Individual Assignment: PESTLE Analysis
INDIVIDUAL ASSIGNMENT: PESTLE ANALYSIS
Introduction
Various methods could be used to analyze the external factors that affect a business. The paper covers the PESTLE and Porter’s five forces analyses of XYZ Company that deals with oilfield’s services.
The PESTLE analysis deals with the external or macro business factors and helps in identifying the current situations, providing a solution and marketing strategies to be followed. Yüksel (2010) argues that, “They could be political, economic, social, technological, legal, and environmental” (Yüksel, 2012, p. 52). It ensures that threats are minimized, and opportunities are utilized to the advantage of the organization.
Political factors
The geographical, political instabilities have led to fluctuation of prices in the market from time to time. The issue of environmental pollution has forced the government to provide rules on sustainability thereby, putting pressure on the XYZ companies to attain a zero carbon environment. Failure to comply with the government regulations has led to hefty fines and restriction that affect the business negatively. Trade tariffs have been established in some countries to prohibit the company from importing and exporting its products. Team (2013) argues that, “Such tariffs come with harsh trade restrictions, heavy taxation and price controlling; leading to low-profit margins and reduced market for the products” (Team, 2013, p. 6).
Economic factors
The company has experienced an increase in revenues due to the increased number of customers and cheap production in developing countries due to lowered labor cost. However, market and price instabilities have risen due to economic recessions in the U.S. There is a likelihood of growth in the market and energy demands with the increase in the global market share, which is an excellent opportunity to be exploited. High prices are caused by pipelines problems and unexpected refinery shortages.
Social-cultural factors
The issue of environmental sustainability has led to the company putting up efforts that will result in zero carbon by using renewable energy. The company benefits from a wider market in countries that have high expectancy rates.
Technological factors
The emergence of renewable energy technologies such as the hydroelectricity, wind power, tidal waves has led to a decrease in fossil fuels. The government has come up with a program that provides tax advantages to oil companies. The advancement in technology has resulted in increased knowledge and research on the use of renewable energy.
Legal factors
Policies have been established to ensure safe offshore mining such as training on carrying out activities effectively and responding to future blowouts. Rules and regulations have been set up regarding sustainability and failure to comply with them lead to penalties and fines.
Environmental factors
Environmental sustainability has been an area of concern for the XYZ Company. It has come up with ways of reducing carbon emissions such as the use of pilot carbon footprint measurement and prudent waste management methods. Team (2013) argues that, “It has established the use of renewable energy technologies to reduce carbon emissions, thereby, preventing global warming” (Team, 2013, p. 4).
Porter’s five forces analysis
1. Barrier to entry
Many giant oilfields companies dominate the market and prevent other businesses such as XYZ from entering the market. Such obstacles to entry may include high capital costs for the development and installation of oilfield’s services. The cost includes oilfield services, labor, research, raw materials and drilling costs. Therefore, only the companies that use the economies of scale can survive the entrants.
2. Competitive rivalry
3. Threat of substitute
4. Bargaining power of buyers
5. Bargaining power of suppliers
The Comparison of the results of each analysis
Both methods of analysis help in identifying the current situation of the company and determine the threats and weaknesses that need to be changed. Such defects include competition, which is derived from the technological advancement and economic conditions.
Strengths and limitations of the PESTLE analysis
Strengths
The analysis identifies potential threats such as intense competition, low barriers to entry and their potential impacts as well. It is an easy way of identifying opportunities such as new markets in growing economies. New possibilities in the Canadian market and ways of exploiting them are examples that the analysis identifies.
Limitations
External factors change drastically, and thus, the research needs to be updated regularly to obtain new external factors that have emerged. The analysis involves visiting outside organizations to get a full range of information; it is a costly and time-consuming method. It focuses on the external factors and ignores the internal factors and competitive scenarios that have impacts on business operations as well. As noted by Yüksel (2012), “A firm should concentrate on strategic planning on both the inner and outer elements” (Yüksel, 2012, p. 43).
Strengths and limitation of porter's analysis
Strength
It identifies potential threats and their potential impacts such as competition and bargaining power.
Limitations
It can determine the competition of the present day and not for the future, which implies that the process should be updated regularly to obtain current race situations. Additionally, the analysis does not provide the implication and strategies, which can be used to exploit different opportunities.
Usefulness of PESTLE and Porter’s five forces in understanding organizational issues
The two methods of analysis have helped in identifying the strengths, weaknesses, threats and opportunities of the company. They show the contribution of the identified factors to the SWOT factors. For instance, using renewable energy technologies has resulted in offering high-quality products, a strong market, and high profits. As noted by Cadle, Paul and Turner (2010), “Threats such as competition, bargaining power, and barriers to entry are linked to the 5’ forces” (Cadle, Paul & Turner, 2010, p. 6). The company expects a future economic growth. Thus, the PESTLE analysis helps in identifying new opportunities such as new markets in growing economies and new possibilities in the Canadian market.
The following questions can be asked from stakeholders to get more information while doing a PESTLE and 5 PORTER FORCES analysis:
1. What can be done to obtain environmental sustainability among the oilfields company?
2. How is competition linked with the bargaining power of buyers and suppliers, profitability, market entry and how can rivalry be reduced?
3. What are the legal and cultural factors that affect the XYZ Company and the implication to the business’s success?
4. What relationship exists between the internal factors from the SWOT analysis and the macro environmental factors?
Bibliography
Team, F.M.E., 2013. PESTLE Analysis. Strategy Skills. Free Management E-books.
Porter, M.E., 2008. The five competitive forces that shape strategy.
Cadle, J., Paul, D. & Turner, P., 2010. Business analysis techniques: 72 essential tools for success. BCS, the Chartered Institute.
Porter, M.E., 2008. On competition. Harvard Business Press.
Yüksel, I., 2012. Developing a multi-criteria decision-making model for PESTEL analysis. International Journal of Business and Management, 7(24), p. 52.
