PESTEL FRAMEWORK

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PESTEL FRAMEWORK

• Environmental Analysis
• (Strategic Management)

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Analysis of External Environment of Business

• Strategies are not and should not be developed in
  a vacuum.
• They must be responsive to the external
  environment of business.
• The managers must be aware of whats going on
  outside their company.
• If the firm focus only on internal environment,
  they may be efficient producers of goods or
  services but not for the market.
• Many high-tech companies fail mainly because of
  their inefficiency to cope with the changes that
  is happening in the environment

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Analysis of External Environment of Business

• So a manager must be able scan the environment
  and forecast the environmental variables so as to
  create an environmentally aware organization.
• Managers can become environmentally aware by
  following three important processes as given
  below

Environmental Scanning
Forecasts
Environmental Monitoring
Competitive Intelligence
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Environmental Scanning

• This involves surveillance of a firms external
  environment so as to enable the firm to predict
  external environmental changes and detect those
  changes which is already underway.
• The environment of business is broadly classified
  as Micro Environment and Macro Environment.
• The micro environment or direct environment
  consists of those environmental variables which
  are very closed and directly related to business.
  This comprises of suppliers, distributors,
  customers, governmental agencies, pressure groups
  etc. which is generally called as stakeholders in
  business
• The macro environment consists of broad spectrum
  of factors that are general in nature but affect
  and get affected by business.

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Components of General Environment

• The Demographic Segment
• Demography is the study of population and its
  related parameters.
• The major such characteristics that affect
  business are population size, age composition of
  the population, literacy levels, inter-state
  migration, rural-urban mobility, income
  distribution etc.
• For example, the growing number of senior
  citizens in a country can affect the general
  business. Example Japan

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E.g. Aging Population in Japan

• Old age could be a fountain of trouble for Japan
• Respect for the Aged Day is symbolic of the
  respect that is afforded to the elderly in Japan.
  But with one in four of its population aged 65 or
  over, the country is facing what experts suggest
  is a demographic time bomb.

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Example Aging Population in Japan

• Taro Aso, the finance minister, said on Monday
  that the elderly should be allowed to "hurry up
  and die" to relieve pressure on the state to pay
  for their medical care.
• The aging of Japan is thought to outweigh all
  other nations, as the country is purported to
  have the highest proportion of elderly citizens
  more than 24 are aged 65 or above, as of 2012
• According to the health ministry, there were 153
  centenarians in Japan in 1963, when the survey
  began. While it took 35 years to top 10,000 in
  1998, the number has grown rapidly since,
  surpassing 30,000 in 2007 and 50,000 last year.
• (Think about the impact on business due to aging
  population)

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Aging Population in Japan
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Political Factors

• Politics has a serious impact on the economic
  environment of a country.
• Political ideology and political stability or
  instability strongly affect the pace and
  direction of economic growth
• This also influence the economic environment of a
  country. For example, the new government in India
  in 1991, opened up the economy through various
  economic measures that really changed the face of
  the economy.
• Certain political philosophy affect the business
  adversely as Coca Cola and IBM had to move out of
  India due to the policies of the Janata
  Government during late 1970s.

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Political Environment

• The major political factors that influence
  business are
• Government stability
• Political values and beliefs shaping policies
• Regulation of trade and business
• Taxation policies of the government
• Priorities in social sector
• Political parties and trade unionism

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Political Environment Corruption at Government
Level and Impact on Economy Black Money

• In a country like India, it is said that
  dishonest industrialists, scandalous politicians
  and corrupt IAS, IRS, IPS officers have deposited
  in foreign banks in their illegal personal 
  accounts a sum of about 1500 billion, which have
  been misappropriated  by them. This amount is
  about 13 times larger than the country's foreign
  debt. With this amount 45 crore poor people can
  get Rs 1,00,000 each
• TOP FIVE IN BLACK MONEY IN SWISS BANKS
•  INDIA 1,456 BILLION 
•  RUSSIA 470 BILLION 
•  U.K. 390 BILLION 
•  UKRAINE 100 BILLION 
•  CHINA 96 BILLION  
• (Think Impact of Political Environment on
  Economic Environment of Business)

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Economic Factors

• Economic factors give guidelines on the nature
  and direction of the economy in which the firm
  operates.
• The firm must frequently scan and monitor the
  economic trends in a country.
• For example, the trend of price changes
  (inflation), FDI flow, economic fluctuations etc
  are very important factors that determined the
  fate of a firm in a market.

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Economic Factors

• The common economic indicators are
• National Income
• Savings
• Policy Initiatives
• Capital Market and Money Market
• Prices, Wages and Productivity
• Sectoral Growth
• Economic Fluctuations
• Balance of Payment Position Foreign Trade

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THINK MONEY SPEND ON MAINTAINING PRISONS AND
ITS IMPACT ON BUSINESS
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SOCIO-CULTURAL FACTORS

• Socio cultural factors influence the values,
  beliefs, and lifestyles of a society.
• For example, a higher percentage of women in the
  workforce, dual income families, increase in
  number of temporary workers, greater concern for
  healthy diets and physical fitness etc influence
  business
• Culture and business is closely interrelated in
  the sense that when a new business starts, it
  will be based on the concept of cultural
  adaptation.
• Once the product or service is accepted, the
  company will go for cultural transformation.

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THINK INFLUENCE OF CULTURE ON DOING BUSINESS IN
CHINA
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Technological Factors

• Technological factors represent major
  opportunities and threats which must be taken
  into account while formulating policies.
• Technological change can influence an
  organizations products, services, suppliers,
  distributors, competitors, customers,
  manufacturing process, marketing practices and
  competitive position etc.
• Technological changes can reduce or eliminate
  cost barriers between businesses, create shorter
  production runs, create shortages in technical
  skills and result in changing values and
  expectations of customers and employees.

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Technological Factors

• Certain technological factors that influence
  business are
• Bio-technology
• Process innovation
• Digital revolution
• Government spending on research
• Speed of technology transfer
• Rate of obsolescence
• Development in information technology

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THINK IMPACT OF GENETIC MODIFICATION ON
BUSINESS
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ENVIRONMENTAL FACTORS

• The impact of business on environment is a major
  concern now globally.
• The issue has gained the attention of governments
  globally as the impact of business has negatively
  affected environment in many countries of the
  world.
• This forced many companies to take up Corporate
  Social Responsibility (CSR)

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Environmental Factors

• The major environmental issues are
• Waste
• Sustainable development of raw materials
• Emissions

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THINK ADVERSE IMPACT OF BUSINESS ON
ENVIRONMENT
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Legal Factors

• Legal factors have got substantial impact on
  business, both positively and negatively
• Governments introduce rules and regulations for
  controlling business activities along with
  supporting activities.
• The major legal issues pertain to the following
  in many countries
• Licensing policies
• Quota restrictions
• Import duties
• Forex regulations
• Restriction on FDI flow
• Control on distribution and pricing

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THINK LAWS CONTROLLING BUSINESS AND SUPPORTING
BUSINESS
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PESTEL FRAMEWORK

• Careful analysis of the factors given in the
  earlier slides will help you in identifying the
  environmental factors that affect your business
• The above information can be analyzed and
  recorded with the help of PESTEL framework, which
  is a popular tool used for assessing the impact
  of business enviornment.

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PESTEL FRAMEWORK

• These external forces affect the consumer demand
  for the product, that products that are produced
  by companies, the nature of positing the products
  or services etc.
• So it is imperative for organization to identify
  OPPORTUNITIES and THREATS that is posed by the
  environmental factors.

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PESTEL FRAMEWORK

P
OLITICAL
E
CONOMIC
S
OCIO-CULTURAL
T
ECHNOLOGICAL
E
NVIRONMENTAL
L
EGAL
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GRID FOR PESTEL ANALYSIS

• Consider the factors that influence your business
• Plot it horizontally in the grid
• Consider the individual factors that govern your
  business and its success or failure
• Analyze the impact of environment on your
  business so that steps can be taken to overcome
  the weaknesses and thereby improve the strengths

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PESTEL ANALYSIS GRID
Political Economic Social Technological Environmental Legal



National
National
National
National




International
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PESTEL ANALYSIS GRID

• Consider both positive factors and negative
  factors that has got impact on business.
• Give weights to negative and positive factors.
  For negative factors, give negative sign and
  positive factors given positive sign.
• Think about ways that can help to reduce the
  impact of negative factors and improve the effect
  of positive factors

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PESTEL ANALYSIS GRID

• For analyzing the effect of negative factors and
  positive factors, use FORCE FIELD ANALYSIS.
• Force Field Analysis was created by Kurt Lewin in
  the 1940s.
• Lewin originally used the tool in his work as a
  social psychologist. Today, however, Force Field
  Analysis is also used in business, for making and
  communicating go/no-go decisions.
• You use the tool by listing all of the factors
  (forces) for and against your decision or change.
  You then score each factor based on its
  influence, and add up the scores for and against
  change to find out which of these wins.
• You can then look at strengthening the forces
  that support the change and managing the forces
  against the change, so that it's more successful.

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Force Field Analysis (Refer Material on Force
Field Analysis)

• For making force field analysis, ask the
  following questions to yourself.
• What business benefit will the change deliver?
• Who supports the change? Who is against it? Why?
• How easy will it be to make the change? Do you
  have enough time and resources to make it work?
• What costs are involved?
• What other business processes will be affected by
  the change?
• What are the risks?

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