Business environment appraisal methods successfully enable an organisation to understand their position in the commercial marketplace

Environment_PESTAnalysis PESTLE pstp-2017-3-18-38-44 Topic2Notes

Business environment appraisal methods successfully enable an organization to understand its position in the commercial marketplace

International Journal of Modern Social Sciences, 2013, 2(1): 34-

International Journal of Modern Social Sciences

Journal homepage: www.ModernScientificPress.com/Journals/IJMSS.aspx

ISSN: 2169-9917

Florida, USA

Article

Environment & PEST Analysis: An Approach to External

Business Environment

Abhishek Gupta

Administrative-cum-Accounts Officer & Head of Office, Sardar Swaran Singh National Institute of

Renewable Energy (Ministry of New & Renewable Energy, Govt. of India), Wadala Kalan,

Kapurthala-144601 (Punjab)

E-Mail: iloveindia1909@gmail.com; Ph. No. 01822-255090, Mo. 09592010278

Article history: Received 8 April 2013, Received in revised form 28 May, Accepted 29 May 2013,

Published 30 May 2013.

Abstract: Environmental management, a term encompassing environmental planning,

protection, monitoring, assessment, research, education, conservation and sustainable use

of resources, is now accepted as a major guiding factor for sustainable development at the

regional and national level. It is now being increasingly recognized that environmental

factors and ecological imperatives must be in built to the total planning process if the long-

term goal of making industrial development sustainable is to be achieved. Here we will try

to define and discuss the role of Environmental Analysis in the strategic management

process of organization. The present complex world require as far as is feasible, it consider

impact of important factors related to organizations in strategic planning. The strategic

planning of business includes all functional subdivisions and forwards them in a united

direction. One of these subsystems is human resource management. Strategic human

resource management comes after the strategic planning, and followed by strategic human

resource planning as a major activity in all the industries. In strategic planning, it can use

different analytical methods and techniques that one of them is PEST analysis. This paper

introduces how to apply it in a new manner.

Keywords: Environmental Management, Environmental Planning, Business Environment,

PEST Analysis.

mailto:iloveindia1909@gmail.com

Int. J. Modern Soc. Sci. 2013, 2(1): 34-43

1. The PEST Analysis: An Introduction

The PEST analysis is the most common approach for considering the external business

environment. PEST analysis stands for Political, Economic, Social, and Technological analysis and

describes a framework of macro-environmental factors used in the environmental scanning component

of strategic management but the word PEST is no more than a convenient mnemonic. The underlying

thinking of the PEST analysis is that the enterprise has to react to changes in its external environment.

This reflects the idea that strategy requires a fit between capabilities and the external environment and

so it is necessary for an enterprise to react to changes. Political changes might be expected to include,

for instance, general changes in the domestic political climate, the effects of European integration and

the after-effects of the break-up of the Soviet Union, government change, world power shifts, as well

as specific legislation and regulation. Economic changes is likely to include the effects of economic

cycles, patterns of world trade, currency conversion rate changes, commodity prices, changes in capital

markets, labour markets and rates, and economic effects on suppliers and particular groups of

customers. Social change includes the effects of demographic patterns, tastes and habits, and concerns

about the environment and sustainable development. Technological change covers the effects of

technological change on products, processes, and distribution channels. The PEST analysis is very

general in nature and this makes it difficult to give clear rules on how best to apply it in varying

circumstances. Global or geographically dispersed enterprises will have to conduct separate PEST

analysis for different regions as trends occur at different rates in different places. The value of the

PEST is likely to relate directly to the quality of the effort put into it. This time spent thinking about

how external change will affect the enterprise and its industry is likely to be well spent.

2. Industry Analysis: A Market Assessment Tool

An industry is a collection of firms offering goods or services that are close substitutes of each

other. Alternatively, an industry consists of firms that directly compete with each other. In other words

an industry is a group of firms producing a similar product or service, such as soft drinks or financial

services. An examination of the important stakeholder groups, such as suppliers and customers, in a

particular corporation’s task environment is a part of industry analysis. An authority on competitive

strategy contends that a corporation is most concerned with the intensity of competition within its

industry. There are five forces, which work together to determine the type and direction of pressures on

profitability that will be found in a given industry. When these forces of competition are favorable,

there will be less downward pressure on profitability, and the industry should have a higher average

level of profitability. When the structural factors are unfavorable, there will be more downward

Int. J. Modern Soc. Sci. 2013, 2(1): 34-43

pressure on profitability and a correspondingly lower average level of profitability. A company, which

is competing in an industry with an unfavorable structure, must find a, ways to gain an advantage over

its competitors, which will allow it to earn above average level of profitability. If no competitive

advantage can be developed, it may be possible to change the structure of the industry. If changing the

structure is not a viable alternative, the company should consider exiting the industry. A company,

which is operating in an industry with a favorable structure, should work to maintain the structure.

3. Industrial Rivalry

The force of competition reflects the interactions among competitors who produce products or

services that are close substitutes for each other. These competitors are collectively known as the

industry. An industry, which is characterized by firms trying to edge out each other for market share is

said to be experiencing rivalry. Rivalry is more intense than ordinary competition. Firms take actions,

which may damage their own profitability in the short run with the idea that it will hurt competitors

more, and in the long run, the initiating firm will gain some advantage over the others. Rivalry is

usually exhibited in price wars, advertising barrages and product proliferation. Rivalry is damaging to

industry profitability because it is costly. Businesses generally try to minimize rivalry within the

bounds of law; however, many factors can create or escalate rivalry in an industry and they should be

carefully monitored as part of the environmental analysis process. As rivalry increases, average

profitability is pushed down, all other things being equal. Rivalry is greater when there are many small

firms in an industry or when there is no clearly dominant firm to set and enforce standards for

competition.

Economies of scale exist for current competitors in the industry. New entrants must incur the

capita’ costs of large production facilities to keep their unit costs down and maintain competitive

prices, or they may forego the large employees to, management must consider other staffing

alternatives. Absolute cost advantages exist when current competitors have lower costs. This may be

due to patents, favorable long-term supply contracts, or experience in operations. Brand loyalty and

product differentiation are present in the industry. Users view the product/service as unique and are

fewer prices sensitive. This makes it difficult for new competitors to establish a market position.

Government regulations limit new competitors. Start-up costs are high. Current competitors move to

make it difficult for new entrants to establish themselves. This may be done by cutting prices in

markets where new products are being tested as long as such pricing is not predatory.

It should be rioted that entry barriers are most effective against start-ups. The only entry

barrier, which seems to be consistently effective against entry by acquisition, is the reaction of existing

competitors. Substitute products: Industry sales and profitability are limited by what the customer will

Int. J. Modern Soc. Sci. 2013, 2(1): 34-43

pay for a given level of quality or service when alternatives are available. Commercial banking

companies often switch from high-fructose corn sweeteners to sugar when the price of sugar decreases

and switch back when the price of sugar increases. As a result profits in the high-fructose corn syrup

industry are limited by the price of sugar. When there is a strong threat of substitution, average

profitability can suffer. The threat of substitution holds down industry profits by allowing buyers

options. The threat of substitution is greater when switching costs are not significant. Substitutes

provide about the same value for cost. Buyers are in the habit of substituting.

4. Industries: Global Competition

Over time most industries evolve through a series of stages form growth through maturity to

eventual decline. The strength of each of six forces mentioned earlier varies according to the stage of

the industry evolution. The industry life cycle is useful for explaining and predicting trends among the

six forces driving industry competition. For example, when an industry is new, people often buy the

product regardless of price because it fulfills a unique need. This is probably a fragmented industry no

firm has large market share and each firm serves only a small piece of the total market in competition

with others. As new competitors enter the industry, prices drop as a result of competition. Companies

use the experience curve and economies of scale to reduce costs faster than the competition.

Companies integrate to reduce costs even further by acquiring their suppliers and distributors.

Competitors try to differentiate their products from one another in order to avoid the fierce price

competition common to a maturing industry. By the time an industry enters maturity, products tend to

become more like commodities. This is now a consolidated industry dominated by a few large firms,

each of which struggles to differentiate its products from the competition. As buyers become more

sophisticated over time, purchasing decisions are based on better information. Price becomes a

dominant concern, given a minimum level of quality and features. As an industry moves through

maturity toward possible decline, its products growth rate of sales slows and may even begin to

decrease. To the extent that exit barriers are low, firms will begin converting their facilities to alternate

uses or will sell them to another firm. The industry tends to consolidate around fewer but larger

competitors.

Global industries, in contrast, operate worldwide, with MNCs making only small adjustments

for country specific circumstances. A global industry is one in which all MNC’s activities in one

country are significantly affected by its activities in other countries. MNC’s produce products or

services in various locations throughout the world and sell them, making only minor adjustments for

specific country requirements. Examples of global industries are commercial aircraft, television sets,

semiconductors, copiers; automobiles, watches and tires, the largest industrial corporations in the

Int. J. Modern Soc. Sci. 2013, 2(1): 34-43

worked in terms of dollar sales are, for the most part, multinational corporations operating in global

industries. The factors that tend to determine whether an industry will be primarily multi-domestic or

primarily global are pressure for coordination within the multinational corporations operating in that

industry, pressure for local responsiveness on the part of individual country markets.

5. Environment Analysis: Threats & Opportunities

Environment analysis is the study of the organizational environment to pinpoint environmental

factors that can significantly influence organizational operations. Environmental analysis is a critical

component of strategic management because it produces much of the information, which is, requires

to assess the outlook for the future. The environment is a significant source of change. Some

organizations become victims of change, while others use change to their advantage. Organizations are

more likely to be able to turn change to their advantage if they are forewarned. This is a major purpose

of the environmental analysis process.

In order to perform an environmental analysis efficiently and effectively, a manager must

thoroughly understand how organizational environments are structured. The environmental analysis

phase of the strategic management process seeks to uncover relevant information rather than extensive

information; it rewards the pursuit of quality rather than quantity. Furthermore, the process must be

future-oriented to provide for adequate response time, whether the desired response is to capitalize on

a trend or to influence its direction. Finally, the information must be translated into a form that

facilitates its use in strategic planning. From these requirements, environmental analysis can be

divided into three major steps determining the bounds and relevant sectors of the environment;

Scanning and forecasting and ensuring that information is available concerning the defined

environment, interpreting packaging information into forms that are useful for Planning. Every

organization is subject to general trends which are felt in many industries and which are not usually

amenable to influence by a single organization. These trends can be classified as technological,

economic, social, and political according to the sector of the environment from which they come. The

force of trends varies with the geographical scope of competition, so it is helpful to identify the scope

of the sector, which requires scanning.

6. The General Environment

The components normally considered part of the general environment are Economic,

Technological, Social and Political. The fluctuations of local, national, and world economies are

related in many ways, but it is still important to make separate assessments based on organizational

scope. Local conditions can moderate or deepen the effects of national economic trends. The

Int. J. Modern Soc. Sci. 2013, 2(1): 34-43

underdeveloped nations are characterized by rising populations, low standards of education, and lack

of a transportation and commercial base. In the developing nations, gross national product is rapidly

increasing, but wages are low and consumer goods scarce. Most critical is the unevenness of income

and wealth, the rapidity of change, and the political instability, which can threaten organizations

operating in such areas. Technology refers to the means chosen to do useful work. Technological

trends include not only the glamorous invention that revolutionizes our lives, but also the gradual

painstaking improvements in methods, materials, in design, in application, in diffusion into new

industries and in efficiency. It includes hardware, software and live ware. For centuries, the simple

process of handling business correspondence has involved dictation, transcription, and final review

and signature. Technological improvements, which made the process more efficient, include the

creation of a standardized shorthand writing system, the invention of the typewriter, the use of voice

recording machines for dictation, and the use of the microcomputer for transcription and editing. All

four represent technological change even though only the typing, recording, and word processing

activities involve machines.

The behavior patterns of individuals and groups reflect their attitudes, beliefs and values. The

social environment includes the attitudes and values of society as well as the behavior, which is

motivated, by those values. A community’ attitudes toward legalized gambling, the composition of

families and households, and the preference for fast food over home cooking are all manifestations of

the social environment. The impact of the social sector is felt in changing needs, tastes and preferences

of consumers, in relations with employees, and in the expectations of society about how the

organization should fulfill its citizenship role. The political sector of the environment presents actual

and potential restrictions on the way an organization operates. These restrictions can take the form of

laws which require or prohibit certain actions, regulations which interpret and detail laws, or avenues

for reporting relationships and oversight functions. The differences among local, national, and

international subsectors of the political environment are often quite dramatic.

7. Worldwide/Global Environment: An International Perspective to Global

Industry

Although industries can be characterized by the global multi-domestic distinction, few pure

cases of either exist. Thus, a multinational competing in a global industry must, to some degree, also

be responsive to local market condition. Similarly, the multinational firm, competing in a multi-

domestic industry cannot totally ignore opportunities to utilize intra-corporate resources in competitive

positioning. The question then becomes one of deciding, which corporate functional activities should

be performed where and what degree of coordination should exist between them.

Int. J. Modern Soc. Sci. 2013, 2(1): 34-43

A multinational corporation has a wide range of possible location options for each of these

activities and must decide which set of activities will be performed in how many and which locations.

The basic international strategies derive from considering the location and coordination

dimensions. If the firm is operating in a multi-domestic industry, choosing a country-centered strategy

implies low coordination of functional activities and geographical dispersion of organization activities.

This allows each subsidiary to closely monitor the local market condition it faces and the freedom to

respond competitively. A high coordination and geographical concentration of the multinational’s

activities results from choosing a pure global strategy. Although some activities, such as after-sales

service, may need to be located in each market, the activities need to be tightly controlled so that

standardized performance occurs worldwide.

Domestically, the public image is often shaped from a marketing viewpoint. The firm’s public

image is considered a marketing tool that is managed with the objective of customer acceptance of the

firm’s product in the market. Although this dimension remains a critical consideration in the

multinational environment, it must be properly balanced with concern for organizational claimants

other than the customer. The multinational firm is a major user of national resources and a major force

in the socialization processes of many countries. Thus, the MNC must manage its image with respect

to this larger context by clearly conveying its intentions to recognize the additional internal and

external claimants resulting from multi-nationalization.

8. Environmental Forecasting

Environmental scanning, monitoring, and competitive intelligence are important inputs for

analyzing the external environment. However, they are of little use unless they provide raw material

that is reliable enough to help managers make accurate forecasts. Environmental forecasting involves

the development of plausible projections about the direction, scope, speed, and intensity of

environmental change, its purpose is to predict change. No one can deny that economic, technological,

political, and social change is a part of organizational life. To say the least, forecasting is a most

difficult process. At this point it may be consoling to recall some humorous forecasting rules. Several

studies have examined the impact of environmental analysis and forecasting on organizational

performance. One study found that increased knowledge, through environmental analysis and

forecasting was positively correlated to profitability.

Brainstorming is a technique that is primarily used to produce creative ideas for solving

problems, but it can also-be-used in forecasting. Basically, brainstorming involves presenting a

particular subject to a group of people and allowing them to present their forecasts on the subject.

Brainstorming generally consists of three phases. In phase one, members of the group are

asked to

Int. J. Modern Soc. Sci. 2013, 2(1): 34-43

present spontaneously their ideas on the future of the subject under study. The group is told that

producing a large quantity of their ideas is desired, and that they should not be concerned about the

quality of their ideas. Basic rules are observed in the first phase. No criticism of forecasts is allowed.

No praise of forecasts is allowed. No questions or discussion of forecasts is allowed. Combination and

improvements of forecasts that have been presented are encouraged. During the second phase, the

merits of each forecast are reviewed, which often leads to additional alternatives. Alternatives with

little merit are eliminated in this phase. In the third phase, one of the alternatives is selected, normally

through group consensus.

Trend-impact analysis is also used in environmental forecasting and is conducted along the

following general steps. Past history of a particular phenomenon is extrapolated with the help of a

computer. Panel of experts specifies a set of unique future events, which could have a bearing on the

phenomenon under study. Panel of experts indicates how the trend extrapolation would be affected by

the occurrence of each of these events. Computer then modifies the trend extrapolation using these

judgments. Panel of experts then reviews, the adjusted extrapolation, and modifies the inputs.

9. Environmental Uncertainty: A Threat to Strategic Manager

Environmental uncertainty is the degree of complexity plus the degree of change existing in an

organization’s external environment. Environmental uncertainty is a threat to strategic managers

because it hampers their ability to develop long-range plans and to make strategic decisions to keep the

corporation in equilibrium with its external environment. Most industries today are facing an ever

increasing level of environmental uncertainty. They are becoming more complex and more dynamic.

Industries that used to be multi-domestic are becoming global. New flexible, aggressive, innovative,

competitors are moving into established markets to rapidly erode the advantages of large previously

dominant firms. Distribution channels vary from country to country and are being altered daily through

the use of sophisticated information systems. Closer relationships with suppliers are being forged to

reduce costs, increase quality, and gain access to new technology. Companies learn to quickly imitate

the successful strategies of market leaders, and it becomes harder to sustain any competitive advantage

for very long. Consequently, the level of competitive intensity is increasing in most industries. In

hypercompetitive industries such as computer, competitive advantage comes from an up-to-date

knowledge of environmental trends and competitive activity coupled with a willingness to risk a

current advantage for a possible new advantage.

It is sometimes argued that it is so difficult to forecast the future that it is better not to attempt

forecasting at all. Scenario planning offers a fundamentally different approach that does not depend on

forecasting the future. Rather it postulates possible future scenarios without making any assessment of

Int. J. Modern Soc. Sci. 2013, 2(1): 34-43

the likelihood that any one scenario will occur. Scenario planning was pioneered in Shell. Scenario

planning involves the creation of a number typically two to four complete scenarios of the future, each

of which is self-consistent but significantly different form the others. Under scenario planning, the

purpose of the strategy process is to help managers to develop better mental models so that they can

deal with change as it occurs. It turns planning into learning exercises and places the emphasis on the

process of planning rather than the resulting plans. It is therefore reason of the Learning and Cognitive

schools. Scenario planning is being used to an increasing extent, but it does require considerable time

and effect to achieve the best results.

10. Conclusion

The PEST analysis is a useful tool for understanding market growth or decline, and as such the

position, potential and direction for a business. A PEST analysis is a business measurement tool. This

research dealt about the important PEST analysis which is very essential for strategic management.

Apart from this analysis the industry analysis, types of industries, the different kinds of strategies to be

adopted in the industries and the strategy alternatives are also discussed. After going through this

lesson we may understand the Environmental analysis, global environmental dimensions,

environmental forecasting, risk and uncertainty in business strategic management.

References

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Babette E. Bensoussan, Craig S. Fleisher, (2008). Analysis Without Paralysis:10 Tools to Make Better

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edition, FT Press.

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Kenichi Ohmae, (2002). The Mind of the Strategist, Tata McGraw-Hill Education.

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Technology, Innovation, Trade, and Investment, Greenwood Publishing Group.

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Licensing Programs, 2
nd

Edition, Wiley.

W. Teignmouth Shore, (2010). The Pest, BiblioBazaar, USA.

Markus Slamanig, (2012). PEST Analysis Hungary: Country Evaluation and Selection of Hungary, 1
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edition, GRIN Verlag.

http://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Babette+E.+Bensoussan%22

http://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Craig+S.+Fleisher%22

http://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Michel+Robert%22

http://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Ohmae%22

http://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Kenichi+Ohmae%22

http://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Edmund+B.+Fitzgerald%22

http://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Robert+C.+Megantz%22

http://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Markus+Slamanig%22

Int. J. Modern Soc. Sci. 2013, 2(1): 34-43

About Author:

Dr. Abhishek Gupta (B.Com, MBA, Ph.D) is the Administrative-cum-Accounts Officer & Head of

Office, Sardar Swaran Singh National Institute of Renewable Energy (Ministry of New & Renewable

Energy, Govt. of India), Kapurthala (Punjab), India. Dr. Gupta is working in Finance &

Administrative Department at management level since over twelve years.

©JoeWalden, 2011

Comparison of the STEEPLE Strategy Methodology and the Department of

Defense’s PMESII-PT Methodology

Joseph Walden

Supply Chain Leadership Institute

©Joe Walden, 201

Abbreviations

PMESII-PT: Political, Military, Economic, Social, Information, Infrastructure, Physical

Environment, and

Time

STEEPLE: Social, Technological, Environment, Economic, Political, Legal, and Ethical

TRADOC: US Army Training and Doctrine Command

©Joe Walden, 20

iii

Executive Summary

As a result of problems encountered in Iraq and Afghanistan, the United States

Department of Defense adopted an analysis methodology known as PMESII-PT to help analyze

the external environment in order to develop better strategies. PMESII-PT looks at the external

environment factors of Political, Military, Economic, Social, Infrastructure, Information,

Physical Environment, and Time. A quick look at this methodology would lead one to believe

that this is a purely military technique.

On the surface this methodology appears to be dramatically different from the

commercially used STEEPLE (Social, Technological, Economic, Environmental, Political,

Legal, and Ethical) external analysis tool. This paper compares the aspects of the two external

environment analysis techniques for similarities and differences.

According to the Sagacious Think website STEEPLE analysis allows businesses “to

anticipate future trends by considering the macro environment in which a company operates,

enabling it to determine the factors that will influence it in the coming years” (Conner 2010).

STEEPLE analysis has been compared with and pared with Strengths, Weaknesses,

Opportunities and Threats (SWOT) analysis and Political, Economic, Social and Technical

(PEST) analysis.

The acronym PMESII-PT contains the aspects of political, military, economic, social,

information, infrastructure, physical environment, and time aspects of the external environment

of an operational theater. PMESII-PT was developed by the Department of Defense and the US

Army as an analysis tool to look at external environments. “PMESII operations are complex,

with unpredictable effects and interactions” (Hillson n.d.).

©Joe Walden, 2011

The aspects of Society, Economic and Political are common to the two methodologies.

The Political aspect is similar to the Military analysis of the PMESII-PT methodology. At the

same time, the analysis of the opposing military is similar to an analysis of the competition in the

commercial world. While STEEPLE looks at the environment and the impacts of operations on

the environment, the PMESII-PT analysis looks at the environment as well while as the natural

resources of an area which are important from a commercial aspect when developing strategy.

The Technology in the commercial analysis is similar to the infrastructure analysis in the

PMESII-PT analysis. The Infrastructure analysis takes it a little farther by looking at the

buildings, road networks and facilities in the area which should be important from the

commercial analysis as well.

Just as military environments are complex and multidimensional, so are commercial

operating environments. The analysis of this paper shows that the PMESII-PT technique can be

easily modified for use by commercial firms and may provide a much more comprehensive look

at a company’s external environment. A more comprehensive look at the external environment

may help a company develop a more comprehensive and successful strategy to provide the

company with a sustainable competitive advantage.

©Joe Walden, 2011

Contents
Abbreviations …………………………………………………………………………………………………………………. ii

Executive Summary ……………………………………………………………………………………………………….. iii

Background ……………………………………………………………………………………………………………………. 1

STEEPLE ……………………………………………………………………………………………………………………….

PMESII-PT ……………………………………………………………………………………………………………………. 2

Comparison and Analysis …………………………………………………………………………………………………

Society ………………………………………………………………………………………………………………………. 5

Economic …………………………………………………………………………………………………………………… 5

Political/Military ………………………………………………………………………………………………………..

Environmental/Physical Environment …………………………………………………………………………

Technological/Infrastructure ………………………………………………………………………………………

Legal ………………………………………………………………………………………………………………………..

Ethics ………………………………………………………………………………………………………………………. 10

Information ……………………………………………………………………………………………………………… 10

Time ………………………………………………………………………………………………………………………… 11

Conclusions ………………………………………………………………………………………………………………….. 11

Bibliography ………………………………………………………………………………………………………………… 1

List of Figures

Figure 1: STEEPLE and PMESII-PT Elements and Common Areas ………………………………. 4

EMGT 821 Joe Walden

What is strategy? According to Merriam-Webster strategy is “the science and art of

employing the political, economic, psychological, and military forces of a nation or group of

nations to afford the maximum support to adopted policies in peace or war” (Merriam-Webster

2011). This definition would lead to the conclusion that strategy is a purely military concept.

Based on this definition linking the concept of strategy to the military, this paper will compare

the military’s latest methodology for assessing the external environment with the

STEEPLE

commercial strategy tool used to assess a company’s external environment.

Background

The Department of Defense uses a methodology known as PMESII-PT as the basis for

analyzing operational environments in order to form strategy and strategic actions for a theater of

operations. According to the US Army’s Operations Field Manual, PMESII-PT is an acronym

for the external aspects of an area or theater (Field Manual 3-0, Operations 2011). The acronym

PMESII-PT looks at the aspects of political, military, economic, social, information,

infrastructure, physical environment, time aspects of the theater.

Commercial business analysts use the acronym STEEPLE as a memory reminder for a

technique to analyze companies and markets in order to develop strategy and strategic actions for

a company. STEEPLE is an acronym for the social, technological, environmental, economic,

political, legal and ethical considerations and aspects of a company or industry.

This paper will compare the two analysis methodologies for analyzing the external

environment used to help develop a strategy for a company or organization. By explaining each

aspect of the two methodologies this paper will compare and contrast the methodology of the

EMGT 821 Joe Walden

Department of Defense and one of the accepted analysis methodologies of commercial industry

to identify similarities and differences.

STEEPLE

According to the Sagacious Think website STEEPLE analysis allows businesses “to

anticipate future trends by considering the macro environment in which a company operates,
enabling it to determine the factors that will influence it in the coming years” (Conner 2010).

This website caveats the analysis with “It is important to note that these factors change by

country and even region, so the user should not make sweeping assumptions with this tool.”

(Conner 2010).

The STEEPLE analysis looks at the operational environment of a company or industry.

According to Business Environment: Managing in a Strategic Context, an environment is

defined as: “anything outside an organization which may affect an organization’s present or

future activities. Thus, the environment is situational – it is unique to each organization” (Kew

and Stredwick 2005). The STEEPLE analysis is one of the common tools in used by commercial

businesses to analyze this environment. STEEPLE analysis has been frequently compared with

and paired with the Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis.

PMESII-PT

The initial military actions following the terrorist attacks of September 11, 2001, revealed

the need for a new tool to analyze external environments. This paper will look at the possibility

of using this new framework for assessing and gaining a situational awareness in commercial

EMGT 821 Joe Walden

industries. A Military Guide to Terrorism in the Twenty-First Century states, “To understand

the complex interactions of the Operational Environment, a framework of “systems” assists in

assessing and gaining situational awareness. Joint doctrine uses systems of Political, Military,

Economic, Social, Infrastructure, and Information to shape and conduct missions” (TRADOC

2007).

PMESII-PT was developed by the Department of Defense and the US Army as an

analysis tool to replace the previous tool known as METT-TC. The previous analysis tool looked

at the mission (mission analysis of what the company is supposed to accomplish), the enemy (in

commercial terms this would be the competition), the terrain (physical terrain to include weather

which could also describe the business terrain), troops (how many workers and equipment is

available), time considerations and any civilian considerations (what are the impacts on the

civilians in the area from a proposed course of action?).

The realization that certain actions were not covered by the previous methodology led

one analyst to state, “PMESII operations are complex, with unpredictable effects and

interactions” (Hillson n.d.). A comprehensive commercial strategy development also involves

considering the aspects of complex environments. The PMESII-PT and STEEPLE comparison

will look at the applications of PMESII-PT as a tool for analyzing the complex commercial

business environment.

Comparison of PMESII-PT and STEEPLE

In a monograph prepared for the US Army’s School of Advanced Military Studies, Major

Brian Ducote wrote, “complex environments exhibit characteristics of openness, purposefulness,

multidimensionality, emergence, and counter intuitiveness. Therefore, any form of inquiry

EMGT 821 Joe Walden

designed to understand such an environment must address such aspects to convey meaning”

(Ducote 2010). Just as military environments are complex and multidimensional, so are

commercial operating environments. In a 2008 memorandum, General J. N. Mattis wrote,

“operations in the future will require a balance of regular and irregular competencies” (Mattis

2008). Commercial operations in the future will face the same challenge of current competencies

and new (and possibly currently unknown) competencies in order to compete in future markets.

The goal of this comparison is to analyze two different approaches to analyzing external

environments in order to develop operational strategies for competing in future markets. Figure 1

shows the aspects of the two methodologies.

STEEPLE and PMESII-PT

• Social

• Technological

• Environmental

• Economic

• Political

•

Legal

• Ethical

• Political

• Military

• Economic
• Social

• Information

• Infrastructure

• Physical environment

• Time

Figure 1: STEEPLE and PMESII-PT Elements

EMGT 821 Joe Walden

Comparison and Analysis

Society

The easiest part of the comparison between these two strategy analysis and development

tools is the comparison of the parts of the tools with the same names. The social aspect of the

STEEPLE analysis looks at aspects such as demographics, education levels, income levels and

perhaps the age distribution of the population or customer base. The society in STEEPLE could

be the stakeholders of the company. In the PMESII-PT analysis the focus is also on

demographics. However, this analysis also looks at the religious backgrounds of the society.

In the PMESII-PT analysis the society is “is a population whose members are subject to

the same political authority, occupy a common territory, have a common culture, and share a

sense of identity” (Field Manual 3-0, Operations 2011). The military strategy development

process realizes that the society helps shape the values of the population which helps to influence

the actions of the people.

This definition could be modified to the STEEPLE analysis as: a population whose

members are potential customers, share a common need for a product, and may be impacted by

the actions of a company. In both methodologies the use of society is similar and could be used

by companies to assist in analyzing their external environments.

Economic

The next common aspect is the economic component of the analyses. In STEEPLE the

economic analysis looks at such aspects of the external environment as tax rates, monetary

exchange rates, economic growth, and perhaps the consumer confidence index. These aspects are

used to help define the economic impacts from the economy on the external environment of the

company.

EMGT 821 Joe Walden

In PMESII-PT the economic aspect includes “individual and group behaviors related to

producing, distributing, and consuming resources” (Field Manual 3-0, Operations 2011). This

includes monetary policies just like the STEEPLE analysis and looks at government aid or

assistance. This aspect of the analysis should be added to the STEEPLE analysis in the form of

the question: Does the competition have any government support? An example of this would be

the airline industry in many foreign countries being subsidized by the government helping to

make them more competitive.

Political/Military

According to the US Army Field Manual, FM 3-0, Operations, the political environment

includes “the distribution of responsibility and power at all levels of governance” (Field Manual

3-0, Operations 2011). The military aspect of the environment is “the military capabilities of all

armed forces in a given operational environment. For many states, an army is the military force

primarily responsible for maintaining internal and external security” (Field Manual 3-0,

Operations 2011). In his book On War, Karl von Clausewitz states that the war is an extension of

politics. Therefore, an analysis of the military is also an analysis of the political climate of a

country and should not necessarily be separated from the political analysis. In some countries

there is no separation from the military and political aspects and could be rolled into one aspect

of the analysis.

The innovation wiki website states that the political analysis under the STEEPLE

technique includes election results (Innovation Wiki 2011). The political analysis could also

include environmental or safety regulations such as are present in California. A political analysis

could also involve looking at the stability of the local government. Both analytical techniques

EMGT 821 Joe Walden

should have identified problems for companies that are or may have been considering doing

business in Egypt, Syria and Libya this year.

In an external assessment of a company’s environment the military aspect may not be

important. In an analysis in preparation for developing a military strategy, a careful analysis of

the political and military aspects of a country is critical. Another part of the “military” analysis is

an analysis of the leadership and resources of the opposing militaries. A good external analysis

for a commercial company should also consider the leadership of the rival companies and the

resources both human and financial of the competition.

The analytical aspects of society and economics are similar in both the STEEPLE and

PMESII-PT methodologies. The political aspect appears radically different in the PMESII-PT

analysis when coupled with the military aspect of the analysis. However, if the analysis from the

commercial perspective changes the military to the competition or rivals, the analysis has

commercial applications and is useful in carefully analyzing the external environment.

Another aspect of the political analysis that should be compared comes from The Army

Operations Smart Book. This handbook states “understanding political implications requires

analyzing all relevant partnerships” (Wade 2009). A good commercial external analysis should

look at the relevant partnerships of the rivals or competition. The Smart Book goes on to say

“This analysis captures the presence and significance of external organizations and other groups”

(Wade 2009). A good commercial external environment must also consider the influence of

external organizations such as political action groups, environmental groups, or union activities

when considering the company’s external environment.

The remaining aspects of the two methodologies appear on the surface to be different.

The remainder of this paper will look at those aspects for comparison and contrasts.

EMGT 821 Joe Walden

Environmental/Physical Environment

On the surface these two aspects of the external analysis would appear to be similar. Both

appear to deal with the environment. In the STEEPLE analysis the environmental aspect looks at

some areas that are similar to some of the political analysis. A detailed analysis could blur the

lines between the political attitude toward the environment and the environmental regulations

that could impact a company. For example, in the distribution industry companies are starting to

move into Nevada from California based on the environmental regulations that the companies

perceive to be a hindrance to operations. The move to Nevada allows distribution companies to

continue servicing customers in California without being subject to California’s environmental

rules and regulations. This could be a political or environmental assessment.

In the PMESII-PT analysis the physical environment takes a different look at the external

influences. In this methodology, the physical environment is “the geography and manmade

structures” (Field Manual 3-0, Operations 2011). When looking at manmade structures from a

military analysis perspective, facilities such as mosques, churches, and historical shrines must be

considered as part of the strategy development process. If this aspect is converted to a

commercial analysis it may look very similar to an infrastructure analysis both internal and

external to the company and could provide both opportunities and threats in the form of areas

that need to be improved or infrastructure deficiencies such as a lack of a rail siding for

transportation deliveries or a truck delivery dock to receive truck shipments.

The physical environment in the PMESII-PT analysis also considers the natural resources

and hydrology of the area. In a commercial analysis using this methodology, a company looking

at international expansion may consider the availability of natural resources or water availability

EMGT 821 Joe Walden

in a region being considered and the impacts that those factors may have on the operations of the

company if they expanded into that region.

Technological/Infrastructure

A strategic analysis of the external environment of a company requires looking at the

technology currently in use in the industry and inside the company. Does the company have the

latest technology in use in the industry or is the company an industry follower? Has the industry

left the company behind? Another aspect of the technology analysis has to consider technology

innovation within the company and the industry. Another aspect of the technology analysis may

look at improvements in the competitive environment and local aspects of the competition – for

example, is the competition located in Kansas City, Kansas with access to the new Google super

speed wide-band internet system? Does an area have a good education base to support a high

technology company?

A strategic analysis from the military perspective looks at the infrastructure of the area.

This includes power plants, water treatment facilities, roads, and buildings used for support

functions in the area being analyzed. Just as the military infrastructure considers facilities in a

potential theater of operations, a comprehensive commercial external assessment should consider

the infrastructure and facilities of the rival companies. This assessment may help the company

decide if an expansion into a new country or market is feasible based on the resources and

facilities of the competition. A well-established (good infrastructure) competitor may have the

advantage in a potential “theater of operations” in the commercial world just as a well-

entrenched military opponent may hold the advantage in a good external analysis. In a supply

chain company this modification of the analysis may look at the location and numbers of

distribution centers or the number of trucks and trailers in the competitor’s distribution network.

EMGT 821 Joe Walden

Legal

What rules and laws is the company subject to? Some of this may come from the

previously discussed aspects of the analysis. The environmental analysis will reveal some of the

laws impacting a company. The analysis of the society and economy may also reveal some of the

legal impacts and constraints. From a military aspect, this part of the STEEPLE analysis should

be added to the PMESII-PT to look at the laws of the countries being analyzed.

Ethics

The last aspect of the STEEPLE analysis is ethics. According to Dr. Ray Dick ethics:

“involves applying general ethical principles and standards to business behavior (Dick 2011).”

Any analysis of a business environment, both internal and external, must include a look at ethics.

Hopefully, in the strategy continuum and strategy development the values of a company are

consistent with ethical values. Although not part of the PMESII-PT analysis, any consideration

of military strategy has to be consistent with ethical standards.

Information

According to Joint Publication 3-13, Joint Doctrine for Information Operations,

information considerations for strategy development includes “the aggregate of individuals,

organizations, and systems that collect, process, disseminate, or act on information” (Joint

Publication 3-13, Joint Doctrine for Information Operations 1998). From a military perspective

this means any system, activity or person that processes information about the military

operations. When modifying the PMESII-PT to commercial operations, these activities may

include the competition’s benchmarking operations, the marketing activities of the competition

or even consumer reports analysis of the company’s products. These areas of market information

should be a concern and consideration of the company when analyzing the external environment.

EMGT 821 Joe Walden

Included in the assessment should be an analysis of the security of the company’s information

systems – is there an opportunity for someone to hack in to the company’s systems and impact

the security of the information or the continuity of operations for the company? Knowing as

much about the competition, their flow of information, and the competition’s plans should be

part of the external analysis.

Time

From a military perspective, time could be how much time is available for the preparation

for an operation or the capability of the enemy to conduct protracted warfare. This aspect is not

part of the STEEPLE analysis. If this aspect or the PMESII-PT is converted to a commercial

analysis, time could be how quickly the competition can introduce a competitive product. The

time analysis from a commercial perspective may also look at the ability of the competition to

conduct long term operations or is the competition strapped for cash and looking at moving out

of the market or industry. This could be a critical piece of information and analysis when looking

at external factors impacting a company’s operations and strategy development.

Conclusions

Commercial companies use the STEEPLE analysis methodology to look at the external

factors that could impact the company’s operations and help the company to develop a strategy

for the future. The elements of the STEEPLE analysis are incorporated into the analysis process

to provide a company with a comprehensive analysis of their external environment to

complement a SWOT analysis. This technique is similar in nature to the US Department of

Defense’s PMESII-PT analysis of a theater of operations used to help develop military strategy

for a region or country.

EMGT 821 Joe Walden

Properly conducted, both methodologies can provide a sound analysis and foundation for

looking at the external environment and its impact on a company’s or a country’s operations.

Both methodologies require a detailed analysis. The differences between the two methodologies

on the surface appear to be great. However, when comparing and contrasting the two

methodologies it is clear from this paper that the two methodologies are similar in nature and

could easily be adapted to use by commercial and military strategy developers. The PMESII-PT

methodology appears to be military unique in nature but as this paper shows with a little work

could be adapted to use for analyzing the external environment of commercial firm and may

provide a more detailed analysis or at least an analysis from new perspectives when aspects such

as marketing (information), time and resources, competition capabilities (military), and the

competitive infrastructure are added to the external analysis.

Which technique is best? Sun Tzu tells us that we have to get on the ground and see what

is going on to determine what reality really is. For a strategy analyst to determine which

methodology provides the most comprehensive analysis and clear picture of the external

environment, he/she must get on the ground and look around and then compare the results of the

two techniques to determine which one provides that particular company with the clearest picture

of the external impacts on that particular company.

While not recommending one methodology over the other, this comparison analysis does

show that with a little modification, the military’s PMESII-PT tool to analyze the operational

environment for developing military strategy can also assist commercial firms in analyzing their

operational environments as a tool for strategy development.

Perhaps the best method for analyzing the external environment for the military and

commercial operations would be a new methodology that combines the best of PMESII-PT and

EMGT 821 Joe Walden

STEEPLE. This new methodology could use the acronym PCESII-LET. This acronym would

reflect the aspects of Political, Competition/Leadership, Environment/Physical Environment,

Social, Infrastructure and Technology, Information, Legal, Ethical, and Time. This combination

would provide strategy makers with a comprehensive analysis of any external environment.

EMGT 821 Joe Walden

Bibliography

Clausewitz, Karl Von, and John and Peter Paret edited by Howard. On War. Princeton, NJ:

Princeton Press, 1988.

Conner, LouAnn. Sagacious Think. May 10, 2010.

http://blog.sagaciousconsulting.com/2010/05/another-strategy-tool-steeple-analysis/

(accessed September 29, 2011).

Dick, Ray. “EMGT 821 .” What is Business Ethics Class Notes. Overland Park, KS : University

of Kansas, September 2011.

Field Manual 3-0, Operations . Fort Leavenworth, KS : US Army , 2011.

Hillson, R. “The DIME/PMESII Model Suite Requirements Project.” Simulation, Computing and

Modeling, n.d.

Innovation Wiki. 2011. http://innovationwiki.brighton.ac.uk/index.php/STEEPLE (accessed

September 30, 2011).

Joint Publication 3-13, Joint Doctrine for Information Operations. Washington, DC: United

States Department of Defense, 1998.

Kew, John, and John Stredwick. Business Environment: Managing in a Strategic Context.

McGraw Hill, 2005.

Merriam-Webster. Strategy. 2011. http://www.merriam-webster.com/dictionary/strategy

(accessed November 3, 2011).

TRADOC. A Guide to Terrorism in the Twenty-First Century. Fort Monroe, VA: US Army

Training and Doctrine Command, 2007.

Wade, Norman M. US Army Operations SMARTBook. The Lightning Press, 2009.

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8 38

THE DEVELOPMENT OF THE EVALUATION
SYSTEM OF FACTORS, INFLUENCING ON THE
ORGANIZATION FOR THE PREVENTION OF RISKS
OF ITS ACTIVITY IN THE MARKET IN ANY FIELD OF
ACTIVITY, USING PEST – ANALYSIS

Veronika Silinevicha, Kristine Kalinina
Baltic International Academy, Latvia

Annotation
In the context of the global changes in the world community, occurs the transformation of

the entire world community in various areas of activity as a whole and in the development of the
business in particular. Threats and risks, which accompany the business process throughout
the entire activity of enterprises that makes enterprise to focus on the prevention of risks, using
a variety of analytical methods. One of such methods is the evaluation of the influence of factors
of the external environment and it is: political, economic, social and technological factors, using
PEST matrix. For the successful activity of the enterprise and its prospective development in the
market, the carrying out of PEST –analysis should become a constant action and the relevance
of the topic of this research is determined by this.

The article presents the different configurations of the system of evaluation factors, by
priority and importance, as well as examples of factors with a detailed description of their
content are provided, which are used in this research.

The article has the theoretical and practical values. The uniqueness of the represented
method lies in the fact that it can be used not only in the field of the research object, mentioned
as an example, but for any object, implementing its activity in any field of activity. The evaluation
of the external factors that have the greatest impact on the object, occurs in several stages,
including expert evaluation that determines the objectivity of obtained results of the analysis, an
intermediate stage of the mathematical calculations – is finding of the arithmetic mean value,
which is reflected in the summary table in the grouping criteria: the influence of each of the
factor of the matrix – PEST. The novelty of the paper lies in the provision of the final results in
the visual form, in the form of radar diagram.

Key words: PEST – analysis, external environment, marketing, political, economic, social
and technological factors, matrix.

Introduction
At the present stage, the entrepreneurship uses different marketing and analytical

mechanisms for the evaluation of the activity of its enterprise. The most popular method is the
evaluation of factors that have a special influence on the enterprise outside. Such factors are:
the factors of the external environment, including: political, economic, social, technological
factors. The content of each factor includes different criteria of evaluation in the areas of the
external environment, thus, highlighting the most actively acting and which have the most
serious impact on the business environment of the enterprise. In addition, the criteria of
evaluation, obtained, as a result of the analysis, represented in the form of the PEST matrix and
in the form of a diagram that allows visually evaluating the picture as a whole, to develop the
mechanisms of the prospective development and measures for smoothing and preventing risks
in the future. The construction of a model, which can be used in any field of activity and any
enterprise, are the solutions of the problem by estimating the influence the external factors.

The goal of the article is to suggest the system of evaluation of factors, which have an
influence on the organization for the prevention of risks of its activity in the market in any field of
activity.

The analysis of researches and publications
This topic in the form of scientific papers is not properly represented according to their

number. Researchers prefer different forms of PEST – analysis, for example, PESTLE. In its
turn, scientific figures, analytical departments and other departments, which are engaged in
analytics, carry out the analysis of the factors of the external environment within the frameworks
of PESTLE analysis. For example, in the database EBSCOhost the reports of the obtained
results of PESTLE analysis are represented by such countries as: UK (PESTLE Analysis of the
US, UK, and EU 2016 – Research and Markets, Research and Markets, Business Wire
(English). 10/11/2016), US (Country Report, Argentina Country Profile, PESTLE ANALYSIS,
Jan2015, p13-32. 20p.), Argentina (Country Report, Sweden Country Profile, PESTLE
ANALYSIS, Dec2014, p14-45. 32p.), Sweden (Country Report, South Africa Country Profile,

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PESTLE ANALYSIS, Dec2014, p14-31. 18p), South Africa (Country Report, Singapore Country
Profile, PESTLE ANALYSIS, Jan2015, p13-28. 16p.), Singapore (PESTLE Analysis of the
UAE 2015 – Research and Markets, Research and Markets, Regional Business News), UAE
(PESTLE Analysis of Canada 2016, Newspaper Source, M2PressWIRE. 07/27/2016.), Canada
(PESTLE Analysis of Saudi Arabia 2016, Newspaper Source, M2PressWIRE. 07/25/2016),
Saudi Arabia (PESTLE Analysis of the Philippines 2016, Newspaper Source, M2PressWIRE.
07/25/2016), Phillipines (PESTLE ANALYSIS, Brazil Country Profile, Country Report 2012, p13-
35. 23p.), Brazil (PESTLE ANALYSIS, Turkey Country Profile. 2008, p12-26. 15p. 6 Charts, 1
Graph), Turkey and others. But, in the database Scopus represents the scientific paper of T.
Golubkova on a topic of use of the assessment of impact of factors of PESTLE in the field of
culture (Golubkova T., Influence of macro-environment factors on the marketing mix
development in the field of culture of the Baltic region, Экономический Часопис – ХХI, ISSN:
1728-6220, 3-4(1), 2014). In its turn, Athanasios Kolios and George Read note the importance
of the use of the PESTLE model in the analysis of the external factors of the country, based on
a particular field of entrepreneurial activity (Athanasios Kolios and George Read, A Political,
Economic, Social, Technology, Legal and Environmental (PESTLE) Approach for Risk
Identification of the Tidal Industry in the United Kingdom, Energies (19961073). Oct2013, Vol. 6
Issue 10, p5023-5045. 23p.).

The carried out analysis of the available sources showed the relevance of the research of
this topic and the development the effective method of evaluation of factors, which have the
influence on the organizations, suitable for all enterprises and different fields.

Material and methods
PEST analysis brief
The earliest know reference to tools and techniques for ‘Scanning the Business

Environment’ appears to be by Francis J. Aguilar (1967) who discusses ‘ETPS’ – a mnemonic
for the four sectors of his taxonomy of the environment: Economic, Technical, Political, and
Social. Some time after its publication, Arnold Brown for the Institute of Life Insurance (in the
US) reorganized it as ‘STEP’ (Strategic Trend Evaluation Process) as a way to organise the
results of his environmental scanning.

Thereafter, this ‘macro external environment analysis’, or ‘environmental scanning for
change’, was modified yet again to become a so-called STEPE analysis (the Social, Technical,
Economic, Political, and Ecological taxonomies).

In the 1980s, several other authors including Fahey, Narayanan, Morrison, Renfro,
Boucher, Mecca and Porter included variations of the taxonomy classifications in a variety of
orders: PEST, PESTLE, STEEPLE etc. Why the slightly negative connotations of PEST have
proven to be more popular than STEP is not known. There is no implied order or priority in any
of the formats.

Some purists claim that STEP or PEST still contain headings which are appropriate for all
situations, other claim that the additional breakdown of some factors to help individuals and
teams undertaking an environmental scan (Frederic P Miller, Agnes F Vandome, John
McBrewster, (2011). Pest Analysis, VDM Publishing, URL: http://www.free-management-
ebooks.com/dldebk-pdf/fme-pestle-analysis ).

Quite who and when added what elements to the mnemonic is a mystery, but what we do
know is that the actual order and words contained are common to certain parts of the world and
streams of academic study. The term PESTLE is particularly popular on HR and introductory
marketing courses in the UK. Others favour PEST, STEP, STEEPLE or others (see pic.1).

Fig. 1 PEST variations (the development of the authors)

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8 40

PEST – Political, Economic, Social and Technological
ETPS – Economic, Technical, Political and Social
STEP – Strategic Trend Evaluation Process
STEPE – Social, Technological, Economic, Political and Ecological
STEEPLE – Social, Technological, Economic, Ethical, Political, Legal and Environmental
PESTLIED – Political, Economic, Social, Technological, Legal, International,

Environmental and Demographic.1
Let’s give examples of the content of the factors, which are considered during the

analysis.

Fig. 2. The examples of factors, which are usually considered during the analysis (the

development of the authors).

The represented theoretical aspects of carrying out the PEST – analysis in general, was
developed on the basis of the carried out a theoretical analysis of the theoretical aspects of the
PEST analysis earlier, as well as has allowed proceeding to the practical part of the paper and
show the use of the analysis, using a specific example. The object of the research was the
commercial organization: student complex, the location of which is in Riga city, the Republic of
Latvia.

The mission of the student complex is the improvement of the integration of foreign
students, studying in the country, as a result of the international academic mobility.

Results and discussion
The practical use of the PEST analysis
Having determined the key factors of influence on the organization – the student complex

on the scheme of PEST, the estimation of the degree of influence of each factor on the activity
and development of the organization on 3 – point scale has been given. The three –
dimensional scale is represented in the table 1.

Table 1

The scale of assessment of the degree of influence of factors on the activity of the
organization (The development of the authors)

Evaluation/Scores The assessment of the influence of the factors
1 – the influence of the factor is small, any change of the factor practically has

no influence on the activity of the mix;
2 – only significant change of the factor influences on the activity of the mix;
3 – the influence of the factor is high,any fluctuations cause the significant

changes in the activity of the mix

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The degree of influence on the three – dimensional scale is replaced by carrying out of
probability of change of each factor individually, a group of experts, who has a direct
relationship to the competence of the politics, economics, and sociology. At that, the mandatory
condition is the fact that to the expert review are involved both specialists – practitioners,
working in the field of research and the representatives of the science.

The estimation of the probability of change of the factors and probability of fluctuations is
evaluated on a 5 – point scale, where 1 means the minimum probability of change of the factor
of the external environment, but 5 – the maximum probability. But, the intermediate points of the
scale of the admissibility of probability close to the highest and lowest scores, respectively.

The real significance of each factor separately has allowed evaluating to what extent the
mix should pay attention and control the factor of change of the external environment. The
calculation was made, as the probability of change of the factor, weighted on the power of
influence of this factor on the activity of the mix.

After deriving the estimates by the expert group from their total amount, the average
simple arithmetic value is calculated and the estimate on each row of factor, adjusted for the
weight in the last group of the homogenous criterion is given (See. Table 2).

It should be noted that the higher is the real importance of the factor of criterion “The
evaluation adjusted for weight”, the more attention and efforts should be given to the
organization to reduce the degree of risk and negative influence of the factor on the business.
The results of the described calculation are visually represented in the table 2.

Table 2

The estimation of the real significance of the PEST factors
(The development of the authors)

The description of the factor

The
influence

of the
factor

Expert evaluation

The
average
estimate

The
evaluation
adjusted

for weight
I II III IV V

POLITICAL FACTORS (P)

The stability of the political power and existing
government

2 5 5 4 5 4 4.6

0.11

The level of corruption 2 4 3 5 4 5 4.2 0.10
Tax policy 3 2 1 3 1 2 1.8

0.06

Anti – monopoly and labor legislation 2 2 1 3 2 3 2.2

0.05

Future and current legislation, governing the
rules of work in the field

3 4 5 3 3 4 3.8 0.14

The probability of development of the military
actions in the country

2 5 4 5 5 4 4.6 0.11

ECONOMIC FACTORS (E)

The economic situation in the country 3 5 4 5 5 4 4.6 0.16

The level of inflation and interest rates 1 5 4 4 3 4 4.0 0.05
The level of unemployment, size and paying
conditions

2 4 3 4 5 3 3.8

0.09

The level of development of the
entrepreneurship and business environment

2 5 4 4 5 5 4.6 0.11

The credit and monetary and fiscal policy of
the

1 5 4 5 5 5 4.8 0.06

The level of household disposable income 2 5 4 5 4 5 4.6 0.11

The level of development of the banking
sector

1 3 4 3 4 4 3.6

0.04

SOCIO – CULTURAL FACTORS (S)

The level of health care and education 1 3 2 3 2 2 2.4 0.03

Attitude to work, career, leisure and retirement 1 4 3 5 4 4 4.0 0.05

Requirements for the quality of the production
and service level

3 5 5 5 5 4 4.8 0.17

The culture of formation of savings and credit
in society

2 5 4 4 5 5 4.6 0.11

The population growth rate 2 4 3 4 4 3 3.6 0.09

The lifestyle and habits of consumption 1 4 3 4 3 3 3.4 0.04

TECHNOLOGICAL FACTORS (T)

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ry
a
n
d
P
ra
ct
ic
e

2
0
1
7
/
3
(
1
8
)

8 42

The description of the factor
The
influence
of the
factor
Expert evaluation
The
average
estimate
The
evaluation
adjusted
for weight
I II III IV V

The level of innovations and technological
development

1 2 1 3 1 2 1.8

0.02

The development and penetration of Internet,
the development of the mobile devices

1 4 5 5 4 5 4.6 0.05

The acquisition of possibilities of electronic
technologies, security of confidentiality

2 3 4 5 4 4 4.0 0.09

TOTAL 84.4

Further, the obtained results are reflected in the summary table in the form of a matrix

(See. Table 3).
Table 3

The summary table of the PEST – analysis
(The development of the authors)

POLITICAL ECONOMICAL

Factor Weight Factor Weight

Future and current legislation, governing the
rules of work in the field

0.14 The economic situation in the country 0.16

The stability of the political power and
existing government

0.11
The level of development of the
entrepreneurship and business environment

0.11

The probability of development of the
military actions in the country

0.11 The level of household disposable income 0.11

The level of corruption 0.10
The level of unemployment, size and paying
conditions

0.09

Tax policy 0.06
Credit and monetary and fiscal policy of the
country

0.06

Anti – monopoly and labor legislation

0.05 The level of influence and interest rates 0.05

The level of development of the banking
sector
0.04

SOCIO – CULTURAL TECHNOLOGICAL

Factor Weight Factor Weight

Requirements for the quality of the
production and service level

0.17
The acquisition of possibilities of electronic
technologies, security of confidentiality

0.09

The culture of formation of savings and
credit in society

0.11
The development and penetration of
Internet, the development of the mobile
devices

0.05

The population growth rate 0.09
The level of innovations and technological
development

0.02

Attitude to work, career, leisure and
retirement

0.05

Lifestyle and habits of consumption 0.04

The level of health care and education 0.03

After carrying out the PEST – analysis, the factors of the external environment have been

revealed, which have the greatest influence on the student complex. Analyzing the visually
represented results, it was noted that the taxation policy in Latvia doesn’t contribute to the
improvement of the business processes and the development of the business as a whole (See,
the political factor in the matrix, table 3). In addition, the ongoing discussion in the Latvian mass
media on the topic of increase of tax rates, strengthens the degree of risk of entrepreneurial
activity in particular. Explaining the fears, it may be noted that the increase of the existing taxes
and introduction of new ones won’t contribute to the development of the financially intensive
activities, requiring the investment of funds in the prospective development. Besides that the
change of the interest rate in the direction of increase will lead to the increase of the cost of the
product, offered by the object of the research that will lead to the tightening of the competitive
struggle in the market and the expansion of the measures, including the financial ones, on the
conquer of the target consumer, who is able to consume the product at the new – high price.

P
R
O
F
E
S
S
IO
N
A
L
S
T
U
D
IE
S
:
T
h
e
o
ry
a
n
d
P
ra
ct
ic
e

2
0
1
7
/
3
(
1
8
)

Along with this, the confidence in the prospect of development of the entrepreneurial
activity as a whole, doesn’t also give the fact that between the political parties, operating in
Latvia an intense competition is observed, but this, in its turn, provokes to make unpopular
decisions and increases the degree of risk of conducting business. Therefore, the obtained
results of the carrying out PEST – analysis allow evaluating all risks, which may face
organization, as in our case, in the introduced example. In addition, the PEST – analysis allows
evaluating the degree of the possible influence on the reduction of own risks in the created
conditions, but not on the negative changes in the external environment, determined by any
factor.

In conclusion, the result of the carried out PEST – analysis, for the most visual perception
was made the radar chart (See. Figure 3).

Fig. 3. The results of the PEST – analysis (the development of the authors)

From the represented figure, the especially bright, in the form of influence is represented
the already marked political and economic factors and only technological factor, which in its
nature and content doesn’t represent a specific interest for the object of the research, but can
be relevant for the analysis, another organization in another field. Therefore, summarizing, it
may be noted that the principle of carrying out of the PEST – analysis, by analogy with the
introduced example, or on its basis, can be used in other fields and for other organizations.

Conclusions
– The analysis of the methodological and theoretical basis allowed determining the

method of assessment of the influence of the external factors – PEST – analysis;
– The analysis of the used in the theory variations of configuration of factors of external

environment (political, economic, social, technological) allowed representing the content of the
system of its evaluation on the priorities and evaluation of degree of importance;

– The represented system of evaluation of priority and importance allowed giving
examples of factors with a detailed description of their content and to mark out the configuration
of use of the system of PEST, required for carrying out the research, using a specific example;

– The commercial organization – the student complex, which is in Riga city, in the
Republic of Latvia has become an object of the research and example of carrying out the
assessment of the impact of the factors on the activity and prospects of its development, on the
basis of PEST – analysis;

– The evaluation of factors of influence was carried out on the stage principle, including:
a) the evaluation of the influence of factors – the finding of the weight of influence on the three –

P
R
O
F
E
S
S
IO
N
A
L
S
T
U
D
IE
S
:
T
h
e
o
ry
a
n
d
P
ra
ct
ic
e

2
0
1
7
/
3
(
1
8
)

8 44

dimensional scale; b) the creation of the expert group of specialists, evaluating the factors of
influencing on a 5 – point system and their evaluation; c) The calculation of the arithmetical
average of the simple value of the total overall estimate given by experts; d) The estimates,
adjusted for the weight of finding. The similar approach with the observance of the principle of
stage will allow easily adapting the introduced example in another field and in another
enterprise;

– The final results of the estimate, represented in the form of a matrix – PEST give the
objective information, concerning the degree of dependence of the organization on external
factors, but the representation of the results, made in the form of a radar diagram allows
evaluating this degree of dependence, visually.

References
1. Golubkova, T. (2014). Influence of macro-environment factors on the marketing mix

development in the field of culture of the Baltic region. Экономический Часопис, ХХI, 3-4(1).
2. Kolios, A., Read, G. (2013). A Political, Economic, Social, Technology, Legal and

Environmental (PESTLE) Approach for Risk Identification of the Tidal Industry in the United
Kingdom. Energies Vol. 6 Issue 10, p. 5023-5045.

3. PESTLE Analysis of the US, UK, and EU 2016 – Research and Markets, Research
and Markets, Business Wire (English). 10/11/2016.

4. Country Report, Argentina Country Profile, PESTLE ANALYSIS, Jan 2015, p. 13-32.
5. Country Report, Sweden Country Profile, PESTLE ANALYSIS, Dec 2014, p. 14-45.
6. Country Report, South Africa Country Profile, PESTLE ANALYSIS, Dec 2014, p14-

31.
7. Country Report, Singapore Country Profile, PESTLE ANALYSIS, Jan 2015, p. 13-28.
8. PESTLE Analysis of the UAE 2015 – Research and Markets, Research and Markets,

Regional Business News
9. PESTLE Analysis of Canada 2016, Newspaper Source, M2PressWIRE. 07/27/2016.
10. PESTLE Analysis of Saudi Arabia 2016, Newspaper Source, M2PressWIRE.

07/25/2016.
11. PESTLE Analysis of the Philippines 2016, Newspaper Source, M2PressWIRE.

07/25/2016.
12. PESTLE ANALYSIS, Brazil Country Profile, Country Report 2012, p. 13-35.
13. PESTLE ANALYSIS, Turkey Country Profile. 2008, p. 12-26. 6 Charts, 1 Graph.

Received: 3 January 2017
Accepted: 11 October 2017

Project Commercial Integrity

Commercial Context Awareness and

The Project Business Environment

Topic 2: Commercial Context Awareness and The Project Business Environment

Projects need to consider the commercial context of the project throughout the project’s life cycle. Traditional project constraints such as the iron triangle need to be further expanded to consider financial, contractual and legal contexts to ensure effective decision-making. An awareness of these streams (financial, contractual and legal) will ensure all potential exposures are considered well in advance of, and during project implementation. Project Investment appraisal techniques, non-financial accounting methods, procurement route, contract and pricing strategies and dispute resolution methods are essential components of project management practices.

Now thinking time:

Why is commercial context awareness is important for Projects and Project Management practices?

What do Project Manager and Project Team need to know in relation to Commercial context in Projects and Project Management practices?

What are the range of Commercial context methods, routes, techniques and tools?

What is the new Project Business Environment?

Why commercial context awareness is important for Projects and Project Management practices?

It has becoming increasingly important for Project Manager to be aware of the business environment impact to a project’s financial, contractual and legal context. Macro, meso and micro factors will cause different level of impact to a project’s continuing progress. The Project Manager and his/her Project Team must be competent to appraise the financial contractual and legal exposures well in advance before deciding a project’s viability. All project terms and conditions must be appropriately assessed before any decision is made to award and continue with the project. These terms and conditions are contractually and legally binding. Once approved, it can become more difficult to manage risk as the project progresses.

Today’s Project Manager also needs to explore the changing requirements of project management in the current business climate. The traditional project manager role focused on the processes and tools needed to complete a project within a set budget and time frame. It no longer makes best business sense to develop a long-term plan and stick to it at all costs. Factors such as globalization, stricter accountability, employee development, change and risk management and unstable economic conditions all require that companies today are able to adapt to quickly in order to succeed in tough economic climate.

What is the new Project Business Environment for Commercial Context consideration?

· New global political and economic order

· Wars on terrorism

· Demographic changes (aging) and education

· The opening and development of new markets – New emerging economies (e.g., India, China, Brazil)

· Off-shoring and outsourcing

· Globalisation and localization

· New pressure on public sector organizations

· European integration and enlargement

· Lowering of trade barriers (e.g., WTO, EU, APEC)

· Environmental concerns

· The ‘ICTs Revolution’ and the information economy

· Internet and e-Business

· New Trade blocs

· New legislation

· Value chain

· Tax incentives, subsidies, capital cost versus labour cost

· Commodity price (e.g., oil and gas, metal price fluctuation)

· Share market volatility (e.g., FTSE, Nikkei, Dow Jones)

· Climate change and disaster (e.g., Recent Japanese disaster, Australian Flooding and New Zealand Earthquake)

· Emphasis on local content in projects

Project management professionals need to consider a mix of the above business environment events and think about its impact to the initial strategic decision making for a project. Any business case needs to consider the impact of business environment before deciding the viability of the project. Project environmental analysis—sometimes referred to as environmental scanning—is one of the initial steps taken to appraise a project’s viability and its strategic impact to an organisation and its stakeholders.

What do Project Managers need to know about the business environment?

Components of the business environment

(Refer to the following figure 1)

Figure 1: Components of the Business Environment

(Lysons and Farrington, 2006)

From figure 1, the business environment is divided into three main business spheres, internal (micro environment – internal to the organisation), immediate suppliers and customers (meso environment) and external (macro environment – external to the organisation). Projects sits in a business environment (open system). Project Managers need to know the types of markets in the market environment, types of tools that needed to be used to scan the business environment, identifying the variables in the business environment in order to make an analysis of that business environment.

Environmental appraisal (Environmental scanning)

Identification and forecasting phenomena in the environment, through environmental scanning is essential for strategy formulation. Enterprises need to continuously engage in identifying and forecasting opportunities and threats, enterprises need to be able to proactively or reactively respond to changing conditions in the environment. Various sources of information are available to assist with scanning. Figure 2 shows some techniques used to appraise (scan) and monitor the business environmental impact on the project.

Figure 2: Environmental Scanning and Monitoring Techniques

(Bailey et al., 2008)

Tools and techniques for Environmental Scanning and monitoring:

· SWOT

· Porter’s 5 Force

· Boston Matrix

· PEST

· STEEPLE

· PESTEL

· 7 McKinsey

The above tools and techniques are not exhaustive list; however they are amongst the most popular system-based tools and techniques used to provide initial assessment of the business environmental impact to the project—as well as being used for continuous monitoring

Environmental scanning and monitoring

Environment scanning and monitoring is a concept from business management by which businesses gather information from the environment, to better achieve a sustainable competitive advantage for projects. To sustain competitive advantage the company must also respond to the information gathered from environmental scanning by altering its strategies and plans when the need arises when making decisions for projects.

Analysis of the Business Environment

SWOTs analysis

Figure 3: Definitions of SWOTs

Strength-Weakness-Opportunity-Threat

Identification of threats and opportunities in the environment (external) and strengths and weaknesses of the firm (internal) is the foundation of business policy formulation; it is these factors which determine the course of action to ensure the survival, sustainability and growth of the firm including when deciding which projects to select from a diverse portfolio of projects.

SWOT: Studying Internal and External Environment for Projects

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the project objectives. Internal and external environmental conditions may be favourable or unfavourable.

SWOT analysis groups key pieces of information into two main categories:

Internal factors – The strengths and weaknesses internal to the organisation’s projects.

External factors – The opportunities and threats presented by the external environment to the project

Strengths and Weaknesses (e.g.,)

Resources: Financial, location, skills, competence, knowledge

Cost advantages from proprietary know-how

Creativity/ability/capacity to develop new projects (and products)

Valuable intangible assets: intellectual capital

Competitive capabilities

Opportunities and Threats (e.g.,)

Opportunity: Represents favourable (positive) conditions in micro, market, macro environments – advantageous to firm

Threat:
Represents unfavourable (negative) conditions in micro, market, macro environments – detrimental to firm

Takeovers, market trends, economic condition, mergers, joint ventures, strategic alliances, expectations of stakeholders, technology, public expectations, competitors and competitive actions, poor public relations development, criticism, global markets, environmental conditions

SWOT will be often used in the options appraisal section of a business case and the business case of many projects will use SWOT as an environmental scanning and monitoring tool to measure the project’s initial strategic viability. This is essential when there are multiple projects, and one project needs to be prioritised for selection. Apart from project selection, SWOT also has some other essential strategic applications as following:

· Corporate Planning

· Set Objectives – defining what the organisaton intends to do

· Environmental scanning – Internal appraisals of the organisations SWOT, this needs to include an assessment of the present situation as well as a portfolio of projects/products/services and an analysis of the projects/product/service life cycle

· Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal. This may include gap analysis (compare with its potential performance which will look at environmental factors)

· Strategic issues defined – key factors in the development of a corporate plan that needs to be addressed by the organisation.

· Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change

· Establish critical success factors – the achievement of objectives and strategy implementation

· Preparation of operational, resource, project plans for strategy implementation

· Monitoring results – mapping against plans, taking corrective action which may mean amending objective/strategies (an area where projects need to address significantly)

· Also use SWOT analysis for business planning, strategic planning, competitive evaluation, marketing, business and product development and research reports.

Some other tools that organisations, project managers and stakeholders can use to appraise a project’s initial strategic viability are as following:

Porter’s 5 Force

Figure 4: Porter’s 5 Force (Baily, et al., 2008)

Boston Consulting Group Matrix

Figure 5: Boston’s Matrix

(Lysons and Farrington, 2006)

Task for you:

Please explore further the two tools above (Figures 4 and 5) and also explore the four tools and techniques below and how they are used to appraise the project’s business environment:

· PEST
· STEEPLE
· PESTEL
· 7 McKinsey

How project respond to changes in the business environment

Today’s New Business Environment results in increased complexity of the projects being developed, supplies and services produced and purchased. Increased complexity in the processes used to produce and procure supplies and services for projects, provides the need for sophisticated systems to control contract management processes and outputs. Traditional management systems are not suitable for procurement, production and distribution of complex supplies and services for projects. Effective project management processes are needed to manage the procurement, purchasing, supply chain and contract aspects of today’s new business environment. Today’s project managers need a knowledge of the internal and external business environment in supplier analysis, total cost analysis, pricing, purchasing strategies, supplier relationship, commodity management and supplier evaluation; project managers need to have knowledge about outsourcing, make versus buy, procurement process type, contracting strategy and pricing strategy.

Project Managers need to think about how the business environment plays a vital role – they need to use project management processes and knowledge areas to manage critical and complex project contracts.

Figure 6: How Strategic Planning is being converted to Project Success

Organisations need to carefully appraise current and future business environment impact on their strategic planning of their portfolio of projects, so as to ensure the most viable projects are taken on-board. Consistent review of this initial strategic assessment must be carried out throughout the project life cycle to ensure project success, as shown in Figure 6.

(a)

www.pmi.org

– refer to Project Management Journal

(b) Lysons, K., and Farrington, B., (2005), Purchasing and Supply Chain Management, 7th Edition, Prentice Hall (Financial Times), CIPS – ISBN: 9786610601882

(c)

www.emeraldinsight.com

– International Journal of Managing Projects in Business (ISSN: 1753-8378)

After completing this topic, you will understand the nature of new business environment and also how to appraise the business environment. You will also understand how projects need to cope with growing demand for complex, sophisticated, customised supplies and services. Also an increased reliance on external providers e.g., contractors, vendors, suppliers, consultants for performance of mission-critical functions (work packages) and evolution of worldwide competitive markets reinforced the need for business environmental appraisal integration with projects selection criteria.

APM’s definition on Project Context

(

http://www.apm.org.uk/content/project-context

)

Project context refers to the environment within which a project is undertaken. Projects do not exist in a vacuum and an appreciation of the context within which the project is being performed will assist those involved in project management to deliver a project.

Apart from the above tools and techniques to appraise the Project Business Environment, there are some other additional tools and techniques you may want to explore further:

ETPS, PESTLEE, PESTLIED, SLEPT, STEP, STEPE, PEST-G, PEST-E

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