The Macro Environment
And 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 diagram below shows the 4 components of PEST Analysis; political, economical, social and technological.
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 in 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 café.
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 world.