Business School 101: PESTLE Analysis

Introduction

• PESTLE Analysis: Framework/tool used by managers to analyze and monitor macro-environmental factors affecting an organization.
  • Acronym: Political, Economic, Social, Technological, Environmental, and Legal factors.
  • Focuses on big picture and long-term changes.

PESTLE Components

1. Political Factors

• Result from processes/actions of government bodies.
• Influence decisions and behaviors of firms.
• Companies use non-market strategies (lobbying, public relations, contributions, litigation) to shape this environment.
• Example: U.S-China trade war initiated by policies under the Trump administration.
  • Economic effects include lower profit margins, job cuts, higher prices, etc.

2. Economic Factors

• Macroeconomic factors affecting strategy:
  1. Growth Rates: Measures economic expansion or contraction.
  2. Levels of Employment: Influenced by growth rates; affects resource scarcity and wages.
  3. Interest Rates: Affect consumer demand and firm's cost of capital.
  4. Price Stability: Includes inflation and deflation, impacting economic growth.
  5. Currency Exchange Rates: Critical for international trade competitiveness.

3. Socio-cultural Factors

• Society's cultures, norms, and values.
• Trends are in flux and vary across groups.
• Example: Health-conscious consumer trends benefiting businesses like Chipotle and Whole Foods.
• Demographic Trends: Age, gender, ethnicity, etc., influence market opportunities, e.g., growing Hispanic population in the U.S.

4. Technological Factors

• Knowledge application for processes and products.
• Innovations include lean manufacturing, biotechnology, smartphones, and social media.
• Technological progress creates both opportunities and threats.

5. Environmental Factors

• Issues like natural environment and sustainability.
• Businesses impact and depend on the natural environment.
• Example: BP oil spill causing ecological and economic harm.
• Opportunities in sustainable processes, e.g., plastic recycling through pyrolysis.

6. Legal Factors

• Outcomes of political processes: laws, mandates, regulations.
• Affect firm performance.
• Legal factors often connect to political factors.
• Example: European Union regulations on U.S. tech companies.

Conclusion

• PESTLE Analysis: Useful for new business ventures or entering foreign markets.
• Recommended to conduct every six months.
• Helps keep strategies aligned with external environmental changes.

Discussion Prompt

• Question posed to viewers: Can you apply PESTLE analysis to a company or business you are interested in?

Note: This summary aims to provide key points and insights from the lecture on PESTLE Analysis.