Explain why an understanding of the environmental/external (PESTLE) factors is Important for all organizations
To run a successful business, it is very important to run a background check on the external environment of that particular industry. PESTLE analysis is widely used to investigate the Political, Economic, Social, Technological, Legal and Environmental influences under expanding businesses. It helps in decision-makings and also to become more aware of competitors move.
Political factors affect companies in all type of industries and can have significant impact if change in government or policies occur. Changes in public spending or closing and opening of major businesses rely immensely on UK’s international relations with other countries. Eg: accession of new members like Poland can bring up new business opportunity and can have similar effects on the EU regulations. Legal changes are closely related to Political changes as Laws are frequently changed in a wide range of areas, Eg:
• Government type and stability
• Freedom of press, rule of law and levels of bureaucracy and corruption
• Regulation and de-regulation trends
• Social and employment legislation
• Tax policy, and trade and tariff controls
Economic changes are directly related to social changes. Business outcomes are associated with fluctuating economy with a series of general boom and downfalls. All businesses benefit during an economic boom and lose out during downfalls. Other changes in the economy such as changes in the interest rate, wage rates, and the rate of inflation (i.e. general increase in prices) directly affect outcomes of various industries. Businesses are always willing to take risks in order to expand if economic conditions are right with rising demands and low interest rates and inflation rates. Factors include
• Current and projected economic growth, inflation and interest rates.
• Labor costs and supply
• Levels of disposable income
• Income distribution
Social factors are based on the cultural and demographic aspects of the environment involving shared consumer vision and behaviour. For example: Increased health consciouniousness in consumers may affect food industry which may lead to obesity and other health problems. A deep understanding of social factors can benefit businesses in the long term. Factor includes:
• Population growth rate and age profile.
• Population health, education and social mobility
• Population employment patterns, job market freedom and attitudes to work.
• Press attitudes, public opinion, social attitudes and social taboos.
• Lifestyle choices and attitudes
Technological factors are one of the most important in post millennium world in terms of communication, databases, and shared online resources. Companies access vast qualities of information quickly through the creation of various online resources and databases. New inventions in modern day...