20MG301 Principles of Management

Module-1
Principles of Management

Topic: PESTEL Analysis

 PEST Analysis

PEST

Political Economical Social Technological

 PEST Analysis (contd.)
Framework or tool used to analyze and
monitor the macro-environmental
factors that may have a profound
impact on an organization's
performance. This tool is especially
useful when starting a new business or
entering a foreign market. 
 PEST Analysis (contd.)
All living creatures including human beings live within
an environment. Apart from the natural environment,
environment of humans include family, friends and
neighbours.

It also includes man-made structures such as

buildings, furniture, roads and other physical
infrastructure. The individuals do not live in a vacuum.
They continuously interact with their environment to
live their lives.
 PEST Analysis (contd.)
• As stated above, the success of every
business depends on adapting itself to the
environment within which it functions.

• For example, when there is a change in the

government polices, the business has to
make the necessary changes to adapt itself to
the new policies.

• A change in the fashion or customers’ taste

may shift the demand in the market for a
particular product
 PEST Analysis (contd.)
• The term ‘business environment’ implies external

forces, factors and institutions that are beyond the

control of the business and they affect the functioning
of a business enterprise.

• These include customers, competitors, suppliers,

government, and the social, political, legal and
technological factors etc.

• Some of these factors or forces may have direct

influence over the business firm, others may operate

indirectly
 PEST Analysis (contd.)
•Business environment may be defined as the
total surroundings, which have a direct or indirect
bearing on the functioning of business.
• It may also be defined as the set of external
factors, such as economic factors, social factors,
political and legal factors, demographic factors,
technical factors etc., which are uncontrollable in
nature and affects the business decisions of a
firm.
 PEST Analysis (contd.)
The total of all things external to firms and
industries which affect their organization and
operation

-Bayard O. Wheeler

Business environment encompasses the

‘climate’ or set of conditions, economic, social,
political or institutional in which business
operations are conducted

-Arthur M. Weimer
 PEST Analysis (contd.)
• Concept of Business Environment: It gets resources from the environment and supplies
its goods and services to the environment. There are different levels of environmental
forces. Some are internal forces whereas others are external forces

• External forces may be related to national level, regional level or international level

• Every business organization tries to grasp the available opportunities and face the threats that
emerge from the business environment.

• Business organizations cannot change the external environment but they just react.

• They change their internal business components (internal environment) to grasp the external
opportunities and face the external environmental threats
 PEST Analysis (contd.)
Features of Business Environment:

Business environment is the sum total of all factors external to the business firm and that greatly
influence their functioning.

It covers factors and forces like customers, competitors, suppliers, government, and the social,
cultural, political, technological and legal conditions.

The business environment is dynamic in nature, that means, it keeps on changing.

The changes in business environment are unpredictable. It is very difficult to predict the exact nature
of future happenings and the changes in economic and social environment. .

Business Environment differs from place to place, region to region and country to country.
 PEST Analysis (contd.)
• It is very important to analyze business environment to survive and

to get success for a business in its industry. It is, a vital role of

managers to analyze business environment so that they could
pursue effective business strategy

• A business firm gets human resources, capital, technology,

information, energy, and raw materials from society. It follows

government rules and regulations, social norms and cultural
values, regional treaty and global alignment, economic rules and
tax policies of the government. Thus, a business organization is a
dynamic entity because it operates in a dynamic business
environment
 PEST Analysis (contd.)
Importance of Business Environment:

Identifying Firm’s Strength and Weakness: Business environment

helps to identify the individual strengths and weaknesses in view of
the technological and global developments

Determining Opportunities and Threats: The interaction between the

business and its environment would identify opportunities for and
threats to the business. It helps the business enterprises for meeting
the challenges successfully.

Giving Direction for Growth: The interaction with the environment

leads to opening up new frontiers of growth for the business firms. It
enables the business to identify the areas for growth and expansion
of their activities.
 PEST Analysis (contd.)
Continuous Learning: Environmental analysis makes the task
of managers easier in dealing with business challenges. The
managers are motivated to continuously update their
knowledge, understanding and skills to meet the predicted
changes in realm of business.

Image Building: Environmental understanding helps the

business organizations in improving their image by showing
their sensitivity to the environment within which they are
working.

Meeting Competition: It helps the firms to analyze the

competitors’ strategies and formulate their own strategies
accordingly.
 Social Factors
Sociological attitudes and profiles are constantly changing

These factors scrutinize the social environment of the

market and gauge determines like cultural trends,
demographics, population analytics etc.,

This social created by a society-at-a-large in which a

business functions can be referred to as its external social
environment. If a business operates in a multi cultural
society, then the social external social environment is even
more complicated because the environment will consist of
diverse sub populations with their own unique values, beliefs
and customs
 Social Factors (contd.)
Some of the social factors are:

Lifestyles

Buying habits

Population growth rate

Emphasis on safety

Health consciousness

Family size and structure

Attitudes towards saving and investing

Attitude towards customer service and product quality

 Social Factors (contd.)
If social factor is neglected Organizations should be
able to offer products and services which aim to
benefit people’s lifestyle. The offerings should
complement customer’s behaviour. Not reacting to
changes in the society can be a costly mistake.
They might lose market share. Demand for their
products and services will fall

Eg: Social Factors which impact PEPSI CO, NOKIA

and MC DONALD’s
 Technological Environment
Technological environment means the
development in the field of technology which
affects business by new inventions of
productions and other improvements in
techniques to perform the business work.
External Factor in Technology that impact
business operations
 Technological Environment (contd.)
Features of Technical Environment:

The pace of change in technology is becoming

more rapid and often changes that impact your
market come from unexpected sources

Technological factors can be broadly divided into

two areas: manufacture and infrastructure

Organizations that fail to keep up with technological

advances leave opportunities for a small producer
or new entrant to enter their market
Technological Environment
 Technological Environment
Importance of Technological Environment:

Automation

Improved quality of parts and end product

Incentives

Significant cost savings

Use of outsourcing to control costs and offer greater

flexibility
 Economic Environment
• It is the environment in which business
operates.

• It includes system, policies and nature of

an economy, trade cycles, economic
resources, Level of income etc.,

• It is very dynamic and complex in nature

 Economic Environment
Importance of Economic Environment:

Helps to estimate the market trends

It’s a leading indicator of government goals and its planned

use of economic tools and market reforms

Determine opportunities and threats

Giving directions for economic growth

Help to deal with business challenges

Factors affecting Economic Environment:

Growth rate, Inflation, Business cycle, Labour cost

 Economic Environment (contd.)
Limitations of Economic Environment:

Reduces the individual freedom of choice

Less scope of foreign investment
Imposes too many restrictions
Political Factors
 Political Factors (contd.)
Government Stability

The occurrence of a government change increases the likelihood of

subsequent changes

Employment & Operational Laws

Support to Training and Employment Programme for Women (STEP)

Entrepreneurship Development Programme, Skill Development

Programme (SDP), Management Development Programme

Monetary and Fiscal Policy of Govt. of India

 Political Factors (contd.)
Tax Regulation:

The rate of the individual and corporate tax has been

reduced in order to bring more people in the tax net

Local Arms of MNCs come under Service Tax Scanner

Heavy reduction in the import duties has been implemented

Trade restrictions of Reforms:

FERA Restrictions removed

RTP Restrictions removed

Free entry of Foreign Investment

Reduction in restrictions of Export-Import

 Political Factors (contd.)
Government Leadership

Establishment of foreign capital market and capital

market reforms

Providing Incentive for export

Statutory Liquidity Ratio (SLR) has been lowered

Corruption Levels

78th rank in Corruption Perception Index

Countries at the bottom need to adopt radical anti-

corruption measures in favour of their people
 Political Factors (contd.)
Bureaucracy Issues Stability of Neighbours

• Abolition of Licensing
• Freedom to Import Technology
• Contraction of Public sector
• MRTP Restrictions Removed
THANK YOU