PESTLE Analysis PDF

There are both internal and external factors that impact on decisions that an organisation makes. Internal factors are generally within the organisation’s control, whereas external factors are not. Although the external factors are outside of the organisation’s control, by analysing and understandi...

There are both internal and external factors that impact on decisions that an organisation makes. Internal factors are generally within the organisation’s control, whereas external factors are not. Although the external factors are outside of the organisation’s control, by analysing and understanding the external environment an organisation can maximise opportunities and minimise threats. One tool for helping an organisation understand the external environment is a PESTLE analysis. A PESTLE analysis looks at six external factors and provides a structured method to consider each factor’s impact on an organisation. Continued Political factors This includes the policies of the government in the country or countries an organisation operates in and could be things like how much tax an organisation pays, employment laws, and regulations around how you trade with organisations in other countries. There may also be environmental regulations to consider, and some trades may be restricted, requiring government permission. The policies of a government have far reaching impact on all aspects of society including education, infrastructure (roads and rail links), and health services. Organisations need to be aware of how government policies, and potential changes to them, impact on their activities. Other considerations are how politically stable the government is, and how bureaucratic the government is. Question to ask: How may government and other political factors impact the organisation? Economic factors Economic factors include things that affect an economy. Is the economy growing or in decline? For example, interest rates, currency exchange rates, and inflation rates are all economic factors that an organisation can’t control but is affected by. Unemployment rates, wage rates, including minimum wage rates, and changes in disposable income also fall under economic factors. Disposable income is the income that an individual has remaining after paying all their necessary bills, for example, rent/mortgage, power and food. The availability of credit and the local cost of living also affect the purchasing power of individuals which has an effect on supply and demand and has far-reaching consequences. In the short term, this might affect how an organisation sets its prices, and in the long term it can change the strategic direction of an organisation entirely. Question to ask: What economic trends could have an impact on the organisation? Social factors The demographics of a country change over time as a result of many factors including population growth rates and changes to life expectancy. Birth rate changes, levels of migration and a younger people who are moving from rural to urban centres affect the population’s age distribution and attitudes. As a result, a society’s cultural attitudes and expectations will change over time – for example, their attitude to health or work/careers. This all affects the products and services they buy, and the expectations they have of organisations and what they provide to the wider community. Question to ask: What are the emerging social and demographic trends? Technological factors New technologies are constantly emerging and at an increasing pace. Emerging technologies can provide new ways of working for organisations but can also lead to some organisations becoming obsolete. Organisations that are aware of emerging technologies and their application in their own industry can gain a competitive advantage by understanding how to implement new technologies into their activities. Question to ask: What technological innovations could affect the market, for better or worse? Legal factors Legal factors have some overlap with political factors, but an organisation should consider the laws and regulations that it needs to be specifically aware of due to the nature of its activities. For example, employment laws, insurance legislation, data protection laws, copyright laws, consumer protection laws, and health and safety laws. There will be rules on imports and exports including taxation, quotas and other restrictions that may affect access to materials. If an organisation operates in more than one country, it needs to consider the laws applicable in each country. It can become complex and costly for an organisation to monitor legislation in different countries and ensure it is maintaining compliance at all times. Question to ask: What changes in legislation could impact the organisation? Environmental factors Environmental factors are becoming increasingly prominent due to the scarcity of resources, pollution targets, and commitments by governments to address climate change. Consumers are also increasingly expecting organisations to adhere to ethical sourcing and sustainability principles. This expectation extends to the supply chains of organisations from whom they buy. Question to ask: What ecological aspects influence the business environment? Alpha Air is a small passenger airline based in the UK. It currently operates a number of routes based wholly in the UK. It's now considering expanding into two countries and is using PESTLE analysis to help it understand the external environment. This country has a stable political environment and has been governed by the same political party for a number of years. They value international trade but have a history of self-investment and are cautious about international trade. This country has experienced a politically unstable environment over recent years which has resulted in a significant amount of unrest. Parts of the country have issued travel warnings advising foreign travellers to be alert when travelling there. They offer incentives for aviation companies to open routes into their country. Remember that PESTLE isn’t for making a decision based on this analysis alone. It guides an organisation on the external factors it should be considering when making important long-term decisions. PESTLE IS USED TO ANAYSE EXTERNAL FACTORS IN A STRUCTED MANNER