Business is all about improving, adjusting and surviving and companies face with diverse environment which is beyond the control of the business such as Political, Economic, Social, Technological, Environmental and Legal, which is changing rapidly, rather than being rigid. It is very important for business organizations to be sensitive and aware of its business environment in which it operates. Business environment refers to those factors and variables that can influence and affect operation of a business organization.
For instance, Nokia is one of the successful mobile phone companies that was affected by the technological environment and have experienced a significant fiasco. Big market leaders such as Apple and Android crushed Nokia, however it was recognized that Nokia is adaptive company and they try their force in another field. But all Nokia’s efforts to adapt wasn’t so powerful, so company fail in adaptation process. This example may show how Nokia encountered with technological environment and made effort to adapt that challenge.
So in this essay I am going to write about PESTLE analysis which could show diverse external effects on business and for the better understanding here is video about PESTEL analysis.
PESTEL analysis Francis J. Aguilar: In 1967, there was a mention of Aguilar in “Scanning the Business Environment”, where he discussed the environmental factors affecting a business. He gave them the acronym “ETPS” to indicate the “Economic, Technical, Political, and Social” factors. PESTEL analysis is a simple and effective tool used in situation analysis to identify the key external (macro environment level) forces that might affect an organization. These forces can create both opportunities and threats for an organization.
According to the research three main and essential business environments Political, Technological, and Environmental that managers should pay attention and adjust to them. The political environment could change as a result of the actions and policies of governments at all levels, from the local level to the federal level. It is becoming very important issue, which includes globalization and creates a risk. Businesses need to be prepared to deal with the fallouts of government politics.
As for example, aviation industry have been affected by Political environment, Malaysia airlines flight MH17 have been crashed in Ukraine with 298 passengers and crew. It is the second accident that happened after MH 370, which went missing. Day of the vision of accident Boeing 777 presented the Defense Ministry of Russia there have led a number of arguments in favor of the version that the plane was shot down by a Ukrainian military. According to the Office, Boeing, while over the Donetsk region, has deviated from the corridor of the airway and was at 14 km to the north. Further, flying past Gorlovka liner tried to return to the route, but the boundaries of his airway did not have time to get, and was crashed of its limits. Ukraine nowadays has political issues and civil war, and this all circumstances has impact on aviation industry in Malaysia, MH370’s disappearance had a “dramatic impact” on its first-quarter results, with cancelled bookings helping push the company to a loss of 443 million ringgit (US$140 million). State fund Khazanah Nasional, which holds the airline’s purse strings, said in June it would announce a plan to revive the carrier within six to 12 months. Malaysia Airlines had already raked in losses amounting to US$1.3 billion over the previous three years. So all this political games may arouse risk for aviation industry and bring considerable material losses.
All in all, technology has always been and continues to be the greatest change agent of our civilization. And technology is leading the most important revolution in business. It is changing at a fast pace and it´s creating new trends in the marketplace. (Australian authorities have demanded an explanation about the Russian plane crash in Ukraine, 2014)
According to Harvard Business Review 3D printers will change the world and business as well. 3D printer machine that produces objects of any shape, on the spot and as needed, really is ushering in a new era. Goods will be infinitely more customized, because altering them won’t require retooling, only tweaking the instructions in the software. Creativity in meeting individuals’ needs will come to the fore, just as quality control did in the age of rolling out sameness. These first-order implications will cause businesses all along the supply, manufacturing, and retailing chains to rethink their strategies and operations. And a second-order implication will have even greater impact. As 3-D printing takes hold, the factors that have made China the workshop of the world will lose much of their force. China has grabbed outsourced-manufacturing contracts from every mature economy by pushing the mass-manufacturing model to its limit. It not only aggregates enough demand to create unprecedented efficiencies of scale but also minimizes a key cost: labor. China will have to give up on being the mass-manufacturing powerhouse of the world. This new technology will change again how the business leans. (3D Printers Will Soon Change The World, If It’s Not Strangled In A Lawyered Up World, 2014).
Another factor as Environmental may affect to business and research shows that the environmental impact of doing business costs the global economy $4.7 trillion a year. For example, severe floods in Australia in 2010 to 2011 resulted in more than $350 million in claims to re-insurer Munich Re, which contributed to a 38 percent quarterly drop in profit for the company. The same period of extreme weather in Australia contributed to a loss of $245 million.
Furthermore water is one of the consequential environmental factor that impacts on business. Water management is of critical concern to business, from access issues that disrupt production, to tightening legislation over water quality and increasing costs associated with allocations. In a recent interview with theFinancial Times, Nestlé Chairman Peter Brabeck suggested water access and management now comprise a more urgent concern for contemporary business even than climate change, which gains so much political attention.
So, above mentioned macro environmental factors that is modifying swiftly will invent influences that could bring success or fail and different companies went over it in their own strategy.
There is examples of case studies, such as Amway in China, Jessop’s photographic retailer.
Following to the article in Harvard Business Review, the president of Amway Company Doug DeVos is reinventing the business to succeed in China. One of the biggest lessons that the company learned that as they have grown around the world is that a true understanding of the market- place, including culture, the economics, the politics, and the people, is essential. Amway entered Asia in 1974, with the opening of Hong Kong and by 1998 China was a $200 million operation and growing fast. However, Chinese government was becoming unhappy with the actions of some direct sellers. Issues related to product quality, reliability, and our trust were rampant. Chinese officials needed to protect consumers and to put a stop to unethical practices. But the action government pursued was extreme: outlawing direct selling and punishing legitimate as well as unethical sellers. And now it appeared that Amway could be put out of business, despite their commitment to and investment to China operation. However Amway started to change operations to accommodate Chine’s new regulations. Company created a physical stores, something that they had never done before. That meant selling products to people who came in off the street again not their usual way of doing business. Typically when Amway enters to a new country, they import products from United States. But for China they manufacture goods there, so company have changed their entire distributer compensation system. Also Amway couldn’t rely on word-of-mouth that drives direct sales, choosing to do brand advertising. In short they had to overhaul nearly everything. In 2005 legislation was passed that would allow Amway to return to direct sales business model. Company received new license to do business in China in 2006. And today China is largest market, with more than $4 billion in annual sales. From this we could recognize that Chinese political environment create risk and changed business structure. (“Amway’s president on reinventing the business to succeed in China”, 2014, p. 41-45).
Second, the company is the UK’s premier photographic retailer operating from over 200 stores around the UK. The photography and imaging business has experienced considerable change in recent years. Technology has beenat the front of this change. New digital cameras and digital media enable ordinary people to take high-quality photographs. These images can be quickly edited and altered. The digital camera market has expanded quickly as a result. For example, as more mobile phones come fitted with good quality built-in cameras, sales in standalone digital cameras have begun to fall. The development of the internet is also having an impact on the market. More customers are using the internet for shopping. Increasingly, people use social media to share images online on sites such as Facebook and Flicker. Many people upload images from their mobile phones onto a social media site. By consuming and sharing images in this way, there is less demand for print copies. Sales of digital prints are declining by 10% a year. Following to case study there some technological solutions that company has done: Jessop’s have come up with technological solutions in response to these changes. The company is responding by providing products and services that reflect the way that customers take, use and distribute photos:
Customers are now able to print images taken from social media or other websites.
These images can be printed in a variety of sizes and shapes. They can be compiled in photo books. Selected images can be printed on canvas, acrylic and aluminum.
Customers can incorporate their images in gifts such as calendars, posters and greetings cards.
Jessop’s has an integrated service for images created on mobile phones and loaded onto social media sites.
These developments, alongside a wider range of products, improved online functionality and consumer finance with an instant decision, have resulted in rapid growth of Jessop’s’ online business. In fact, its .com business has trebled in size over the last 3 years. By using wide-format printers, customers will be able to have wall art printed on site within the hour. New kiosk technology will enable customers to convert old videos and films to digital formats, with results saved to Blu-ray Disc or DVD. Finally, company abided technological environment and tried to stay in market.
In conclusion, market leaders and new organizations strive to build a strong and sustainable strategy which could yield prosper to their internal environment of business. While they should take into account external environment which is unpredictable and could ruin company’s future or establish benefit to new level of development.