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Analysing the Environment

The main readings for this element are: Scott and Sanders; 2008, Strategic Management H-WMP Ch 3 Johnson, Scholes and Whittington; 2006. Exploring Corporate Strategy Ch 2

PESTEL analysis
There are several ways of analysing the environment in which the organisation exists and one of the commonly used techniques is PESTEL  Also termed PEST or STEP in some text books but are essentially the same  Its function is to look at future influences on the organisation and plan accordingly * however;

Johnson et al

It is not enough just to list influences; it is more important to identify the key drivers of change, which are forces likely to affect the structure of an industry, sector or market Although there will be many changes in the macro-environment it will be the combined effect of just some of these separate factors that will be important, rather than all the factors separately

Force-Field Analysis
Drivers of change: the longer the arrow the greater the force


The difficulties in trying to forecast which will be the key drivers of the future are enormous or is it? Peter Drucker said the future is already here, the difficult part is finding it

*Is any plan better than no plan?

PESTEL analysis

Political Economic Social Technological Environmental Legal


Politicians enact legislation, the authorities enforce it and courts interpret it Legal changes on smoking in public places in Scotland in March 2006: banned in bars, restaurants, clubs, hotels, airports, taxis etc. and all of them had to implement it or face fines or loss of licence. Why ? If you were in any of these businesses how would you have dealt with it?


*Could such a ban be enforced in UAE? *What about shisha cafes?

PESTEL: Economic

At what rate might prices increase? Will inflation levels be manageable? Exchange rates-what currency will it be pegged to? Will wage rates follow price rises? What will commodities prices be like? Will we still have access to existing markets? Will people have saved enough for a pension?

PESTEL: Social / Societal changes


Are birth rates falling/increasing? Are people living longer? Are mortality rates changing? Do people want to work longer? Whats the divorce rate? What age are people getting married at? Are people staying single longer? What kinds of houses will people want? Where will people want to live?

PESTEL: Technological

Medical technology is going to have a huge impact on society How? Will technology allow people to work anywhere at any time and, whats your point? Will technology develop materials that allow buildings to go higher, cars to become cheaper and more fuel efficient?

PESTEL: Environmental

The impact that certain activities have on the natural environment Organisations may have to accept higher environmental standards when designing and constructing new buildings UAE has the largest carbon footprint of any country in the world and the highest water consumption per capita in the world Consumers generally are increasingly environmentally aware


Once some projections about the future have been made they can be used as the basis of scenarios The term comes from the theatre and it is a storyboard - a synopsis of a broad story Scott (pp 3/22-324) sets out two scenarios relating to the energy sector

PESTEL analysis

This is long term speculation and the factors set out above are called the Distant Environment. The organisation must also balance the long term with day-to-day factors and this is called the Near Environment.

Near Environment factors include:


Labour / staff Customers Suppliers Competitors Creditors Technology

Near environment

The fit between the distant and near environments is crucial to the long-term survival of the organisation