QS Study

Macro Environmental factors that affect an Organization’s Strategy

Businesses are also influenced by the environment that they’re in and all the situational factors that determine circumstances from day to day. It is because of this, that businesses need to keep a check and constantly analyze the environment within which they run their trade and within which the market lays.

The PESTLE Analysis is a framework used to scan the organization’s macro environment. PESTLE analysis consists of components that influence the business environment and each letter in the acronym denotes a set of factors that directly or indirectly affect every industry. The letters denote the following things:

(1) P for Political factors: These factors take into account the political situation of a country and the world in relation to the country. For example, what sort of government leadership is affecting what decisions of a country? All the policies, all the taxes laws, and every tariff that a government levies over a trade fall under this category of factors.

(2) E for Economic factors: Economic factors include all the determinants of an economy and its condition. The inflation rate, the interest rates, the monetary or fiscal policies, the foreign exchange rates that affect imports and exports, all these determine the direction in which an economy might move, therefore businesses analyze this factor based on their environment so as to build strategies that fall in line with all the changes that are about to occur.

(3) S for Social factors: Every country is different and every country has a unique mindset. These mindsets cast an impact on the businesses and the sales of their products and services; therefore PESTLE analysis includes these factors as well. The cultural implications, the gender and connected demographics, the social lifestyles, the domestic structures; all of these are studied by companies to understand the market and the consumer better.

(4) T for Technological factors: Technology greatly influence a business, therefore PESTLE analysis is conducted upon these factors too. Technology changes every minute and therefore companies need to stay connected along the way and integrate as and when needed. Also, these factors are analyzed to understand how the consumers react to technological trends and how they utilize theta for their benefit.

(5) L for Legal factors: Legislative changes occur from time to time and many of them affect the business environment. For example, if a regulatory body would set up a regulation for the industries, then that law would impact all the industries and business that strife in that economy, therefore businesses also analyze the legal developments happening in their environment.

6) E for Environmental factors: The location of countries influence on the trades that businesses do. Adding to that, many climatic changes alter the trade of industries and the way consumers react towards a certain offering that is launched in the market. The environmental factors include geographical location, the climate, weather and other such factors that are not just limited to climatic conditions. These in particular affect the agri-businesses, farming sectors etc.