The application of the PESTLE framework and how

organisations need to monitor and forecast external

influences.

Session 8 (LO3): The context of the macro environment

Prepared by: Dr Gilbert Zvobgo

ICTM

By the end of the session students should be able to:

Use contemporary examples to demonstrate both the

positive and negative influence/impact the macro
environment has on business operations

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 Business environment = the surrounding conditions in
which the business operates
Divided into two broad categories
The internal environment, or the micro environment
Includes those factors over which the business has
some control, such as employees, managers,
management style, corporate culture and company
policies
The external environment
Includes those factors over which the business has
little control, such as economic conditions,
government policy, competitors and technology
It may be further divided into the operating
environment

Consists of factors which have an impact on firms

nationally and internationally
Includes:
Political
Economic
Social
Technological

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 Political and regulatory factors
Taxation, health and safety regulations
Economics factors
Rate of inflation, levels of unemployment
Social and demographic influences
Age profile of the population
Technological changes
Changes in information handling and
communication

An acronym for Political ,Economy, Social,

Technological, Environmental, and Legal is a tool
used to evaluate factors impacting a business or
organisation
Factors that can impact the business environment
externally in health care industry
These factors can determine the success or failure
of a business involved in healthcare
The PESTLE analysis technique can be used to help
the organisation to focus on what is driving
changes in the external environment.

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 The approach is based on the 3 circles model, which
describes three aspects of an organization business
environment:
The internal organisational Environment, where
decisions making is largely focused on operational
issues and resource management
The external transaction environment, where an
organizations customers, competitors, suppliers and
external stakeholders sit.
The wider contextual environment. Trends and events
in the contextual environment are not by definition-
of immediate relevance to the organization. These
trends are however, shaping developments of
consumer and competitor in the transaction
environment.

The approach is based on the 3 circles model, which

describes three aspects of an organization business
environment:
The internal organizational Environment, where
decisions making is largely focused on operational
issues and resource management
The external transaction environment, where an
organizations customers, competitors, suppliers and
external stakeholders sit.
The wider contextual environment. Trends and events
in the contextual environment are not by definition-
of immediate relevance to the organization. These
trends are however, shaping developments of
consumer and competitor in the transaction
environment.

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 The purpose of conducting PESTEL analysis in an
organisation is to look at the contextual
environment, to characterize the changes drivers
such as new technologies, new regulations, new
business models and news business strategies that
are operating and then consider what, if any effect
they have on the organisations future activities.
It looks at the Sociological, technological,
economical, environmental and political.

International: Britain is part of the European Union:

Free movement of goods/money/labour
National: The Prime Minister leads the ruling party
and appoints
Senior Cabinet Ministers: who are in charge of key
areas of government
Local: Councils are elected who represent their
local populations

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Government may support:
Private Sector
Create a competitive environment
Incentives such as grants for new enterprise
Public Sector
Cover loses/subsidise non-profit activities
Such as education and health.
Voluntary Sector
Supports cash grants such as National Lottery
and tax relief

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Impact on Business:
Impact on costs
Impact on competitiveness
Impact on profitability
Impact on behaviour
Impact on decision making

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 Direct tax Indirect tax
Income tax VAT

National Insurance Excise duties

Corporation tax Air passenger duty

Capital gains tax Betting and gaming

Council tax Land fill levy

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Company Law
Providing framework for businesses
Contract Law
Protecting consumers under sale of Goods and
Services
Employment Law
Employment contracts
Competition Law
Ensuring fair and honest trading

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 Equal Pay
Discrimination
Health and Safety
Working Time Directive
Location / Planning
Political (Certain Countries)
Sales of Good Acts
Trade Descriptions

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Demographic issues (e.g. population growth or

decline);
Changes in structure (e.g. ageing);
Households and families;
Education; attitude to work;
Religions;
Attitudes to male and female roles;
Ethics

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 A business operating/task environment is made
up of stakeholders external to the business who
have a direct impact on the operation of the
business
The four main stakeholders are:
customers
suppliers
competitors
interest groups
Each stakeholder has a self-interest in the business
and places different demands on the business

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Customers
Todays consumers are astute, better educated and
informed
Increasingly prepared to seek compensation if they
believe they have either been unfairly treated or
purchased a product that did not perform as promised
Consumer groups are also prepared to mount publicity
campaigns aimed at embarrassing those businesses
that do not act ethically or responsibly
Are increasingly putting pressure on businesses
(through their spending decisions) to be
environmentally aware, demanding products that are
clean, green and safe
A business needs to recognise and assess changes in
consumer tastes so it can constantly satisfy the
consumers needs and wants

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Suppliers
Provide the resources that the business needs to
conduct its operations
Examples of such resources are raw materials,
equipment, machinery, finance and information
Suppliers may be individuals or organisations

Businesses often have have a number of suppliers

So they are less vulnerable to supply difficulties
and the impact of price rises, need to develop a
reliable network of suppliers

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Competitors
Competitors are other businesses that offer rival
products or services
Competition can stimulate greater efficiency in
production and usually results in a better quality
product or service at the lowest cost to the
business
Business owners should aim to achieve a
sustainable competitive advantage over their
competitors so as to capture a larger share of the
market
A business needs to respond to any change in the
actions of its competitors

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Interest groups
Interest groups attempt to directly influence or
persuade an organisation to change its policies
Three of the most common groups attempting to
influence businesses are:
Trade unions, which employees may join in an attempt to
improve their pay and conditions
Consumer groups, which are lobby groups that monitor a
business performance in terms of product safety,
packaging, pricing and advertising
Specific issue groups, which combine to focus on one
specific area such as youth unemployment, social justice,
environmental protection

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Porters five forces model is an analysis tool that uses

five industry forces to determine the intensity of
competition in an industry and its profitability level
(Porter 2008) cited in (Jurevicius, 2013)
The five forces govern the profit structure of an industry
by determining how the economic value it creates is
apportioned. That value may be drained away through
five forces (Porter, 2008):
the rivalry among existing competitors,
bargained away through the power of suppliers
bargained away through or the power of customers or
be
constrained by the threat of new entrants or
constrained by the threat of substitutes

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 https://www.mindtools.com/pages/article/newTMC_08.htm

Strategy can be
viewed as building
defenses against the
competitive forces or
as finding a position
in an industry where
the forces are weaker
(Porter, 2008).
Changes in the
strength of the forces
signal changes in the
competitive landscape
critical to ongoing
strategy formulation

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 http://www.oxlearn.com/arg_Marketing-
Resources-PESTLE---Macro-Environmental-
Analysis_11_31

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