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!$% & Micro environmental Factors

%he following type of forces influence an organisation`s operating environment:
Pest Factors These are external Iorces which the organisation does not have direct control
over these Iactors. PEST is an acronym and each letter represents a type oI Iactor (Political,
Economical Social and Technological).
Micro environmental Iactors These are internal Iactors, which the organisation can control.
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A PEST analysis is used to identiIy the external Iorces aIIecting an organisation .This is a simple
analysis oI an organisation`s Political, Economical, Social and Technological environment. A
PEST analysis incorporating legal and environmental Iactors is called a PESTLE analysis.
!olitical

The Iirst element oI a PEST analysis is a study oI political Iactors. Political Iactors inIluence
organisations in many ways. Political Iactors can create advantages and opportunities Ior
organisations. Conversely they can place obligations and duties on organisations. Political
Iactors include the Iollowing types oI instrument:
- Legislation such as the minimum wage or anti discrimination laws.
- Voluntary codes and practices
- Market regulations
- Trade agreements, tariIIs or restrictions
- Tax levies and tax breaks
- Type oI government regime eg communist, democratic, dictatorship
Non conIormance with legislative obligations can lead to sanctions such as Iines, adverse
publicity and imprisonment. IneIIective voluntary codes and practices will oIten lead to
governments introducing legislation to regulate the activities covered by the codes and practices.
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The second element oI a PEST analysis involves a study oI economic Iactors.

All businesses are aIIected by national and global economic Iactors. National and global interest
rate and Iiscal policy will be set around economic conditions. The climate oI the economy
dictates how consumers, suppliers and other organisational stakeholders such as suppliers and
creditors behave within society.
An economy undergoing recession will have high unemployment, low spending power and low
stakeholder conIidence. Conversely a 'booming or growing economy will have low
unemployment, high spending power and high stakeholder conIidence.
A successIul organisation will respond to economic conditions and stakeholder behaviour.
Furthermore organisations will need to review the impact economic conditions are having on
their competitors and respond accordingly.
In this global business world organisations are aIIected by economies throughout the world and
not just the countries in which they are based or operate Irom. For example: a global credit
crunch originating in the USA contributed towards the credit crunch in the UK in 2007/08.
Cheaper labour in developing countries aIIects the competitiveness oI products Irom developed
countries. An increase in interest rates in the USA will aIIect the share price oI UK stocks or
adverse weather conditions in India may aIIect the price oI tea bought in an English caIe.
A truly global player has to be aware oI economic conditions across all borders and needs to
ensure that it employs strategies that protect and promote its business through economic
conditions throughout the world.


$ocial

The third aspect oI PEST Iocuses its attention on Iorces within society such as Iamily, Iriends,
colleagues, neighbours and the media. Social Iorces aIIect our attitudes, interest s and opinions.
These Iorces shape who we are as people, the way we behave and ultimately what we purchase.
For example within the UK peoples attitudes are changing towards their diet and health. As a
result the UK is seeing an increase in the number oI people joining Iitness clubs and a massive
growth Ior the demand oI organic Iood. Products such as Wii Fit attempt to deal with society`s
concern, about children`s lack oI exercise.
Population changes also have a direct impact on organisations. Changes in the structure oI a
population will aIIect the supply and demand oI goods and services within an economy. Falling
birth rates will result in decreased demand and greater competition as the number oI consumers
Iall. Conversely an increase in the global population and world Iood shortage predictions are
currently leading to calls Ior greater investment in Iood production. Due to Iood shortages
AIrican countries such as Uganda are now reconsidering their rejection oI genetically modiIied
Ioods.
In summary organisations must be able to oIIer products and services that aim to complement
and beneIit people`s liIestyle and behaviour. II organisations do not respond to changes in
society they will lose market share and demand Ior their product or service.
%echnological

Unsurprisingly the Iourth element oI PEST is technology, as you are probably aware
technological advances have greatly changed the manner in which businesses operate.
Organisations use technology in many ways, they have
1. Technology inIrastructure such as the internet and other inIormation exchange systems
including telephone
2. Technology systems incorporating a multitude oI soItware which help them manage their
business.
3. Technology hardware such as mobile phones, Blackberrys, laptops, desktops, Bluetooth
devices, photocopiers and Iax machines which transmit and record inIormation.
Technology has created a society which expects instant results. This technological revolution has
increased the rate at which inIormation is exchanged between stakeholders. A Iaster exchange oI
inIormation can beneIit businesses as they are able to react quickly to changes within their
operating environment.
However an ability to react quickly also creates extra pressure as businesses are expected to
deliver on their promises within ever decreasing timescales..
For example the Internet is having a proIound impact on the marketing mix strategy oI
organisations. Consumers can now shop 24 hours a day Irom their homes, work, Internet caIe`s
and via 3G phones and 3G cards. Some employees have instant access to e-mails through
Blackberrys but this can be a double edged sword, as studies have shown that this access can
cause work to encroach on their personal time outside work.
The pace oI technological change is so Iast that the average liIe oI a computer chip is
approximately 6 months. Technology is utilised by all age groups, children are exposed to
technology Irom birth and a new generation oI technology savvy pensioners known as 'silver
surIers have emerged. Technology will continue to evolve and impact on consumer habits and
expectations, organisations that ignore this Iact Iace extinction.
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A PEST analysis is sometimes expanded to incorporate legal and environmental Iactors; this is
known as a pestle analysis. There are many statutes books containing company law as almost
every aspect oI an organisation`s operation is controlled through legislation Irom treatment oI
employees through to health and saIety. Legal Iactors are important as organisations have to
work within legislative Irameworks. Legislation can hinder business by placing onerous
obligations on organisations. On the other hand legislation can create market conditions that
beneIit business.

iagram: PEST analysis and the marketing mix