PESTEL Analysis of the Macro-environment

years in the UK there have been many significant legal changes that have affected firms'
behaviour. The introduction of age discrimination and disability discrimination legislation, an
increase in the minimum wage and greater requirements for firms to recycle are examples
of relatively recent laws that affect an organisation's actions. Legal changes can affect a
firm's costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if
the law affects the likelihood of customers buying the good or using the service).
Different categories of law include:
consumer laws; these are designed to protect customers against unfair practices such as
misleading descriptions of the product
competition laws; these are aimed at protecting small firms against bullying by larger firms
and ensuring customers are not exploited by firms with monopoly power
employment laws; these cover areas such as redundancy, dismissal, working hours and
minimum wages. They aim to protect employees against the abuse of power by managers
health and safety legislation; these laws are aimed at ensuring the workplace is as safe as
is reasonably practical. They cover issues such as training, reporting accidents and the
appropriate provision of safety equipment
Typical PESTEL factors to consider include:
Factor Could include:
Political e.g. EU enlargement, the euro, international trade, taxation policy
Economic e.g. interest rates, exchange rates, national income, inflation,
unemployment, Stock Market
Social e.g. ageing population, attitudes to work, income distribution
Technological e.g. innovation, new product development, rate of technological
obsolescence
Environmental e.g. global warming, environmental issues
Legal e.g. competition law, health and safety, employment law
By using the PESTEL framework we can analyse the many different factors in a firm's macro
environment. In some cases particular issues may fit in several categories. For example, the
creation of the Monetary Policy Committee by the Labour government in 1997 as a body that was
independent of government but had the ability to set interest rates was a political decision but has
economic consequences; meanwhile government economic policy can influence investment in
technology via taxes and tax credits. If a factor can appear in several categories managers simply
make a decision of where they think it best belongs.
However, it is important not to just list PESTEL factors because this does not in itself tell managers
very much. What managers need to do is to think about which factors are most likely to change
and which ones will have the greatest impact on them i.e. each firm must identify the key factors in
their own environment. For some such as pharmaceutical companies government regulation may
be critical; for others, perhaps firms that have borrowed heavily, interest rate changes may be a
huge issue. Managers must decide on the relative importance of various factors and one way of
doing this is to rank or score the likelihood of a change occurring and also rate the impact if it did.
The higher the likelihood of a change occurring and the greater the impact of any change the more
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