BUS305: Small Business Management

Key Points

• In a sense, such data collection scanning acts as an early warning system for the organization. It allows marketers to understand the current state of the environment so that the organization can predict trends.
• A formal but simple strategic information scanning system can enhance the effectiveness of the organization's environmental scanning efforts. An information system (part of marketing research) organizes the scanning effort so that information related to specific situations can be more readily used.
• The segmentation of the macro environment according to the six presented factors of the PESTEL analysis is the starting point of the global environmental analysis.

Terms

• PESTEL analysis - The PEST analysis is a political, economic, social, and technological analysis that describes the framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added legal and rearranged the mnemonic to SLEPT; inserting environmental factors expanded it to PESTEL or PESTLE, which is popular in the United Kingdom.
• Trend - An inclination in a particular direction.

Example

A trend break could be a value shift in society, a technological innovation that might be permanent, or a paradigm change. Issues are less deep-seated and can be "a temporary short-lived reaction to a social phenomenon".

Introduction

Marketing managers are confronted with many environmental concerns, such as those posed by technology, customers and competitors, ethics and law, the economy, politics, demographics, and social trends. All organizations should continuously appraise their situation and adjust their strategy to adapt to the environment.

One technique used by organizations to monitor the environment is known as environmental scanning. This term refers to activities directed toward obtaining information about events and trends that occur outside the organization and that can influence the organization's decision making.

In a sense, such data collection scanning acts as an early warning system for the organization. It allows marketers to understand the current state of the environment so that the organization can predict trends.

Issues are often forerunners of trend breaks. A trend break could be a value shift in society, a technological innovation that might be permanent, or a paradigm change. Issues are less deep-seated and can be "a temporary short-lived reaction to a social phenomenon. " A trend can be defined as an "environmental phenomenon that has adopted a structural character".

A formal but simple strategic information scanning system can enhance the effectiveness of the organization's environmental scanning efforts. An information system (part of marketing research) organizes the scanning effort so that information related to specific situations can be more readily obtained and used.

The Macro Environment

There are a number of common approaches for how the external factors, which describe the macro environment, can be identified and examined. These factors indirectly affect the organization but cannot be controlled by it. One approach is the PEST analysis.

PEST stands for political, economic, social, and technological. Of the four categories explored in the PEST analysis, the company has the least control over economic factors.

Two more factors, the environmental and legal factors, are defined within the PESTEL analysis (or PESTLE analysis).

The segmentation of the macro environment according to the six presented factors of the PESTEL analysis is the starting point of the global environmental analysis.

PESTEL Analysis

The six environmental factors of the PESTEL analysis are the following:

Political factors

• Taxation policy;
• Trade regulations;
• Governmental stability;
• Unemployment policy.

Economical factors

• Inflation rate;
• Growth in spending power;
• Rate of people in a pensionable age;
• Recession or boom;
• Customer liquidations.

Socio-cultural

• Age distribution;
• Education levels;
• Income level;
• Consumerism.
• Diet and nutrition;
• Population growth;
• Life expectancies;
• Religion;
• Social class;
• Expectations of society about the business.

Technological factors

• Internet;
• E-commerce;
• Social media.
• Level of Automation

Environmental factors

• Competitive advantage;
• Waste disposal;
• Energy consumption;
• Pollution monitoring.

Legal factors

• Unemployment law;
• Health and safety;
• Product safety;
• Advertising regulations;
• Product labeling labor laws.

Ecology

• Affects customer's buying habits;
• Affects the production process of the firm.

Potential supplies

• Labor supply;
• Quantity of labor available;
• Quality of labor available;
• Material suppliers;
• Delivery delay;
• Level of competition to suppliers;
• Service provider;
• Special requirements.

Source: Boundless
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