Identifying ‘Big Picture’ opportunities and threats in your business environment.
Apart from a company’s internal resources and peripheral factors, there are several other macro-environmental factors that can have a profound impact on the performance of a company. Analyzing the entire external marketing environment of a business is an extensive task. Although, it is a complex process, understanding the framework of basic influences will allow maintaining an organized and strategic approach. One of the most popular and commonly used analytical tools for assessing external macro-economic factors is PESTLE Analysis.
PESTLE analysis consists of six interdependent components that influence the business environment and helps you understand the “big picture” forces of change that your business is exposed to. Each letter in the acronym symbolizes a set of factors that directly or indirectly affect every industry. The letters denote the following:
P for Political Factor: The political factors take into account the variables which pertain to local political situation of a country and the world in context. A single amendment in the government policy could add a risk factor and lead to a major loss in the operations of a firm. Hence, companies should be geared to deal with the local and international legislations considering political drifts.
Few common political variables that may affect businesses are –
- Taxation policies
- Stability of government
- International relationships
- Social policies (e.g. Social Welfare, etc)
- Trade regulations (e.g. the EU & NAFTA)
E for Economic Factor: The economic factors are the ones which are connected with the general state of the economy, goods, services and money. These are the metrics that measure economic health of any region. Few examples of economic factors are –
- Supply and demand cycle
- Disposable income of buyers
- Interest rates
S for Social Factor: Social factors assess the mentality of the individuals or consumers in a given market. These are also known as demographic/cultural factors. A study of these factors can help organizations understand the dynamics of existing and emerging potential markets and future customer needs. Here are some of the social factors that might have an impact on business:
- Population demographics
- Consumer lifestyles and trends
- Immigration and emigration
- Literacy levels
T for Technological Factor: Recognizing evolving technologies to optimize internal efficiency is a great asset in a management. Technological elements are the ones which “relate to the availability, existence and development of technology”. Nevertheless, this is not just exclusive to digital technology, but also includes mechanical and other physical technological evolution. Some examples of technological factors that might impinge on the overall functionality of a business are:
- New technological platforms, innovations e.g., the progress of robotic engineering, etc.
- Rate of technological advances and innovations
- Rate of technological obsolescence
L for Legal Factors: This aspect involves learning about the laws and regulations in the region. Legislative changes occur from time to time and many of them affect the business environment.
Common examples of legal factors that you might come across while doing PESTLE analysis are as follows:
- Product regulations
- Consumer law
- Patent infringements
- Import/Export law
E for Environmental Factors: Government levies huge penalties or spot fines on firms for flouting environmental rules and regulations. Even consumers are willing to switch brands if they find a business is not adhering to its environmental duties. These, in particular affect the farming sectors, agri-businesses, etc.
Few common environmental factors are –
- Environmental conservation laws
- Popular attitude towards the environment
- Energy consumption regulation
- Waste disposal laws
In conclusion, PESTLE analysis is an invaluable business tool that analyzes six different groups of external factors, useful for organizations for analyzing and understanding the ground realities of the environment they have to operate in.
We, at CerveauSys, are well versed with various such strategic planning, HR and OD concepts and tools that can help an organization achieve targets and significantly improve its performance.
Do you wish to implement a coherent strategic planning for your business? Get in touch with us NOW.