Download Unit 1.5 External Environment

PEST ANALYSIS
• These factors affect a business and are
beyond the control of the business
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P olitical
E conomic
S ocial
T echnological
Political
• Government legislation – e.g. employment
law, define the boundaries in which a
business can operate
• Government intervention – e.g. taxation
and interest rate policies affect the political
and economic stability of a country.
Economic
• The state of the economy –
– Trade cycle
– determined by 4 key variables: inflation,
unemployment, economic growth and
international trade.
Social
• Cultural and demographic changes
• E.g. liberal and modern attitude to women
have led to a more flexible workforce
• Pressure for businesses to be more
environmentally friendly has led to
businesses changing their practices
Technological
• Advances in technology has affected
businesses. E.g. The internet and the
microchip
Three steps to carry out PEST
analysis
1. Brainstorm external factors likely to
affect the business, under each of the
PEST headings
2. Discuss these factors to decide which
ones are the most likely to have a
significant impact on the business
3. Summarise the information in PEST
template to further develop the business
strategy
Evaluation of PEST analysis
• If the overall opportunities of a decision
outweigh the threats then the business is
likely to pursue that option
• In reality, some factors in the external
business environment are subject to rapid
change
• An exogenous shock (war or oil crisis)
can reduce the chances of success,
despite what the PEST analysis revealed
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PEST is quite simple to use
Helps managers with decision making
Useful brainstorming decision tool
Promotes proactive and forward-looking
thinking
• Businesses will be better prepared to deal
with external shocks and to devise more
appropriate strategies
STEEPLE Analysis
• S ocial and cultural opportunities and
threats
• T echnological opportunities and threats
• E conomic opportunities and threats
• E nvironmental opportunities and threats
• P olitical opportunities and threats
• L egal opportunities and threats
• E thical opportunities and threats
Social and Cultural
• Growing knowledge and support for
environmental protection has changed business
behaviour
• Demographic changed such as better educated
and an ageing population has changed
recruitment practices, marketing strategies and
products provided by businesses
• Changing attitudes to the roles of women in the
workplace created a larger, more flexible
workforce
• Increased awareness and acceptance of
multiculturalism has created opportunities
Technological
• Opportunities from the internet
– Speed of access to information
– Reducing language and cultural barriers
– Reduced the cost of production
• Threats from the internet
– Price transparency
– Online crime
– Higher costs of production
Other opportunities that technology
brings to businesses:
• New working practices – working from
home
• Increased productivity and efficiency gains
– Machinery and robots are faster the
humans!
• Quicker product development time –
CAD/CAM
• New products and new markets - iPod
Other threats that technology
brings to businesses:
• Not always reliable
• Costly
• Shorter product life cycles – the amount of
new iPods
• Automation has led to job losses
Factors to consider when
implementing technology:
• Costs – cost of purchase, installation,
maintenance, replacement and insurance
• Benefits – expected gains in efficiency and
profits
• Human relations – impact on resistance to
change, staff morale and workforce planning
• Recruitment and training – costs of training,
number of people who need training, time for
training
Economic Opportunities and
threats
• Four key macroeconomic objectives:
– Controlled inflation
– Economic growth
– Reduced unemployment
– Acceptable international trade balance
• Government macroeconomic policies are
used to achieve these and will have either
a direct or indirect effect on businesses
Controlled rate of inflation
• Inflation can be defined as the continual
rise in prices in the economy
• Demand pull inflation
• Cost push inflation
• Inflation can make business planning and
decision making more complicated
• Inflation has an effect on the international
competitiveness of a country
How do governments control
inflation?
• Raise taxes to control the amount of
consumption
• Subsidise production of local businesses to
reduce their costs of production
• Pursue supply-side policies to improve the
productive capacity of the economy –
investment in education, health care and training
• These programmes will help to increase the
quality and productivity of the economy’s
resources over time