Friday, 3 July 2020

Macro-environmental scanning or PESTEL

Macro-environmental factors are a management framework for thinking about the external forces of change that occur outside any entity, beyond the organisation's circle of influence. There are seven of these external forces: those of demographic; technology; economic; socio-cultural; political; legal factors; and the environment (Brown & Weiner, 1985; Kotler, 1980, 1991; Kotler & Keller, 2006; Richardson, 2006). These forces are now normally written as an acronym (Richardson, 2006), with PESTEL being the version most commonly used in New Zealand.

Although primarily a marketing construct, macro-environmental factors  (Brown & Weiner, 1985; Kotler, 1980, 1991; Kotler & Keller, 2006) must be considered at all levels of an organisation, whether that organisation is a multi-national entity (MNE), or a small not for profit sports club:
  1. Demographics: age, longevity, partnership, reproduction, migration, education, population, work, accommodation, mobility and health projections to know how, when and where there are shifts coming
  2. Technology: looking for next big thing. The change is likely to come from without your industry. A great example how how technology can change the world - and made me laugh - "A recent study by SRI International forecasts that the number of automated office work stations will exceed the existing number of electric typewriters by 1990" (Brown & Weiner, 1985, p. 43). Just imagine what Brown & Weiner would make of in 2017 that 90% of new roles require digital competence, and that almost 75% of employers wouldn't interview a non-digitally competent candidate (Digital Inclusion Research Group, 2017, citing two European research papers).
  3. Economics: income, savings, free trade, open markets, organisational, governmental and monetary cycles, policies and international agreements may affect our opportunity to borrow, to launch an IPO, to grow, or even to obtain letters of credit. As the world has grown smaller, the economic effects of one nation's actions have knock on effects on others. The Covid-19 situation being a superb example.
  4. Socio-cultural issues: these are our societal values, norms, beliefs and behaviours. Trends within our own culture or in the cultures of our main markets will usually shift slowly, but at times, can move with unexpected speed. User reviews on social media can easily demonise a company or product, going viral and causing major damage within hours.
  5. Politics: a change in public policy can make a huge difference in our ability to do business, play sport, run the Olympics or ship a product. Again, the Covid-19 situation being a superb example of how different nations, political parties or philosophical viewpoints affect our ability to run our organisations.
  6. Legal issues: organisations need to ensure that they keep up with the political and legal environment, including government agencies, NGOs, and pressure groups which influence consumer views. Some law changes will create business opportunities, such as new product  manufacture from recycled materials (such as Flight Plastics in Wellington).
  7. Environment: organisations "need to be aware of threats and opportunities related to four trends: the shortage of raw materials, the increased cost of energy, increased pollution levels, and the changing role of governments." (Kotler & Keller, 2006). In Britain consumers have become very aware of single use plastics and air miles, which can significantly impact brand and company reputations; and the real cost of doing business which includes externalities and disposal. 
We also need to try to determine if we are seeing a trend or a fad within each of these factors. A fad is short-lived, so we may be able to ignore it - or be aware that the ride we are on will end shortly - but a trend is something that we cannot afford to ignore (Kotler & Keller, 2006).

A PESTEL analysis can be used in combination with a SWOT analysis to develop a more targeted lens for the opportunities and threats analysis segments of the SWOT (more on SWOT here).


Sam

References:

  • Brown, A., & Weiner, E. (1985). Supermanaging: How to harness change for personal and organizational success. New American Library. 
  • Digital Inclusion Research Group (2017). Digital New Zealanders: The Pulse of our Nation. https://www.mbie.govt.nz/dmsdocument/3228-digital-new-zealanders-the-pulse-of-our-nation-pdf
  • Kotler, P. (1980). Marketing Management: Analysis, Planning, and Control (4th ed.). Prentice Hall, Inc.
  • Kotler, P. (1991).Marketing Management: Analysis, Planning, Implementation, and Control (7th ed.). Prentice Hall, Inc.
  • Kotler, P., & Keller, K, L. (2006). A Framework for Marketing Management (3rd ed.). Pearson Education, Inc.
  • Richardson, J. V. (2006). A Brief Intellectual History of the STEPE Model or Framework (i.e., the Social, Technical, Economic, Political, and Ecological). https://pages.gseis.ucla.edu/faculty/richardson/STEPE.htm
  • Still, R. R. & Cundiffe, E. W. (1972). Essentials of Marketing (2nd ed.). Prentice Hall, Inc.

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