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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