Lecture 5THE GENERAL ENVIRONMENT

Celia HadjichristodoulouCyprus Institute of Marketing - Nicosia31/10/2013

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Outline• The General Environment

• Environmental Analysis and Diagnosis

• PESTLE Analysis

• Beyond PESTLE

• Ethical Considerations

• Government-Related Considerations

• Why be concerned with Environmental Analysis and Diagnosis?

• Strategic planning of Unicars: live presentation!

• Next Session

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The General Environment

• The current and forthcoming lectures will be dealing with the impact of environmental factors on the strategic management process, as well as ways in which the factors can be analyzed and diagnosed

• There are many ways to organize the sectors for analysis and diagnosis

• How can we analyse the environment within which the organisation operates?

• An in-depth analysis of the firm’s environment typically involves examining six major factors (PESTLE): Political, Economical, Social, Technological, Legal and Environmental. 

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Environmental Analysis & Diagnosis

• Environmental analysis is the process by which strategists monitor the environmental sectors to determine opportunities for and threats to their firms

• Analysis is the tracing of an opportunity or threat to a source

• Environmental diagnosis consists of decisions made by assessing the significance of the data (opportunities and threats) of the environmental analysis

• These decisions lead to other decisions on whether to react, to ignore, try to influence, or anticipate the opportunities or threats discovered

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PESTLE Analysis

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PESTLE Analysis

Political• Local, national and international political developments –

how will they affect the organisation and in what way?

• How actions from formal or informal political parties; government may influence the organisation?

• Governments have great influence on the health, education, and infrastructure of a nation

Political Stability

Tax Policy

Trade Restrictions & Policies

International Trade Regulations

Changes in Tax Structure6

PESTLE Analysis

Economical• The markets in which the organisation operates, including

labour markets, plus conditions in the national and international economy

Monetary Policies

Government Spending

Exchange Rates

Inflation Rates

Employment Rates

Interest Rates

Stage of Business Cycle

Economic Stability & Growth

Market Stability

Trade Restrictions

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• For example, tax policies can reduce the attractiveness of investment in an industry or reduce the after tax incomes of consumers who then lower their spending levels

• There are various economic factors that many firms analyze and diagnose:

• The stage of the business cycle. The economy can be classified as being in recession, recovery, or prosperity stage

• The inflationary or deflationary trend in the prices of goods and services (i.e. if inflation is very severe, wage and price controls may be imposed)

• Monetary policies, interest rates, and devaluation or revaluation of the currency in relation to other currencies

• Fiscal policies: tax rates for firms and individuals

• Etc.

 • Each of these facets of the economy can help or hinder the achievement of a

firm's objectives and lead to success or failure for the strategy

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PESTLE AnalysisEconomical cont’d

PESTLE Analysis

Social Demographic Factors

Cultural Values / Influences Family Size Immigration Religion

Social Behaviour / Preferences

Income Distribution

Age Distribution

Labour and Social Mobility

Lifestyle Changes

Work / Career / Leisure Attitudes

Living Conditions

Population Growth Rate

Educational Level9

PESTLE Analysis

Social cont’dFor Example: Years ago, the norm was for a family to have two to four children. Today not all

individuals accept this, and change of attitude has had a big impact on P&G (Pampers) , Gerber (baby food), builders, Mattel (toys) etc.

Also, decades ago, retired people, single people, widows and widowers to live with relatives. Now there is a trend toward living alone, and this has had a big impact on builders, appliance manufacturers, food packers, magazine publishers etc.

For years most married women stayed home. Now, most work. This has caused problems for firms that sold door to door and has increased business for a variety of firms, such as those offering nursery school service, prepared foods, restaurants, and home security systems

• Increased education has led to new attitudes on the part of employees about how many hours they wish to work, the quality of life they expect at work, and the kind of supervisory style they expect can affect how strategies are developed and implemented. New benefits programs / WLB schemes are also needed for new lifestyles

• Cyprus example: RAI study findings

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Government Spending in R&D

New Inventions & Developments

Energy Cost & Use

Changes in IT

Changes & Trends in Internet

Changes in Mobile Technology

Automation

Technology Incentives

Electronic Money Transfers

Mobile Phones- Decline of the Fax

Video Conferencing

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PESTLE Analysis

Technological

For Example:

• Changing technology can offer major opportunities for improving goal achievement or threaten the existence of the firm

• Examples of product and service breakthroughs include transistors, lasers, efficient batteries for electric cars, computers, dvd’s etc.

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PESTLE Analysis

Technological cont’d

Legislation Contract Laws Consumer and Employee Protection Trade Unions Discrimination Laws Consumer Laws Employment Laws Health and Safety Laws Disciplinary and Grievance Procedures Equal Pay Holidays and Benefits Absence- Maternity and Paternity EU Regulations Regulatory Constraints Working Time Directives Minimum Wage

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PESTLE Analysis

Legal

• The impact of the natural world; climate; resources reduction etc. 

• For example, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer.

Waste Disposal / Recycling

Sustainable Energy

Climate Changes

Environmental Regulations

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PESTLE Analysis

Environmental

For Example:

• Large food distributors can be paralyzed by an abnormal storm that keeps their trucks off the road

• Several businesses derive opportunity by providing climate - forecasting services

• One example is Ocean routes, which employs 65 full - time meteorologists. They plot weather and sea conditions leading to the best routes for ship lines so that time and fuel costs are minimized

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PESTLE Analysis

Environmental cont’d

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SWOT Analysis

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An example of a SWOT Analysis

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PESTLEand SWOT analysis

Beyond PESTLEEthical Considerations

• Social values and behaviours that affect the perception of organisation leading to Corporate Social Responsibility and Business Ethics

Bribery

Reputation

Client Confidentiality

Employee Personal Information

Copyright Rights / Intellectual Property

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Beyond PESTLEGovernment-Related Considerations

Federal, state and local governments increasingly affect how businesses is maintained by organisations

They legislate on such matters as:• Wage and price controls• Equal employment opportunity• Safety and health at work• The way that consumer credit is administered• The place that the plant can be located• The chemicals that the plant can emit into the air• The amount of noise that the product can make• The way in which the firm can run advertising and the kinds of ads that can be run

Government philosophies, its relationships with business and its imposed laws and regulations can change over time. This is an important aspect for strategists to examine since these change how businesses operate on a day - to - day basis

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• Action by governments also affects the strategic choices of businesses

• They can increase a business's opportunities or threats or sometimes both. Some examples of opportunities include the following:• Government policy changes can lead to increases in opportunities and new business

for firms• Governments sponsor firms and industries and thus help them survive and prosper• Governments protect home producers against "unfair" foreign competition• Governments are large purchasers of goods and services

• Besides encouraging and helping, the government creates threats when it affects profits negatively. Many laws and regulations can limit the strategic options of many firms• For example, governmental policies that change economic conditions, tax laws etc.

can create threats to particular businesses (i.e. taxation & consulting organisations)

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Beyond PESTLEGovernment-Related Considerations cont’d

Why be Concerned With Environmental Analysis & Diagnosis?

• Managers must systematically analyze, explore and understand the environment since environmental factors are prime influencers of strategy change

• Environmental analysis and diagnosis gives strategists time to anticipate opportunities and to plan to make optional responses to these opportunities (i.e. plan ahead)

• Thus, helps strategists develop an early warning system to prevent threats or develop strategies which can turn a threat to the firm's advantages

• Important: When the company ceases to adjust the environment to its strategy or does not react to the demands of the environment by changing its strategy, the result is to observe a lessened achievement of corporate objectives

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Why be Concerned With Environmental Analysis & Diagnosis? cont’d

• Managers need to search the environment to:

(1) Determine what factors in the environment present threats to the company's strategy and barriers to objectives accomplishment

(2) Determine what factors in the environment present opportunities for a greater accomplishment of objectives through an adjustment in the company's strategy

• Firms which systematically analyze and diagnose the environment are more effective than are those which don’t

• Successful firms do more and better environmental analysis and diagnosis than do failing firms 23

Assignment 2• An in-depth analysis of the firm’s environment can be achieved by applying

the principles of PESTLE analysis. Discuss using real life examples.

• Format: Essay Type, 3000 words, produced on a laser printer

• Deadline: 11th April 2014

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Live Cypriot case study: Strategic Planning of Unicars for 2013-2016

• By Mr. Panayiotis Thrasyvoulou, HR and Quality Manager, Unicars Ltd

• Before similar position in Cybarco Ltd (Lanitis Group of Companies)

• BSc in Business Management, Essex University• MSc in International Employment Relations & Human

Resources Management, London School of Economics & Political Science (Distinction)

• Award from LSE “Foundation of Automation and Human Development School Prize for the Best Overall Performance”.

• Feel free to ask questions 25

Next Session

‘ANALYSING THE ENVIRONMENT’(Techniques for Environmental Analysis; Descriptions of Environmental

Analysis; The Role of Strategists in Analysis and Diagnosis; The Environment – Strategy Interface)

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