Agenda and LOs

We 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
Environment???

mean

by

Business

the aggregate of all conditions, events and

influences that surround and affect a business
Characteristics of Business Environment:
Complex
Dynamic
Multi-faceted
Far- reaching impact

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 firms ability
Analysis of competitors strategies and
formulation of effective counter measures
To keep dynamic and change-ready
It links with strategy and planning (refer back
to lecture 6)

PEST:
Analysing the general environment

Managements 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)

PESTEL EXERCISE

a)

Exercise - put the following into their correct

category:
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
6

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 Model
Internal 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 Resources
Reminder: 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
environment

Micro

and

Macro

Micro Environment

It consists of the factors in the

companys immediate environment

that affect the performance of the
company.

Some Key Micro Environment

Factors
Suppliers
Customers
Marketing Intermediaries
Competitors
Publics
Financial Community
Note that this overlaps with
previous Stakeholder studies

our

Micro Environment of a typical car

manufacturer
Potential
Supplier
Components
Supplier
Local
Communities

Potential
Customers
Stakeholders

Pressure
Groups

Government

Customers
Car
Manufacturer

Competitors

Car Dealers
Potential
Dealers

For
Customers

For
Supplies

Macro Environment
It 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

TECHNOLOGICAL
FACTORS

Values,
Mission & Objectives.
Human Resources,
Co. Image & Brand Equity

DEMOGRAPHIC
FACTORS
MARKETING
INTERMEDIARIES

Non - Economic

Environment

SOCIAL
CULTURAL
FACTORS