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Syllabus C. Strategy C2. Environmental Issues

C2a. PESTEL Analysis

Introduction to Understanding the Environment

Well this brings up 3 difficulties:

  1. There’s so much going on that even identifying the influences still may not paint an overall picture of the important influences

  2. Speed of change in these influences is growing ever more rapid

  3. Managers are just people

    They oversimplify - by concentrating on what has historically been a key influence

    So frameworks have been developed to try and cope with the complexity and challenge natural managerial thinking

PESTEL Analysis

The basic idea here is that this forces management to look at all aspects of the environment surrounding them - to help them understand their position within it - and what opportunities and threats may soon occur

  • Political

    Tax policy; Foreign trade regs; Government stability

  • Economic

    Business cycles; GNP trend; Interest rates; Money supply; Inflation; Unemployment; Disposable Income

  • Sociocultural

    Demographics; Income distribution; Social mobility; Lifestyles; Consumerism; Education levels

  • Technological

    Research spending; Government focus; New discoveries; Obsolescence rates

  • Ecological

    Environmental protection laws; Using up of raw materials; cutting edge e.g. genetically modified goods

  • Legal

    Monopoly laws; Employment law

Limitations:

This framework identifies the factors in the categories. 

However it’s pretty useless as just a list, so models later on in the course are used to inform and guide analysis.

It cannot quantify effects.