PESTLE Analysis

 PESTLE Analysis

   For a business, how to achieve an excellent management? This question often turns up in businessmen’s minds. Management tool is quite useful and practicable. In my last blog, I have told about Porter’s five forces which are aimed for micro environment. This week, I’ d like to share my understanding on PESTLE Analysis.

     Firstly, what is PESTLE Analysis? PESTLE Analysis provides a quick and visual representation of the external pressures facing an organization and their possible constraints on strategy. Actually PESTLE makes an attempt to predict how external factors may affect the organization. PESTLE Analysis includes six factors (Political, Economic, Sociocultural, Technological, Environmental, Legal)

   I’d like to take easyJet as a example for PESTLE Analysis

PESTLE Analysis for easyJet

Political-legal factors

l   A EU east-enlargement may provide access to viable, new markets

l   The Air Miles scheme is not considered as a taxable perk by the government in the way that company cars are taxed which may change to allow easyJet to compete on more equal grounds with the likes of BA

l   Changes in Employment laws and Environmental laws also will have a effect on easyJet

Economic factors

l   The introduction of the single currency in Europe is likely to bring more business to easyJet as Europe becomes more integrated.

l   Likelihood of increasing fuel costs, congestion and other environmental restrictions, as well as the prospect of higher security and insurance costs to reflect the risk of terrorism.

l   Inflation rates and interest rates also affect easyJet , travellers will pay more attention to their travel expenses.

Socio-cultural factors

l   Changes in lifestyle. In the past, people think travelling by plane is expensive and unsafe, but now sometimes air tickets are even cheaper than railway tickets and time-saving

l   Distribution of income. With the increasing income , people prefer to spend time and money to leisure which also affects easyJet

l   Changes in attitudes to work and leisure. Nowadays people want to have a more balanced life about relaxing and work

Technological factors

l   EasyJet has to keep track of technological developments in the field of e-commerce and aircraft manufacture in order to gain a competitive advantage.

l   Technological advancements – such as the use of the Internet on distribution and cost synergies from industry consolidation – can offset upward pressures on prices and costs.

    I have use PESTLE to analysis easyJet, by doing this analysis, we could see that what strengths and weakness easyJet has, it helps us to predict easyJet future and then take some measures to improve. It will take you little time to conduct a PESTLE Analysis,however it play a vital role in your business management.

Porters Five Forces

  This week our lecture topic is “placing organization in context”, what impressed me a lot is Porters Five Forces which is a useful tool to help us analyse the micro environment .

   
  Firstly, this diagram illustrates Porters Five Forces

1:Supplier Power: the power of supplier to drive up the prices of your inputs

2:Buyer Power: the power of your customer to drive down your prices

3:Competitive Rivalry: the strength of competition in the industry

4:The threat of substitution: the extent to which different products and services can be used in place of your own

5: The threat of New Entry: The ease with new competitors can enter the market if they see that you are making good profits (and then drive your prices down)

    “How competitive forces shape strategy”, Michael Porter outlines the five forces that affects competitive positioning. As far as I am concerned, it is quite practicable and helpful tool to identify and analyze our advantages and disadvantages in micro environment. Let me take Ryanair for example.

         Ryanair Porter’s Five Forces Analysis

1: Bargaining power of supplier(-)

A：increasingly number of its suppliers, but Boeing is still main supplier

B :  high switching costs

2:bargaining power of customers(-)

A: there are many buyers

B: It doesn’t cost much for customers to switch to another airline

C: Buyers are price sensitive and their decision is often based on how much does a ticket costs

D: Buyers can easily choose alternative airline

3:threat of substitute products and services(+)

A: There are a few alternative types of transportation ,such as railway networks ,sea transports, coach transport as well as car rental firms

B: alternative types of transportation almost always cost more

4:Threat of new entrants(+)

A: large amount of capital required

B: high retaliation possible from existing companies if new entrants would bring innovative ideas to the industry

C: all airline companies have established brand image and reputation

D: difficulties association with gaining access to distribution channels

5:Competitive rivalry(-)

A: moderate number of competitors

B: size of competing firm’s vary but they usually complete for different consumer segment

C: there is moderate threat of being acquired by a competitor

  From this example, we can see that Porters Five Forces tool is simple but powerful tool for understanding where power lies in a business situation . This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you’re considering moving into.