the factors in the company’s immediate environment that affect the performance of the company”.
Some Key Micro Environment Factors
SuppliersCustomersMarketing IntermediariesCompetitors
PublicsFinancial CommunityNote that this overlaps with our previous ‘Stakeholder’ studies
Micro Environment of a typical car manufacturer
ComponentsSupplier
Customers
Car DealersCompetitors
Stakeholders
CarManufacturer
PotentialSupplier
PotentialCustomers
Customers
PressureGroups
ForSupplies
ForCustomers
PotentialDealers
Government
LocalCommunities
Macro EnvironmentIt comprises general trends and forces that may not immediately affect the organization but sooner or later will alter the way organization operates.
Macro Environment :- Economic Non Economic
Economic Environment Economic stages that exists at a given time in a country Economic system that is adopted by a country for
example. Capitalist, Command/Centrally planned or Mixed Economy – and its direction of travel
Economic planning, such as five year plans, budgets, etc. Economic policies for example, monetary, industrial and
fiscal policies Economic Indices such as National Income, Per Capital
Income, Disposable Income, Rate of growth of GNP, Distribution of Income, Rate of savings, Balance of Payments etc.
Economic Problems – eg regional problems
Non Economic Environment
Regulatory Environment
Socio- Cultural Environment
Demographic Environment
Technological Environment
Political Environment
Non- Economic Environment
Cultural Environment
Social Customs & Rituals and practices
Lifestyle patterns
Family structure
Role & position of men, women, children and aged in family & society
Non- Economic Environment Demographic Environment
Growth of population Age Composition Life Expectancy Sex Ratio Fertility and Mortality rates Migration flows
Macro Environment continued
Technological Environment Sources of technology Technological development Impact of technology
Political Environment Political parties in power Dominant ideologies
Macro Environment Regulatory Environment
Constitutional framework
Business Law
Policies relating to pricing and foreign investment
Policies related to the public sector and control of environmental pollution
Laws governing employee relations (unfair dismissal etc)
International Environment
Important factors that operate at global level which have an impact on organization are: Growth of world economy Distribution of world GDP International institutions IMF,WTO ILO, EU Economic relations between nations Global human resource-nature and quality of skills, mobility of labour Global technology and quality standards Global demographic patterns See lecture 9 on Globalization!
Overview of Business Environment
MACRO ENVIRONMENT
ECONOMIC Environment
MICRO ENVIRONMENT
BUSINESS
Internal Environment
Values, Mission & Objectives.
Human Resources,Co. Image & Brand Equity
TECHNOLOGICAL FACTORS
MARKETING INTERMEDIARIES
DEMOGRAPHIC FACTORS
SOCIAL CULTURAL FACTORS
Non - Economic Environment