PEST Analysis of an Organization - Essay Example

? PEST Analysis Grade The term organisation is referred to as a forum of collective efforts of group of people to achieve a goal. The people associated with the organisation are known as its stakeholders. They are directly or indirectly influenced with the activities of an organisation. Every organisation has internal and external environment which shape the course of its functions and actions at a broader scale (Greasley, 2008). Despite the unique corporate philosophy and culture every organisation has, the external environment remains the same for all the organisations. The external environment consists of four main factors, political, economic, social and technological (Dubrin, 2012). These factors are collectively known as PEST. These factors appear as opportunities for the organisation while it is also possible that at certain point in time, they pose threats. The organisations need to keep a constant eye upon these four factors to stay profitable and at times for core survival. The paper discusses about these factors and their influences upon the organisations policies, functions and profitability. Political Aspects of External Environment The political aspect of external environment is related to the government laws, legislations, rules, polices and other international principles that are enforced from time to time. These factors supersede all local and organisational doctrines and every organisation is bound to obey them for its existence (D’Anieri, 2009). The common example of this factor is tariff guidelines, tax rates, employment laws (Collins, 2010) and trade quotas. Every organisation needs to cater for all these points to comply with the regulation. The non-compliance poses the most serious threat and organisations take years to settle the law suits filed against them because of violation of laws. Many government policies are related to foreign direct investment and impose certain restrictions on the ownership rights of the business. Particularly in the Gulf States, ownership of real-estate resources by foreigners is banned. It creates insecurity for the business concerns while they plan to invest in these countries. Another point of concern in this regard is about the balance sheet of the organisation that has strong financial position but cannot own the land and building which automatically decreases their assets side. In the present business era, globalization has removed many barriers and the free movement of capital, goods and labour has become a practice. The employment laws are relaxed about hiring expatriates and it is increasing the level of diversity in the organisation (Barak, 2011). There are certain Acts which ensure formal protection of employees’ rights. This situation has raised many challenges to the organisations. Ensuring satisfaction of a diverse workforce on the grounds of equitable treatment is not child’s play. Every employee has different needs and it is no surprise that one’s interest harms the benefit of others. The organisations have to ensure that a win-win condition is met all the time (Vent, 2009). There are regulations related to minimum wage which affect the organisations cost structure and in turn the profit margins. There are certain guidelines about employment quota of local and foreign employees, it forces organisations to compromise over the talented pool and hire the one who may not be at par in educational and professional requirements. The political aspects are related with the performance of stock exchange as well. Stock exchange is the most volatile sector of the economy which is influenced by every news and event in any corner of the world. The riots and political stability in one country negatively affects the market value of the companies which belong to that country no matter they are registered with some international stock exchange like London Stock Exchange or New York Stock Exchange. Economic Aspects of External Environment The affect of economic aspects in the external environment is as evident as the core existence of the organisation. The global financial crises of 2008 are known to everybody and it is no secret that many corporate giants were compelled to wind up the business. The marked portion of economic theory is characterised with inflation and exchange rate. These are the economic factors which make or mark the performance of the organisation. Organisations are established with the on-going concern and the core objective is to earn profits. The simple equation of revenues minus expenses is the focus of all business activities and functions. Every department of the organisation remains busy either with cost saving or revenue expanding goals. These goals shape the scope and content of the rest of the functions of business organisations (Wheelen & Hunger, 2012). The economic performance of the organisations directly affects the economic face of the nation. In general, all organisations are engaged in obtaining inputs from the suppliers, processing them for final products and distributing the goods or services to the end users. The whole chain of activities can be transformed into financial aspects whereby every step has some cost. The cost addition at a certain level has multiplier effect and it increases the cost at every next level. A common example is, the increased cost of raw material increases the final price of end product or service. The jumps in fuel prices elevate the price of goods. It is because fuel is required in machineries and if the organisation is devoid of fuel operations, the supply chain can never be eliminated. The need for fuel will remain there. In the international markets, fuel price fluctuation is the major tragedy for the downfall of airlines. On the other hand, it is an opportunity for oil producing countries. They can have monopolies and oligopolies which lead to maximum exploitation of customer’s weak position. The customer organisations have to purchase oil at the offered price in order to continue their operations. Consequently, their cost of production is increased and the products and services become expensive. If any competitor organisation has cheap access to oil sources, it is highly predictable that their offerings would be at a low price. It goes without saying the latter organisation will earn more revenue from the price sensitive customers. The profitability of the former organisation will decline and it may go bankrupt as well. At this stage, it is important to mention the link of economic aspects of external environment with political aspects. In such situations where economic factors are increasing becoming turbulent for one or few organisations, while others are facing huge losses, the role of regulatory body comes in. It regulates the market by enforcing price caps on inputs and final product as well. It controls establishment of monopoly, oligopoly and collaterals. An example in this regard is about telecommunication industry whereby the incumbent operator is restricted to offer its services at low cost. It is because the new entrants get backbone services from the incumbent operator who offers its own services at cheapest possible rates to capture huge market share. The intervention by the regulatory authority ensures a ceiling where all have to maintain a balance of prices offered to the subscribers. Social Aspects of External Environment This aspect of external environment is probably the most challenging one. It is because it directly deals with customers, their needs, wants, demands, complaints and satisfaction levels. These aspects drive the profitability of the organisation in general. The organisations determine their operations based on these aspects. These include demographic variables to a major extent. The demographic variables are the complete set of variables containing many related factors. These include age group, economic class, regional background, ethnicity, religion, weather conditions and general climate, education level, cultural concepts etc. The organisations tailor their operations on the basis of these very variables. A common example in this regard is of Chinese export market. They manufacture product of every quality and export it to the best matching profile country. For developing countries, they focus on low cost products having compromised element of durability. For developed and quality conscious consumers, their products are of top notch specifications which cannot be easily imitated by the competitors. China is also attracting huge foreign direct investment because of cheap labour and utility resources available. The market segmentation is purely on the basis of demographic factors prevailing in the certain society. The organisations find it an opportunity to explore the unidentified niche and attain the competitive advantage. Another important factor to mention in the same regard is of corporate social responsibility. It has been the core subject of centuries old debate that the organisations should share their returns with the society in which they operate. Much criticism is posed on the argument as organisations often have tough time in allocating their hard earned gains to the activities which does not bring in any direct advantage to them. The issue is still hot and the every passing year of 21st century is adding more dynamism in it. With the global financial crunch of 2008, few organisations have turned the focus towards corporate social responsibility to earn name and fame. There are certain organisations as well which are not much in its favour and tend to adopt it only as a legal requirement. Here again the intervention of legal authorities have shaped the social aspects of business. The illegal status of marijuana and ban on its open trade is in the same connection. The classification of high end and low end wine for various target groups also supports the same viewpoint. The medical benefits acquired by UK patients from the Chinese medical practitioners pose a serious barrier for UK regulatory authorities in the way of making IELTS passing status mandatory for them. All these examples prove that social aspects of external environment are crucially important for the organisations. Technological Aspects of External Environment The technological aspects of external environment have become a burning question since the inception of modern computer and networking technologies. These aspects have turned the table altogether and the development is almost unbelievable. There was a time when only defence related organisations had access to the computer networks. In the present era, there are commercial organisations which exist solely on digital platform and it is impossible to locate them physically. An important name in this regard is of British Telecom. It is a multinational organisation serving uncountable customers through a single medium of communication i.e. online. Technology has not only revolutionised the lifestyle but has also opened new venues to be explored by the businessmen (Schermerhorn, 2011). It is by virtue of technology that the world has come across altogether a new concept of apple and blackberry. The window is no more the source of fresh air only. The loved ones do not have to wait for months to get in touch with each other. It has become a matter of clicks only. It can rightly be said the globalisation is paving way for technological innovations and technological innovations are making globalization spread fast. Organisations are conducting business round the clock across the globe with the help of a diversified workforce which may not come in physical contact even once. The universities are established online, the products are sold by the workforce of Pakistan and India to the customers in USA, UK and Canada. Internet Telephony has become a tool of daily use and there is hardly any organisations left in the world which is not present on the digital platform. The huge data of customers is present in the databases which can be retrieved within few seconds. The decision making is done through management information systems and decision support systems while the only tool for functional workforce is the transaction processing system. The machine has replaced man at a fast pace and the machine is requiring man to continuously upgrade it for additional value added benefits. In the perspective of 21st century, it is important to mention that the workforce which is trained on manual systems and the one which is habitual to managing the automatic systems differ greatly in their capabilities and insight into the business operations. People working on systems have less knowledge of background functioning but have great vision for decision making. They evaluate the reports with various perspectives and it is the same concept that has paved way for data mining. The world is progressing at a fast pace and it is no exaggeration to say that a new invention takes place every day. Conclusion The paper has discussed the four aspects of external environment and concludes that they have considerable impact over the organisation. The internal environment aligns with the external environment so that the survival and profitability becomes easier. The external environment does not only mean that it can be viewed outside the organisations. It means that the factors that reside outside but affect the inside face of the organisations. The mentioned factors have marked identified impact upon the organisations in their individual capacities. However, the discussion also narrates down few instances where these factors are putting in the combined effect over the business concerns. It leads to the conclusion that like business organisations, the factors also do not exist in isolation and can be evaluated in combination and with regard to each other. The organisations should keep an active eye to determine the flow of winds and adjust the business patterns accordingly. This only can lead to the better proactive approach on part of the organisations. In the cut throat competition, the adoption of proactive approach is even more important than in any period of history. The reason is constant change in the customer requirements which are unpredictable at times and difficult to manage as well. Keeping abreast with the changing paradigms pays the organisation in favourable terms in the long run. References Barak, M. E. M., 2011. Managing diversity. (2nd Ed.). London: SAGE Publication. Collins, H., 2010. Employment Law. Oxford: Oxford University Press. D’Anieri, P., 2009. International Politics: Power and Purpose in Global Affairs. USA: Cengage Learning. Dubrin, A. J., 2012. Essentials of management. USA: Cengage Learning. Greasley, A., 2008. Operations Management. London: Sage Publications Ltd. Schermerhorn, J. R., 2011. Organizational behaviour. (12th Ed.). USA: John Wiley & Sons. Vent, C., 2009. Make their day! Employee recognition that works. California: Berret-Koeher Publishers. Wheelen, Thomas L. and  Hunger, J. David, 2012.  Concepts in Strategic Management and Business Policy: Toward Global Sustainability. USA: Prentice Hall. Read More