Environmental Factors: How Do They Affect Your Organization's Growth and Downsizing?

What do you think would be the major environmental factors impacting the expansion and contraction of the organization?

Some Useful Materials.

PESTEL Analysis

- is also known as PEST in some places.
- is also known as STEEPLE in some places.

It is a matter of how much depth you want to reach.

The STEEPLE Analysis:

- Social/demographic,
- Technological,
- Economic,
- Environmental (natural),
- Political,
- Legal,
- and Ethical factors.
- Also, Geographical factors may be significant.

The STEEPLE factors play an important role in the value creation opportunities of a strategy. However, they are usually outside the control of the corporation and must normally be considered as either threats or opportunities.

Below you will find examples of each of these factors.

Political (incl. Legal) [Political, Environment, Legal]

- Environmental regulations and protection
- Tax policies
- International trade regulations and restrictions
- Contract enforcement law/Consumer protection
- Employment laws
- Government organization/attitude
- Competition regulation
- Political Stability
- Safety regulations

Economic [Economics, Social, Tel]

- Economic growth
- Interest rates & monetary policies
- Government spending
- Unemployment policy
- Taxation
- Exchange rates
- Inflation rates
- Stage of the business cycle
- Consumer confidence

Social [Social, Tel]

- Income distribution
- Demographics, Population growth rates, Age distribution
- Labor/social mobility
- Lifestyle changes
- Work/career and leisure attitudes
- Education
- Fashion, hypes
- Health consciousness & welfare, feelings on safety
- Living conditions

Technological [Technology, El]

- Government research spending
- Industry focus on technological effort
- New inventions and development
- Rate of technology transfer
- (Changes in) Information Technology
- (Changes in) Internet
- (Changes in) Mobile Technology

For each of the elements, you can ask more questions and seek the factual situation.

Regards,

LEO LINGHAM

whats the effect of these factors in the expansion or contraction of company ????????/

These factors exist in the socio-economic-political systems in most

countries. They keep changing too. The organization

-if it does nothing,and it will be left standing still/ perhaps left behind.

-if it uses these factors and make adaptable policies, it can expand.

-if it too cautious/does nothing, it could contract.

IT IS A MATTER FOR THE ORGANIZATION HOW IT

-IS ADAPTABLE TO THE SITUATIONS

-STRATEGIES ITS OPTIONS

-EXPLOITS THE OPPORTUNITIES.

ETC ETC

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It is often difficult to identify the relevant factors in the external, marketplace environment which are likely to affect an individual enterprise. There are many external influences. They tend to be constantly changing in our turbulent environment, and may present potential opportunities at one point in time and potential threats at another. Relevant examples are government economic policy and cyclical changes in the economy.

The following checklist presents a number of external factors that may be considered relevent.

I. Social factors

*Fashion trends

-changes in lifestyle of the population segment could affect the demand for products/services.

If the organizations do not respond to these demand, it will be facing loss of revenue/ profit.

*organization which meets the change demand will expand.

*organization which do change to meet the demand,it will decline.

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*Consumer values

-people have their individual values and they associate it with organization/products/services,

if that perceived values do exist, organization could lose the sales and hence revenue/profit.

*organization which meets the consumer values will expand.

*organization which will not meet the demand,it will decline.

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*Changing attitudes of society

-society attitude change with time/education/more information etc. Organization must listen

and respond to these attitudes. Otherwise people could protest against the organization.

An example is the pollution of the air.

*organization which meets the society attitude will expand.

*organization which will not meet the society attitude,it will decline.

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*Organised consumer groups and pressure groups

-organized consumer groups and pressure group activists are engaging organizations

selling / promoting fatty foods etc. Organizations which are invovled in such activities

must take action , otherwise it would affect their results.

*organization which meets the consumer needs/wants will expand.

*organization which will not meet the consumer needs /wants ,it will decline.

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2. Economic factors

*Cyclical fluctuations

-cyclical / seasonal trends affect the demand for products, like ice-cream are

in great demand in summer and hence organizations , which are involved in

cyclical / seasonal products must gear themselves for the period or lose

out on the opportunities of sales / profit.

*organization which meets the consumer needs/wants will expand.

*organization which will not meet the consumer needs /wants ,it will decline.

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Population trends

-population trends / the changes within it affect the demand for products/services.

A classical example is the greying population , where a significant proportion of

the population moves into the bracket of +55 and above. Here the organization

must respond to the changing demands or otherwise miss out on the revenue/profit.

*organization which meets the changing consumer needs/wants will expand.

*organization which will not meet the changing consumer needs /wants ,it will decline.

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Industry sector trends

-industry sector trends also affect the organization . Take the industry like

the construction industry, which goes through the boom/gloom every four

years. The building supplies organization faces the same trends and hence

need to organize themselves to meet the highs and the lows.

*organization which meets the industry sector trends will expand.

*organization which will not meet the industry sector trends ,it will decline.

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Productivity and labour cost trends

-higher labor costs affects the price of the products/services and hence

the organization seeks productivity improvements to match the labor cost rise.

Otherwise the organization would lose sales and hence revenue / profit.

*organization which meets the labor trends will expand.

*organization which will not meet the labor trends ,it will decline.

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Availability of staff

-shortage of staff affects the skill availability, which means the organization

have to pay higher wages to attract the labor.higher labor costs affects the price of the products/services and hence

the organization seeks productivity improvements to match the labor cost rise.

Otherwise the organization would lose sales and hence revenue / profit.

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Availability of materials

-availability of materials affect the demand of the product. If there is a shortage of

materials, the price goes up , which affects the sales and hence the revenue / profit.

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*Average disposable incomes

-as the average disposable incomes go up, the demand for products/services go

up, as people lift their lifestyle. If the organization do not respond to these

changes , it will lose out on the opportunities to make sales and hence the

revenue / profit.

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*Competitiveness compared with overseas companies

-as the overseas companies competitiveness increases, the demand for products/services

become competitive, as people make choices. If the organization do not respond to these

changes , it will lose out on the opportunities to make sales and hence the

revenue / profit.

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*Relative inflation rates

-if the relative inflation goes up, the demand for products/services go down.

if the relative inflation goes down, the demand for products/services go up.

If the organization do not respond to these changes , it will lose out

on the opportunities to make sales and hence the revenue / profit.

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3. Technology

New products being developed

-organization must feel the pulse of the people continuously to satisfy the

needs/wants of the people and satisfy them with new products/services.

If the organization do not respond to these changing demands , it will lose out

on the opportunities to make sales and hence the revenue / profit.

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New manufacturing processes

-to meet the changing needs/wants, new products etc organization must

look for new manufacturing processes.

If the organization do not respond to new challenges , it will lose out

on the opportunities to make sales and hence the revenue / profit.

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Changes affecting end use of products

-in the same manner, the organization must monitor the new end use

applications of products/services,If the organization do not respond to these

changing demands , it will lose out on the opportunities to make sales

and hence the revenue / profit.

--------------------------------------------------------------------------------------------Risk of obsolescence

-organization must watch their market reactions to products/services

otherwise, due to obsolescence, it will lose out to competiton

on the opportunities to make sales and hence the revenue / profit.

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4. Government ---Federal

Industry assistance programs

-these are government assistance provided at the point of entry

into the market. Organizations which are eligible should use it

to establish itself in the market. It enables the organization to

market the product and raise revenue / hence profit.

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Tariffs and industry protection policies

-these are government tax concessions provided at the point of entry

into the market. Organizations which are eligible should use it

to establish itself in the market. It enables the organization to

market the product and raise revenue / hence profit.

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Trade practices

-these are government controls over companies who

employ mal-practices to gain monoploy in the market.

These controls helps the organization to play in

the level field for all. So that, every organization has

equal opportunities.

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Balance of payments

-If the balance of payments are positive, it is a good news for the

organization, as there will be no government action on the business

sector.

If the balance of payments are negative, it is possible to have

some government action, which could harm some organizations.

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Foreign trade policies

-foreign trade policies could have both negative / positive reactions.

Positive actions could help the organization to improve their

performance and Negative actions could hamper the organization

growth in revenue/ profit.

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Regulation of companies and securities

-Regulations could have both negative / positive reactions.

Positive actions could help the organization to improve their

performance and Negative actions could hamper the organization

growth in revenue/ profit.

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Regulations regarding foreign companies

-Regulations regarding foreign companies could have both

negative / positive reactions. Positive actions could help the

organization to improve their performance and Negative actions

could hamper the organization growth in revenue/ profit.

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Taxation

-Taxation policies could have both negative / positive reactions.

Positive actions could help the organization to improve their

performance and Negative actions could hamper the organization

growth in revenue/ profit.

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Subsidies

-Subsidies policies could have both negative / positive reactions.

Positive actions could help the organization to improve their

performance and Negative actions could hamper the organization

growth in revenue/ profit.

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Commercial regulations

-Commercial regulations could have both negative / positive reactions.

Positive actions could help the organization to improve their

performance and Negative actions could hamper the organization

growth in revenue/ profit.

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5. The industry sector

Growing or declining industry

GROWTH TREND could help the organization to improve their

performance and DECLINING TREND could hamper the organization

growth in revenue/ profit.

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Cost of entry into and exit from the industry

Lower cost of entry/exit could help the organization to improve their

performance and Higher cost of entry/exit could hamper the organization

growth in revenue/ profit.

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Trade unions

Healthy trade union relations could help the organization to improve their

performance and Unhealthy trade union relations could hamper the organization

growth in revenue/ profit.

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Specific industry assistance programs

Industry assistance programs could help the organization to improve their

performance and hence the organization's

growth in revenue/ profit.

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6. Demographic factors

*Changes in the structure of the population (e.g. impact of declining birthrate and an ageing population)

-population trends / the changes within it affect the demand for products/services.

A classical example is the greying population , where a significant proportion of

the population moves into the bracket of +55 and above. Here the organization

must respond to the changing demands or otherwise miss out on the revenue/profit.

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*Population drift to and between capital cities

-population drift also affect the demand for products/services.

Here the organization must respond to the changing demands or

otherwise miss out on the revenue/profit.

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7. Customers and suppliers

*Their perceptions of the enterprise

POSITIVE picture could help the organization to improve their

performance and NEGAGTIVE picture could hamper the organization

growth in revenue/ profit.

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8. Competitors

Competitor strengths and weaknesses

*Finance and financial strength

- weak competitor could help the organization to improve their

performance and strong competitor could hamper the organization

growth in revenue/ profit.

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* Product range

- weak competitive product range could help the organization to improve their

performance and strong competitive product range could hamper the organization

growth in revenue/ profit.

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* Product quality

- poor competitive quality could help the organization to improve their

performance and strong competitive could hamper the organization

growth in revenue/ profit.

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* Marketing and channels of distribution

- weak competitive marketing/ distribution could help the organization to improve their

performance and strong competitive marketing/distribution could hamper the organization

growth in revenue/ profit.

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* Price structure

- weak competitive pricing could help the organization to improve their

performance and strong competitive pricing could hamper the organization

growth in revenue/ profit.

IN ALL THE FACTORS, THE ORGANIZATION WHICH RESPONDS

TO THE INTERNAL /EXTERNAL FACTORS,

WITH TIMELY ACTION PLAN, WILL SURVIVE / EXPAND.

WHILE THE ONES WHICH DO NOT RESPOND

TO THE INTERNAL/EXTERNAL FACTORS,

WITH TIMELY ACTION PLAN, WILL CONTRACT/ PERHAPS DEMISE.

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regards

LEO LINGHAM

Dear Leo,

Thank you. Your explanation was, in fact, quite exhaustive. I feel more comfortable using the "Porter's model," which is a more comprehensive model to analyze the structure of the industry and assess the competitive position of the company in that particular industry. Though PEST and the STEEPLE or SPECTACLE analysis serve the same purpose, the mapping of different variables seems more logical when using the "Porter's model."

Thank you once again for giving us a refresher on the company's PEST analysis, which I read about three years ago in college.

Regards,
Srikanth Ch.

Below you will find examples of each of these factors.

Political (incl. Legal) [Political Environment Legal]

-Tax policies
What taxes hinder the business and what tax incentives are available.

If the tax policies are liberal/incentivized, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

-International trade regulations and restrictions
Does the government encourage exports with high tariffs on imports?
If the export policies are liberal/incentivized, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

If the import policies are liberal/incentivized, local manufacturing businesses will contract, which means the impact on HR:
-less RECRUITMENT/SELECTION
-MORE TRAINING to improve efficiency/productivity

-Employment laws
Is the government encouraging skilled immigrants with temporary permits?
If the government relaxes the rules on skilled migrants, which means the impact on HR:
-EMPHASIS WILL BE ON FOREIGN RECRUITMENTS.
-DEVELOPMENT OF OVERSEAS CONTRACTS
-TRAINING FOR THE INCOMING STAFF ON LOCAL CULTURE.
-TRAINING FOR MANAGERS TO MANAGE DIVERSITY

Economic [Economics Social]

-Economic growth
What is the economic growth rate/what are the reasons?
If the economy is on a growth path, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING
-COMPENSATION NEEDS REVISION

If the economy contracts/demand drops, businesses will reduce volume, which means the impact on HR:
-less RECRUITMENT/SELECTION
-MORE TRAINING to improve efficiency/productivity
-MORE INCENTIVES FOR PRODUCTIVITY GAIN

-Interest rates & monetary policies
Are the interest rates under control/is there sound monetary policy?
If the interest rate goes down/the monetary policies are liberal, as the demand goes up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

If the interest rate goes up, the demand will go down, businesses will downsize/cut costs, which means the impact on HR:
-less RECRUITMENT/SELECTION
-MORE TRAINING for efficiency/productivity improvements
-EMPHASIS WILL BE FOR 'PAY FOR PERFORMANCE'.

-Government spending
Is government spending significant and under control?
If the government increases spending on infrastructures, etc., the demand goes up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

-Unemployment policy
What are the employment/unemployment policies of the government?

-Taxation
Has taxation encouraged the industry?
If the taxation policies encouraged the industry, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

-Consumer confidence
Is consumer confidence high/strong and if not, why?
As consumer confidence goes up, more jobs are created, demand for products/services will go up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

Social [Social]

-Income distribution
Is there a balanced income distribution policy?
As the income level goes up and income distribution improves, demand for products/services will go up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

-Demographics, Population growth rates, Age distribution
What is the population growth and why?
As the population level goes up and age distribution improves, demand for products/services will go up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

-Lifestyle changes
Are there significant lifestyle changes taking place -- more modernization/why?
As lifestyle goes up and more modernization improvements, demand for products/services will go up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

-Work/career and leisure attitudes
Are the population career-minded and seeking a better lifestyle?
As the income level goes up and workers' attitudes change, demand for products/services will go up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

-Education
What are the education policies/are they successful?
As the education level goes up and income distribution improves, demand for products/services will go up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

-Living conditions
Are the living conditions improving fast and spreading rapidly?
As the income level goes up and living conditions improve, demand for products/services will go up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

Technological [Technology]

-Industry focus on technological effort
Are the industries focused on using improved technology?
As the industry focuses on technology, more jobs are created, demand for products/services will go up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

-New inventions and development
Are new inventions being encouraged for developments?
As more inventions are brought out, more jobs are created, demand for products/services will go up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

-Rate of technology transfer
Is the rate of technology transfer speeding up?
As the rate of technology transfer speeds up, more jobs are created, demand for products/services will go up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

(Changes in) Information Technology
Is the information technology rapidly moving and is there government support?
As IT usage increases, more jobs are created, demand for products/services will go up, businesses will add expansion, which means the impact on HR:
-MORE RECRUITMENT/SELECTION
-MORE INDUCTION/ORIENTATION
-MORE TRAINING

FOR EACH OF THE ELEMENTS,

I HAVE SHOWN THE POSITIVE SIDE OF THE POLICIES, THE BUSINESS POSITIVE IMPACT, AND THE POSITIVE HR REACTIONS.

IN THE SAME MANNER,

ALL NEGATIVE SIDE OF THE POLICIES WILL HAVE THE BUSINESS NEGATIVE IMPACT, WHICH MEANS HRM WILL HAVE TO TAKE A RATIONAL ACTION PLAN TO SUIT THE SITUATIONS, WHICH COULD INCLUDE

-downsizing of employee numbers
-restructuring of the organization
-retraining
-multiskilling
-jobs reorganization
-more skill training
-pay for performance, etc.

regards

LEO LINGHAM