Transcript THE GENERAL ENVIRONMENTx

Lecture 5
THE GENERAL ENVIRONMENT
Celia Hadjichristodoulou
Cyprus Institute of Marketing - Nicosia
31/10/2013
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Outline
• The General Environment
• Environmental Analysis and Diagnosis
• PESTLE Analysis
• Beyond PESTLE
• Ethical Considerations
• Government-Related Considerations
• Why be concerned with Environmental Analysis and
Diagnosis?
• Strategic planning of Unicars: live presentation!
• Next Session
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The General Environment
• The current and forthcoming lectures will be dealing with the
impact of environmental factors on the strategic management
process, as well as ways in which the factors can be analyzed
and diagnosed
• There are many ways to organize the sectors for analysis and
diagnosis
• How can we analyse the environment within which the
organisation operates?
• An in-depth analysis of the firm’s environment typically
involves examining six major factors (PESTLE): Political,
Economical, Social, Technological, Legal and Environmental.
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Environmental Analysis & Diagnosis
• Environmental analysis is the process by which strategists monitor the
environmental sectors to determine opportunities for and threats to their
firms
• Analysis is the tracing of an opportunity or threat to a source
• Environmental diagnosis consists of decisions made by assessing the
significance of the data (opportunities and threats) of the environmental
analysis
• These decisions lead to other decisions on whether to react, to ignore, try
to influence, or anticipate the opportunities or threats discovered
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PESTLE Analysis
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PESTLE Analysis
Political
• Local, national and international political developments –
how will they affect the organisation and in what way?
• How actions from formal or informal political parties;
government may influence the organisation?
• Governments have great influence on the health,
education, and infrastructure of a nation
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Political Stability
Tax Policy
Trade Restrictions & Policies
International Trade Regulations
Changes in Tax Structure
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PESTLE Analysis
Economical
• The markets in which the organisation operates, including
labour markets, plus conditions in the national and
international economy
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Monetary Policies
Government Spending
Exchange Rates
Inflation Rates
Employment Rates
Interest Rates
Stage of Business Cycle
Economic Stability & Growth
Market Stability
Trade Restrictions
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PESTLE Analysis
Economical cont’d
• For example, tax policies can reduce the attractiveness of investment in an
industry or reduce the after tax incomes of consumers who then lower their
spending levels
• There are various economic factors that many firms analyze and diagnose:
• The stage of the business cycle. The economy can be classified as being in
recession, recovery, or prosperity stage
• The inflationary or deflationary trend in the prices of goods and services
(i.e. if inflation is very severe, wage and price controls may be imposed)
• Monetary policies, interest rates, and devaluation or revaluation of the
currency in relation to other currencies
• Fiscal policies: tax rates for firms and individuals
• Etc.
• Each of these facets of the economy can help or hinder the achievement of a
firm's objectives and lead to success or failure for the strategy
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PESTLE Analysis
Social
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Demographic Factors
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Cultural Values / Influences
Family Size
Immigration
Religion
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Social Behaviour / Preferences
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Income Distribution
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Age Distribution
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Labour and Social Mobility
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Lifestyle Changes
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Work / Career / Leisure Attitudes
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Living Conditions
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Population Growth Rate
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Educational Level
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PESTLE Analysis
Social cont’d
For Example:
 Years ago, the norm was for a family to have two to four children. Today not
all individuals accept this, and change of attitude has had a big impact on
P&G (Pampers) , Gerber (baby food), builders, Mattel (toys) etc.
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Also, decades ago, retired people, single people, widows and widowers to
live with relatives. Now there is a trend toward living alone, and this has had
a big impact on builders, appliance manufacturers, food packers, magazine
publishers etc.
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For years most married women stayed home. Now, most work. This has
caused problems for firms that sold door to door and has increased business
for a variety of firms, such as those offering nursery school service, prepared
foods, restaurants, and home security systems
• Increased education has led to new attitudes on the part of employees about
how many hours they wish to work, the quality of life they expect at work,
and the kind of supervisory style they expect can affect how strategies are
developed and implemented. New benefits programs / WLB schemes are
also needed for new lifestyles
• Cyprus example: RAI study findings
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PESTLE Analysis
Technological
 Government Spending in R&D
 New Inventions & Developments
 Energy Cost & Use
 Changes in IT
 Changes & Trends in Internet
 Changes in Mobile Technology
 Automation
 Technology Incentives
 Electronic Money Transfers
 Mobile Phones- Decline of the Fax
 Video Conferencing
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PESTLE Analysis
Technological cont’d
For Example:
• Changing technology can offer major opportunities for
improving goal achievement or threaten the existence of
the firm
• Examples of product and service breakthroughs include
transistors, lasers, efficient batteries for electric cars,
computers, dvd’s etc.
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PESTLE Analysis
Legal
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Legislation
Contract Laws
Consumer and Employee Protection
Trade Unions
Discrimination Laws
Consumer Laws
Employment Laws
Health and Safety Laws
Disciplinary and Grievance Procedures
Equal Pay
Holidays and Benefits
Absence- Maternity and Paternity
EU Regulations
Regulatory Constraints
Working Time Directives
Minimum Wage
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PESTLE Analysis
Environmental
• The impact of the natural world; climate; resources
reduction etc.
• For example, growing awareness of the potential impacts
of climate change is affecting how companies operate and
the products they offer.
 Waste Disposal / Recycling
 Sustainable Energy
 Climate Changes
 Environmental Regulations
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PESTLE Analysis
Environmental cont’d
For Example:
• Large food distributors can be paralyzed by an abnormal
storm that keeps their trucks off the road
• Several businesses derive opportunity by providing
climate - forecasting services
• One example is Ocean routes, which employs 65 full - time
meteorologists. They plot weather and sea conditions leading to
the best routes for ship lines so that time and fuel costs are
minimized
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SWOT Analysis
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An example of a SWOT Analysis
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PESTLE
and SWOT analysis
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Beyond PESTLE
Ethical Considerations
• Social values and behaviours that affect the perception of
organisation leading to Corporate Social Responsibility
and Business Ethics
 Bribery
 Reputation
 Client Confidentiality
 Employee Personal Information
 Copyright Rights / Intellectual Property
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Beyond PESTLE
Government-Related Considerations
Federal, state and local governments increasingly affect how businesses
is maintained by organisations
They legislate on such matters as:
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Wage and price controls
Equal employment opportunity
Safety and health at work
The way that consumer credit is administered
The place that the plant can be located
The chemicals that the plant can emit into the air
The amount of noise that the product can make
The way in which the firm can run advertising and the kinds of ads that can
be run
Government philosophies, its relationships with business and its
imposed laws and regulations can change over time. This is an
important aspect for strategists to examine since these change how
businesses operate on a day - to - day basis
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Beyond PESTLE
Government-Related Considerations cont’d
• Action by governments also affects the strategic choices of
businesses
• They can increase a business's opportunities or threats or
sometimes both. Some examples of opportunities include the
following:
• Government policy changes can lead to increases in opportunities and new
business for firms
• Governments sponsor firms and industries and thus help them survive and
prosper
• Governments protect home producers against "unfair" foreign competition
• Governments are large purchasers of goods and services
• Besides encouraging and helping, the government creates threats
when it affects profits negatively. Many laws and regulations can
limit the strategic options of many firms
• For example, governmental policies that change economic conditions, tax
laws etc. can create threats to particular businesses (i.e. taxation & consulting
organisations)
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Why be Concerned With Environmental
Analysis & Diagnosis?
• Managers must systematically analyze, explore and understand
the environment since environmental factors are prime
influencers of strategy change
• Environmental analysis and diagnosis gives strategists time to
anticipate opportunities and to plan to make optional responses
to these opportunities (i.e. plan ahead)
• Thus, helps strategists develop an early warning system to
prevent threats or develop strategies which can turn a threat to
the firm's advantages
• Important: When the company ceases to adjust the
environment to its strategy or does not react to the
demands of the environment by changing its strategy, the
result is to observe a lessened achievement of corporate
objectives
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Why be Concerned With Environmental Analysis &
Diagnosis? cont’d
• Managers need to search the environment to:
(1) Determine what factors in the environment present threats to the
company's strategy and barriers to objectives accomplishment
(2) Determine what factors in the environment present opportunities
for a greater accomplishment of objectives through an
adjustment in the company's strategy
• Firms which systematically analyze and diagnose the
environment are more effective than are those which
don’t
• Successful firms do more and better environmental
analysis and diagnosis than do failing firms
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Assignment 2
• An in-depth analysis of the firm’s environment can be achieved by applying
the principles of PESTLE analysis. Discuss using real life examples.
• Format: Essay Type, 3000 words, produced on a laser printer
• Deadline: 11th April 2014
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Live Cypriot case study:
Strategic Planning of Unicars for 2013-2016
• By Mr. Panayiotis Thrasyvoulou, HR and Quality Manager,
Unicars Ltd
• Before similar position in Cybarco Ltd (Lanitis Group of
Companies)
• BSc in Business Management, Essex University
• MSc in International Employment Relations & Human
Resources Management, London School of Economics &
Political Science (Distinction)
• Award from LSE “Foundation of Automation and Human
Development School Prize for the Best Overall
Performance”.
• Feel free to ask questions
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Next Session
‘ANALYSING THE ENVIRONMENT’
(Techniques for Environmental Analysis; Descriptions of Environmental
Analysis; The Role of Strategists in Analysis and Diagnosis; The
Environment – Strategy Interface)
…The End…
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