Topic 1 Business Organisation and Environment

External Environment

Learning Objectives • Be able to prepare a PEST analysis for a given

situation• Use PEST analysis to examine to examine the

impact of the external environment on a firm• Evaluate the impact on a firm’s objectives and

strategy of a change in any of the PEST factors• Analyse the impact that external opportunities

and threats may have on business objectives and strategy

• Explain how external opportunities and threats can impact on business decision-making

How do these factors impact your life?

PEST Analysis • Political, economic, social and technological• Analytical framework for external environment

factors affecting business objectives and strategies

• Sometimes can be refereed to as STEEPLE which includes ethical, environmental and legal

• Or PESTLE which includes environmental and legal

• Political factors• Economic factors• Social factors• Technological factors

Opportunities and threats for each

Political & Legal Economic

Social Technological

Conduct a brief PEST for

McDonalds in Mexico

Political & Legal Economic

Social Technological

• Health and safety guidelines – increased obesity

• Pressure groups about wastage packaging

• Recycling issues • Wars and conflicts in the country

where McDonalds operates • America – they have become a symbol

of capitalism and a target for terrorists

• Growing internationally, they need to keep the prices low for consumers

• Franchising opportunities

• Health fears so customers opting for places like Subway now

• McDonalds now put nutritional information onto their packaging so customers can make informed decisions

• Food safety– suppliers have safety management systems in place

• Taken advantage of technology to streamline their processes and improve efficiency

• Touch orders to place order via handsets • Speed Pass – cashless payment system

TASK • Explain why each factor on the PEST

analysis is where it is, and why it is in that part

• Write a short piece explaining how the firm should exploit/avoid some of the issues you have identified and how they may achieve this

• Advantages of PEST• Simple and only costs time to do.• Provides an understanding of the wider business environment.• Encourages the development of strategic thinking.• May raise awareness of threats to a project.• Can help an organisation to anticipate future difficulties and take action to avoid or minimise their

effect.• Can help an organisation to spot opportunities and exploit them.• Disadvantages of PEST• Usually a simple list and not critically presented.• The rapid pace of change in society makes it increasingly difficult to anticipate developments that

may affect an organisation in the future.• Collecting large amounts of information may make it difficult to see the wood through the trees

and lead to "paralysis by analysis."• The analysis may be based on assumptions that prove to be unfounded. • PEST analysis only covers the external environment and the results need to be considered with

other factors, such as the organisation itself, competitors and the industry in which it is working.