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THE MACRO ENVIRONMENT & PEST ANALYSIS
An organisation’s success is influenced by factors operating in
it’s internal and external environment; an organisation can increase
it’s success by adopting strategies which manipulate these factors
to it’s advantage. A successful organisation will not only understand
existing factors but also forecast change, so that it can take advantage
of change within the environments in which it operates.
Macro & Micro Environmental Factors
An organisation’s operating
environment has two parts; the Macro environment and the Micro environment.
- Macro Environment – This contains external forces that an organisation can't directly control, instead organisations need to manage their macro environment in a way that benefits them.
- Micro Environment - This is made up of internal factors which means that the organisation is able to control their micro environment. To learn more about the micro environment (and marketing) click on this link Micro Environment.
PEST & PESTLE analysis
A PEST analysis is used to identify the external forces affecting an
organisation/making up its Macro Environment.This is a simple analysis of an organisation’s Political,
Economical, Social and Technological environment. A PEST analysis incorporating
legal and environmental factors is called a PESTLE analysis.
The first element of a PEST analysis is a study of political factors.
Political factors influence organisations in many ways. Political factors
can create advantages and opportunities for organisations. Conversely
they can place obligations and duties on organisations. Political factors
include the following types of instrument:
- Legislation such as the minimum wage or anti discrimination laws.
- Voluntary codes and practices
- Market regulations
- Trade agreements, tariffs or restrictions
- Tax levies and tax breaks
- Type of government regime e.g. communist, democratic, dictatorship
Non conformance with legislative obligations can lead to sanctions
such as fines, adverse publicity and imprisonment. Ineffective voluntary
codes and practices will often lead to governments introducing legislation
to regulate the activities covered by the codes and practices.
The second element of a PEST analysis involves
a study of economic factors.
All businesses are affected by national and global economic factors.
National (and global) interest rates and fiscal policy is set around
economic conditions. The climate of 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 confidence. Conversely a “booming” or growing economy will have low unemployment, high spending power and
high stakeholder confidence.
A successful 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 the current business world, organisations are affected by economies
throughout the world and not just the countries in which they are based
or operate from. 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 affects the competitiveness
of products from developed countries. An increase in interest rates
in the USA will affect the share price of UK stocks or adverse weather
conditions in India may affect the price of tea bought in an English
A truly global player has to be aware of economic conditions across
all borders and needs to ensure that it employs strategies that protect
and promote its business through economic conditions throughout the
The third aspect of PEST focuses its attention on forces within society
such as family, friends, colleagues, neighbours and the media. Social
forces affect our attitudes, interests and opinions. These forces shape
who we are as people, the way we behave and ultimately what we purchase.
For example within the UK people's attitudes are changing towards their
diet and health. As a result the UK is seeing an increase in the number
of people joining fitness clubs and a massive growth for the demand
of organic food. Products such as Wii Fit attempt to deal with society’s
concern, about children’s lack of exercise.
Population changes also have a direct impact on organisations. Changes
in the structure of a population will affect the supply and demand of
goods and services within an economy. Falling birth rates will result
in decreased demand and greater competition as the number of consumers
fall. Conversely an increase in the global population and world food
shortage predictions are currently leading to calls for greater investment
in food production. Due to food shortages African countries such as
Uganda are now reconsidering their rejection of genetically modified
In summary organisations must be able to offer products and services
that aim to complement and benefit people’s lifestyle and behaviour.
If organisations do not respond to changes in society they will lose
market share and demand for their products and services.
Unsurprisingly the fourth element of 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 infrastructure such as the internet and other information
exchange systems including the telephone and conference calling.
2. Technology systems incorporating a multitude of software which help
them manage their business.
3. Technology hardware such as mobile phones, computers, photocopiers and fax machines which transmit
and record information.
Technology has created a society which expects instant results. This
technological revolution has increased the rate at which information
is exchanged between stakeholders. A faster exchange of information
can benefit 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
time scales. For example the Internet is having a profound impact on the marketing
mix strategy of organisations. Consumers can shop 24 hours a day
from where ever they want and however they want via smart phones, laptops and tablets.
The pace of technological change is so fast that the average life of
a computer chip is approximately 6 months. Technology is utilised by
all age groups, children are exposed to technology from birth and a
new generation of technology savvy pensioners known as “silver
surfers” have emerged. Technology will continue to evolve and
impact consumer habits and expectations, organisations that ignore
this will hinder success.
A PEST analysis is sometimes expanded to incorporate legal and environmental
factors; this is known as a pestle analysis. There are many statutes
books containing company law as almost every aspect of an organisation’s
operation is controlled through legislation from treatment of employees
through to health and safety. Legal factors are important as organisations
have to work within legislative frameworks. Legislation can hinder business
by placing onerous obligations on organisations. On the other hand legislation
can create market conditions that benefit business.
For information regarding environmental factors please refer to environmental