Environmental factors affecting business

From CEOpedia | Management online

The companies want to get to know what are their macroeconomics possibilities and what are their reasons in order to receive higher income and adapt to customers’ needs. They can use many different kind of analysis, one of them is called PESTLE (or PESTEL). These four letters stand for the factors:

  • P - political,
  • E - economic,
  • S - social,
  • T - technological,
  • L - legal,
  • E- environmental.

This analysis checks each aspect which can affect on the organisations’ activities. Most of organisations determines ‘environmental factors’ as each indicator which is outside the company and has the influence on them. When the PESTLE analysis is taken into consideration, this phrase is connected with the real environment, such as weather, climate or access to resources.

The way of affecting on business

The reader could think that this aspect does not affect on the companies. However, there is clear connection between them. There are some examples below:

  • water and air pollution (influencing production processes in high-tech companies and food production),
  • quality of water used for consumption or production,
  • health problems (employee attrition) in polluted places, healthy environments improve mental and physical health and reduce absenteeism,
  • quantity of renewable and non-renewable resources available,
  • biodiveristy of ecosystems and its protection,
  • minerals, oil, gas and other natural resources deposits,
  • degradation, deforestation and depletion of fisheries and other natural resources,
  • flooding, storms, and other natural disasters caused by human influences on ecosystems (global warming, etc.),
  • climate change, drought and food scarcity could lead to social unrest and international conflicts,
  • ecosystem services used in business processes,
  • growing importance of technology for prevention and reduction of consequences of environmental pollution.

Corporate Social Responsibility policy

The organisations should take into consideration that the cooperation between the businesses and the environment is strong and visible. The way how the environment behaves is the results of what the human and its activity has done the environment. The entrepreneurs should release that nature supports people's lives and what it is done today, it affects on future generations and their possibility to live on the Earth. The way how they can prevent the bad affect of its activity is Corporate Social Responsibility. It should be analysed what are the opportunities for the company to improve the local or global surroundings, for example last campaign about stopping using the disposable plastic straws. It was announced because there is the issue of using each day 500 million straws only in United States which end up on landfills and in the ocean. The one of most known companies which took part in this campaign was Starbucks. It admitted that there would be added straws from reneuwable materials to its beverages in order to act awarely and sustainable. There are also different ways of facing environmental issues like: car pooling, using reusable bags, not wasting resources like paper, fruit, vegetables but also time. That kind of activities pay attention of the customer and, moreover, increase the good public relations of the company.

Sustainable Development Goals

In 2015 The United Nations also noticed that problem and set a list of goals which can prevent the results of humankind's activities and strive to improve the life of people on each continent and end all ways of poverty, inequalities and face climate changes. They are called Sustainable Development Goals which consists of three goals established with the environment, such as Climate action and Life below water and on the land. It is really important due to the fact that according to the researches of United Nations 1.6 billion people depend their livelihood on the forests. What is more, it is strongly connected with the food economy and pharmaceutical industry.

The companies affects on the environment but it also have impact on the organisations. They need to be open to the changing situations in surroundings and try to adapt to it in order to cooperate with the nature and climate and create the beneficial opportunities for stakeholders and customers.

Examples of Environmental factors affecting business

  • Political: Political factors can have a huge impact on the success of a business. For example, changes in tax laws or trade regulations can have a major effect on a company. Additionally, changes in government leadership can also have a huge impact on the success of a business.
  • Economic: Economic factors such as inflation, interest rates, and currency exchange rates can significantly impact the success of a business. For instance, if there is a sudden spike in inflation, this can lead to higher prices for goods and services, making it difficult for a business to remain competitive.
  • Social: Social factors often include things such as changing consumer tastes and preferences or changing cultural norms. For instance, if a business is trying to market a product to a particular demographic, changes in the way that demographic interacts with the product can have a major impact on the success of the business.
  • Technological: Technological advances can have a huge impact on a business. For instance, the emergence of new technologies can make certain products obsolete, while also opening up new opportunities for businesses to capitalize on.
  • Legal: Legal factors can also have a major effect on the success of a business. For instance, changes to labor laws or environmental regulations can significantly affect the cost of doing business for a particular company.
  • Environmental: Environmental factors such as climate change, water shortages, and air pollution can also have a major impact on the success of a business. For instance, if a business operates in an area that is prone to natural disasters, this can have a significant impact on their operations.

Advantages of Environmental factors affecting business

PESTLE is an acronym for Political, Economic, Social, Technological, Legal and Environmental factors. It is a useful tool for analyzing the macroeconomic environment of a business and can provide useful insights into how a company can best position itself to gain a competitive advantage. The following are some of the advantages of environmental factors affecting a business:

  • Political: Being aware of the political environment can help businesses identify opportunities for expansion, investment and other opportunities for growth. Political stability can also provide a safe and secure environment for businesses to operate in.
  • Economic: Monitoring economic indicators such as GDP, inflation and unemployment can help businesses better anticipate changes in the market and adjust their strategies accordingly.
  • Social: Businesses can use social trends to predict consumer behaviour and identify new opportunities for growth.
  • Technological: The advancement of technology can open up new opportunities for businesses to explore. It can also help improve efficiency and reduce costs.
  • Legal: Knowing the legal environment in which a business operates is essential in order to ensure compliance and minimize the risk of legal action.
  • Environmental: Environmental considerations are increasingly important for businesses. Understanding the impact of business activities on the environment can help businesses develop more sustainable practices.

Limitations of Environmental factors affecting business

PESTLE is an essential analysis tool for businesses to identify the external factors that are influencing their environment. However, it is important to keep in mind that there are certain limitations to its effectiveness. Some of the limitations of environmental factors affecting business include:

  • Limited Accessibility: Environmental factors can sometimes be difficult to access, especially for a business with limited resources. For example, the data collected on the environment may be incomplete or outdated, or may not be available at all.
  • Unpredictability: Even when environmental factors can be accessed, they can be unpredictable and hard to measure. This is because environmental conditions can change quickly and unpredictably.
  • Difficulty in Forecasting: Environmental factors can be difficult to forecast, because they are often influenced by multiple factors and can change rapidly.
  • Complexity: Environmental conditions can be complex, as they involve interactions between multiple factors, making it difficult to determine the cause and effect.
  • Lack of Control: Businesses have limited control over the external environment and cannot influence it directly. This makes it difficult to plan for and respond to changing environmental conditions.

Other approaches related to Environmental factors affecting business

PESTLE is a great way to analyze the macroeconomic environment of a business and identify areas of opportunities and risks. However, it is only one of many approaches that businesses can use to gain insights into the external environment. Other approaches related to environmental factors affecting business include:

  • SWOT Analysis - a tool used to identify internal Strengths and Weaknesses of a business, as well as external Opportunities and Threats.
  • Porter's Five Forces Model - a tool used to analyze the competitive environment of an industry and identify factors that influence the industry’s profitability.
  • Porter’s Diamond Model - a tool used to analyze the external environment of an industry and identify the nation’s competitive advantages.
  • Value Chain Analysis - a tool used to identify the value-creating activities of a business and identify ways to reduce costs and increase efficiency.

In conclusion, PESTLE is one of many approaches that businesses can use to analyze the macroeconomic environment and identify opportunities and risks. Other approaches such as SWOT Analysis, Porter’s Five Forces Model, Porter’s Diamond Model, and Value Chain Analysis can also be used to gain insights into the external environment.


Environmental factors affecting business — recommended articles
Opportunities and threats — Macro environment analysis — STEEPLE analysis — PEST analysis — STEEP analysis — External environment — Factors affecting business — Industry environment — Factors affecting demand

References

Author: Beata Mertyn

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