Environment Analysis, PESTLE, Levels of Strategy

ENIRONMENT ANALYSIS,
PESTLE,
LEVELS OF STRATEGY

Environment Analysis and Scanning
■ The forces, conditions, situations, events etc. that impact
the organization is referred to collectively as the
organization’s environment.
■ The ever-changing internal (controllable) as well as
external (uncontrollable) forces of environment pose
numerous challenges to the business firms to adjust and
adapt itself to the realities of such environment.
■ To address these challenges, business leaders conduct an
environmental analysis and develop policies and processes
that adapt the firms operations and products to this
environment

Analysis of Internal Environment
Factors of
Internal
Environment
Management
Philosophy and
Values
Mission
Objectives
Policies
Human
Resources
Financial
Resources
Physical
Resources
Labour –
management
Relations

Analysis of External Environment
Factors of
External
Environment
Political
Environment
Economic
Environment
Socio –
Cultural
Environment
Technological
Environment Legal
Environment
Competitors
Consumers

PESTLE/ PESTEL Analysis
PESTLE analysis consists of components that influence the
business environment and each letter in the acronym
denotes a set of factors that directly or indirectly affect every
industry.
Political Factors
Economic Factors
Social Factors
Technological Factors
Legal Factors
Environmental Factors

PESTLE ANALYSIS – Oil & Petroleum Industry
The Oil & Petroleum industry plays an important role in the
economy of a country and also gives good opportunity to
investors.
PESTLE Analysis would help to understand the nature of the
working, the conditions of business and necessary
regulations.

Political Factors - The industry has to follow the taxation
policy, implement labor laws in industry, trade restrictions,
political stability in the country, environmental laws and
tariffs.
Government also supports this industry and helps it to
flourish so that it can contribute to the economy.
Economic Factors - These factors have the influence of the
supply and demand of the oil prices along with
supplementary goods, substitute resources and the
exchange rate of American dollar in the market.

Social Factors – This include the demography, income
migration, religion, culture, and ideological views on the
issues.
Skilled and professional workers work in this sector get good
wages and relaxing working hours.
The countries want to have oil and gas industry, so that they
can meet their future demands and it can help them to raise
their living standards

Technological Factors – Changes in technology can influence
the organization with the need to get modern technology,
learn new techniques and use different methods.
The latest technologies are used for the exploration of oil
and gas and use roads, pipelines, transport and oil tanks.
This industry is working for the complementary products,
like synthetic fibers, and various other products.
Substitute industries are introduced like biomass industry,
nuclear industry, natural gas, coal industry, renewable
energy resources and nuclear industry.

Legal Factors – There is formation of laws, rules and
regulations of concerned department, governments and the
international organizations and communities including
European Union, African Union, North American Free Trade
Agreement, ASEAN are included.
The legal factor influences the exploration, exploitation, and
the commercialization of oil products.
There are legal obligations like work regulation, work
protection, social protection, competition regulation,
pollution, international trade and consumer protection.
Further this industry has to pay the subsidies, taxes for fuels

Ecological Factors –
The geographic position of the oil reserves and refinery has
great influence on the activity of the oil companies.
The latest report of OPEC shows that most of the natural oil
and petroleum is produced in the countries like Saudi
Arabia, Kuwait, Russia, US, Iran, Canada etc., they have to
face natural disasters like earthquakes, hurricanes, cyclones,
tsunami that affect the economic situation in the country
The Government should ensure strict regulations for the use
of oil and gas to combat with the negative effects of oil and
gas industry as well as design the structure to utilize these

PESTLE ANALYSIS - Examples
■ http://fernfortuniversity.com/term-
papers/pestel/nyse4/8132-independent-oil---gas-
plc.php
papers/pestel/nyse4/8127-hurricane-energy-
plc.php
papers/pestel/nyse4/8131-ilika-plc.php

Environmental Scanning - SWOT Analysis
■ Strategic Management is concerned with establishing the
proper “organization – environment fit” or matching the
organizational factors with the environmental factors.
■ It involves an analysis of organizational factors (strengths
and weaknesses of the organization) and the
environmental factors (threats and opportunities in the
business environment).
■ SWOT is the acronym for strengths, weaknesses,
opportunities and threats.
■ It is also known as TOWS or SCOT (Strength, Contains,
Opportunities, and Threats) or ETOP (Environment Threat

❖ Strength
Strength is an inherent capacity, which can be used for
developing strategic advantage.
It is the positive competencies of a firm as compared to its
competitors in the different functional areas
Examples:
• Adequate financial resources
• Superior technological skills
• Robust distribution system
• Loyal customer base
• Better manufacturing capability

❖ Weakness
Weakness is an inherent constraint, which creates
disadvantage for firms. It is the negative competencies of a
firm as compared to its competitors in all functional areas of
the organization.
Examples:
• Lack of managerial talent
• Poor image of the firm
• Weak distribution network
• Under utilization of capacity
• Narrow product line

❖ Opportunities
Opportunity is a favourable situation, which enables an
organization to strengthen its present position.
Examples:
• Changing customer preferences
• Technological advances
• New markets
• Online distribution channels
• Population life style changes (like the Vegan market)

❖ Threats
Threat is an unfavourable situation which results in risk and
damage to an organization.
Examples:
• Slower market growth
• Rising sales of substitute products
• Technological advances
• Changes in customer tastes and needs

Benefits of SWOT Analysis
▪ It identifies the core competencies of the firm
▪ It helps in setting objectives or strategic plan
▪ Simple to use
▪ Flexible and can be adapted to varying situations
▪ Development of goal – oriented alternatives
▪ Useful as a starting point for strategic analysis
▪ A source of information for strategic planning
▪ It builds an organization strengths
▪ It reverses organizational weakness
▪ It prepares organization to be proactive and face threats
▪ It helps to know the past, present and future

Limitations of SWOT Analysis
▪ Time consuming and expensive
▪ Insufficient research and development facilities
▪ Faulty products due to poor quality control
▪ It does not provide solutions or offer alternative decisions
▪ It can generate too many ideas but does not helping in
choosing which one is best
▪ It can produce a lot of information, but not all of it is
useful
▪ Poor industrial relations
▪ Lack of skilled and efficient labour etc.

Example – Apple SWOT Analysis

Advantages of Environment Analysis and Scanning
■ Identification of Strength
■ Identification of Weakness
■ Identification of Opportunities
■ Identification of Threat
■ Optimum Use of Resources
■ Survival and Growth
■ Expansion and Diversification
■ Long Term Planning of Business Strategy
■ Aids Decision Making
■ Flexibility in Operations
■ Corporate Image

Strategy Formulation
The information from PESTEL and SWOT analysis should
be used to set clear and realistic goals and objectives.
The firm should be able to identify if it needs additional
resources and sources to procure them.
Formulate targeted plans and prioritize activities to
achieve the goals.
Strategy formulation is the process of offering proper
direction to a firm.
It seeks to set the long-term goals that help a firm
exploit its strengths fully and encash the opportunities
that are present in the environment.

Strategy Formulation
Strategy formulation is the process by which an organization
chooses the most appropriate course of action in order to
achieve its pre determined goals.
Strategic plans should be communicated to everyone in the
organization so that they are aware of the objectives,
mission, and purpose.
Strategy formulation helps an organization to consider the
changing environment and be prepared for the possible
changes that may occur.
It further enables to evaluate the resources, allocate
budgets, and determine the most effective plan for
maximizing the return on investment.

Corporate Level Strategies
Corporate level strategies are about decisions related to :
▪ Allocating resources among different businesses of a firm
▪ Transferring resources from one business to others
▪ Managing and nurturing the portfolio of business
Corporate level strategies help to exercise the choice of
direction that an organization adopts.
This strategy is an overall plan of action encompassing all the
activities and functions performed by the business firms.
The plan covers all the objectives of the company allocation
of resources and co-ordination among different levels.

Corporate Level Strategies
According to W. Glueck and L. Jauch, there are four Grand
Strategic Alternatives:
I. Stability Strategy
II. Growth Strategy
III. Retrenchment Strategy (Turnaround, Divestment,
Liquidation)
IV. Combination Strategy
Other than the above Corporate Strategies, there are other
strategies such as :
V. Integration Strategy
VI. Internationalization Strategy

Corporate Strategy – I. Stability Strategy
■ Stability strategy refers to the company’s policy of
continuing the same business and with the same objectives.
■ When a product is well accepted and has a brand value in
the market, the company would want to expand its market
base in that particular product segment to win over its
competitors.
■ E.g.‘Old Cinthol’ soap from Godrej, continues to be the
trusted choice of most customers and one of the top most
brands in soaps, especially in rural areas.
■ Adopting a stability strategy does not mean that a firm lacks
concern for business growth, it means that their growth
targets are modest and they wish to maintain a status quo.

Types of Stability Strategy
Types of Stability
Strategies
Pause/Process with
Caution Strategy
Profit Strategy
No Change
Strategy
Sustainable
Growth

Factors/ Reasons for Adopting Stability Strategy
■ Management Philosophy
■ Performance
■ Environment
■ Less Risk
■ Resources
■ Profits
■ Market Share
■ Specialization
■ Strategic Advantage

Corporate Strategy – II. Growth Strategy
Strategy aimed at winning larger market share, even at the
expense of short – term earnings is Growth Strategy.
E.gs.:
i. Nirma Ltd. started from a very small company and today it is
a famous detergent powder.
ii. Reliance Industry Ltd. started from textile products to
petroleum industry, telecommunication, AD Labs, Reliance
media work and various other fields.

Types of Growth Strategy
Types of Growth
Strategies
Product Expansion
Diversification
AcquisitionMarket
Penetration
Market Expansion

Factors/ Reasons for Adopting Growth Strategy
■ Survival
■ Innovation
■ Competitive Advantage
■ Motivated Workforce
■ Customer Satisfaction
■ Corporate Image
■ Optimum Utilization of Resources
■ Economies of Scale
■ Expansion
■ Spreading of Risks

Corporate Strategy – III. Retrenchment Strategy
The corporate strategy of retrenchment is followed when an
organization aims at contraction of its activities through a
substantial reduction or elimination of the scope of one or
more of its businesses in terms of their respective customer
groups, customer functions or alternative technologies – either
singly or jointly – in order to improve its overall performance.
Example:
A private hospital decides to focus only on special treatment
and realize higher revenues by reducing its commitment to
general case which is less profitable

Types of Retrenchment Strategy
Types of
Retrenchment
Strategies
Turnaround Strategy
Divestment
Strategy
Liquidation
Strategy

Types of Retrenchment Strategies
1. Turnaround Strategies
■ Turnaround means backing out, withdrawing or retreating
from a decision wrongly taken earlier in order to reverse the
process of decline.
■ It is a strategy to convert a loss – making unit into a
profitable one.
■ According to the Dictionary of Marketing (by P. H. Collin)
“Turnaround strategy means making the company profitable
again.

Need for Turnaround Strategy
■ Decline in Profits
■ Liquidity Problem
■ Fall in Sales
■ Under – Utilization of Plant Capacity
■ High Inventory

2. Divestment Strategies
■ Involves the sale or liquidation of a portion of business, or a
major division, profit center or SBU.
■ Divestment is usually a restructuring plan and is adopted
when a turnaround has been attempted but has proved to
be unsuccessful or it was ignored.
■ This strategy involves dropping some of the products,
markets or functions, either through sale or liquidation.

Reasons for Adopting Divestment Strategy
■ Withdrawal of Obsolete / Outdated Products
■ Inability to Face Competition
■ Problem of Mismatch
■ Higher Expenditure – Lesser Revenue
■ High Cost of Technology Up-gradation
■ Better Investment Alternatives Available
■ Clear Debt
■ Fair Returns to Shareholders

3. Liquidation Strategies
■ Involves closing down the entire firm and selling its assets.
■ It is considered the most extreme and the last resort because
it leads to serious consequences such as loss of employment
for employees, termination of opportunities where a firm
could pursue any future activities, and the stigma of failure.
■ The company management, government, banks and financial
institutions, trade unions, suppliers and creditors, and other
agencies do not generally prefer liquidation.

Reasons for Adopting Liquidation Strategy
■ Incompetence of Entrepreneur
■ Lack of Proper Inventory Control
■ Weak Competitive Position
■ Low Sales
■ Natural Disaster

Corporate Strategy – IV. Integration Strategy
■ Combination of business that are separate but
complementary to each other.
■ It may be between firms from the same industry or
different industries that come together to accomplish
certain well-defined objectives.

Reasons for Integration Strategy
■ Association of Business
■ Risk Factor
■ Enhance Goodwill
■ Synergistic Advantage
■ Optimum Utilization of Resources
■ Higher Returns
■ Face Competition Effectively
■ Economies of Scale
■ Customers Satisfaction

Types of Integration Strategies
a. Horizontal Integration
It is a company’s acquisition of a similar or a competitive business
it may acquire, but it may also merge with or takeover, another
company to strengthen itself—to grow in size or capacity, to
achieve economies of scale, to reduce competition and risks, to
increase markets, or to enter new markets.

b. Vertical Integration
■ It is a competitive strategy by which a company takes complete
control over one or more stages in the production or distribution
■ Vertical integration integrates a company with the units supplying
raw materials to it (backward integration), or with the
distribution channels that carry its products to the end-
consumers (forward integration).
■ For example, a supermarket may acquire control of farms to
ensure supply of fresh vegetables (backward integration) or may
buy vehicles to smoothen the distribution of its products (forward
integration).
■ There is a third type of vertical integration, called balanced
integration, which is a judicious mix of backward and forward

Types of Vertical Integration Strategies

Corporate Strategy – V. Internationalization Strategy
■ A type of expansion strategies that require organizations to
market their products or services beyond the domestic or
national market.
■ For doing so, an organization would have to assess the
international environment, evaluate its own capabilities and
devise strategies to enter foreign markets.
■ There are several entry options that an organization can
choose from - ranging from exporting to setting up wholly –
owned subsidiaries.

Mode of Entry in International Markets
Entry in
International
Market
Exports
Franchising
LicensingJoint Venture
Strategic Alliance

Case Study: MTV – Attaining Global Reach
On 1st August 1981, MTV Music Television became the first
24-hour rock music video network in the United States, with
a start-up base of 1.5 million subscribers.
By the early 1990s, MTV, which is owned by Viacom
International Inc, had more than 55 million subscribers on
over 7700 cable affiliates.
Being aware of the huge opportunity for growth in the
international market-place and the advantages of
establishing a strong, early position in foreign markets, led
MTV to expand its programming efforts overseas.

Case Study: MTV – Attaining Global Reach
Using the universal language of music, MTV moved forth in
expanding its influence on pop culture by becoming the first
global network when it entered into a licensing agreement in
1984 with Japan’s Asahi Broadcast Company to broadcast on
a limited basis in Japan.
Since then, MTV has expanded into Europe, Australia, Brazil
and Asia, and MTV International. These global affiliates reach
more than 200 million households in over 70 countries.
MTV’s philosophy is ‘think locally, act globally’. Each affiliate
adheres to the style of MTV, but supports local tastes and
talent – the majority of programming is unique to each
network. {Source: adapted from Carl Rodrigues (1996, p. 24)}

Business Level Strategies
■ While strategies at the corporate level provide the broad
direction, below this level are the business level strategies.
■ Corporate level strategies lay down the framework in
which business strategies operate. These strategies are
then applied at the business level.
■ Business strategies are the courses of action adopted by
an organization for each of its businesses separately, to
serve identified customer groups and provide value to the
customer by satisfaction of their needs.
■ Business level strategies comprise of the actions that
provide value to customers and gain a competitive
advantage.

Business Level Strategies
Competitive or business strategy is the essence of business.
A company with a poor competitive strategy will go bankrupt
if it does not find a source of competitive advantage.
A company with a poor corporate strategy is no more than a
good takeover target so long as its constituent SBUs
(Strategic Business Units) have good competitive strategies.
The basis of good competitive strategy success is simply to
offer products or services to a market segment that have or
are perceived by potential buyers to have a competitive
advantage over those offered by competitors.

Types of Business Level Strategies
Types of Business
Level Strategies
Cost Leadership
Differentiation
Focused
Differentiation
Focused Low-
cost
Integrated Low-
cost
Differentiation

1. Cost Leadership – Cost leadership is when the competitive
advantage of an organization lies in its lower cost of products
or services relative to what the competitors have to offer. The
organization outperforms its competitors by offering products
and services at lower cost than they can.
Example: Reliance Communication in India was the first
company to offer ultra low cost mobile phone at a price of Rs.
501, when other companies like Nokia, Panasonic, Sony etc.
were charging comparatively high price. The company was
quite successful as it sold many handsets within a week of its
launch.

2. Differentiation – Differentiation strategy is when the
competitive advantage of an organization lies in its special
features incorporated into the product/ service demanded by
customers. This strategy focuses on developing a unique
product that customers are willing to pay a premium for. The
organization outperforms its competitors who are not able or
willing to offer the special features that it does.
Example: Packaging became a differentiator for Parle Agro,
when in 1985, it launched Frooti, a non – aerated fruit based
drink in tetra pack. Customers perceived it to be hygienic.
Frooti maintained price parity with the other glass bottled
aerated drinks.

3. Focused Differentiation – Firm serves the needs of a limited
group or segment very well (niche strategies).
The more commonly used bases for identifying customer groups
are the demographic characteristics (age, gender, occupation
etc.), geographic segmentation (rural/ urban or Northern India/
Southern India) or life style (traditional/ modern).
For the identified market segment, a focused organization uses
either the lower cost or differentiation strategy.
Example: The branded jewelry business of Titan Tanishq adopts
a differentiation strategy offering a range of gold, pearl and
diamond jewelry for women and men treating jewelry as
fashionable items rather than an investment.

4. Focused Low-cost – A focused low-cost business strategy is
very similar to a focused strategy – one that focuses on a small
niche of customers but with one small difference that is lower
cost.
Businesses will not only compete on price but also a very select
small segment of the market, example, a company that sells to
the government alone.

5. Integrated Low-cost Differentiation – When a business has
differentiated products that are offered at a lower cost.
Compared to companies relying on a single strategy, those that
integrate two may be able to position themselves to adapt
much quicker to environmental changes.
Using this “midway” strategy means that businesses must be
able to consistently adapt by reducing costs while adding
unique (differentiated) features to ensure customer
satisfaction.
Example: IKEA differentiates in design and offers low-cost
products.

Summary of Types of Business Level Strategies
1. Cost Leadership – competing with a wide range of
businesses based on price
2. Differentiation – competing by using a product or service
with entirely unique features
3. Focused Differentiation – not only competing through
differentiation (uniqueness of product/service) but also by
selecting a small portion of the market to focus on
4. Focused Low-cost – competing not only through price but
by also selecting a small portion of the market to focus on
5. Integrated Low-cost Differentiation – competing by using
both low cost and differentiation.

Case Study
McDonald’s is an example of that rare company that has
successfully executed a combined differentiated and low-cost
business-level strategy in its chosen domain—the fast food
industry. Using its functional core competencies in marketing
McDonald’s has had a long-standing practice of creating and
disseminating sophisticated advertising and marketing
messages that have established the company as a unique
brand name in the industry and successfully differentiated it
from its competitors. At the same time McDonald’s has
developed core competencies in supply chain management,
including manufacturing and distribution, to carefully control
its costs.

Case Study
For example, McDonald’s has entered into a number of strategic
alliances with outside parties based on long-term contracts that
ensure availability of food items and the supplies and
furnishings necessary to operate the extensive network of
McDonald’s outlets around the world. In addition, in some cases
McDonald’s actually owns the sources of its inputs, such as
herds of cattle in Brazil and other countries. The execution of
each strategy is tightly and carefully managed through a
rigorous standardization process applied throughout the
company’s franchise system that allows the company to control
the content and quality of the experience that customers have
whenever they visit a McDonald’s outlet, regardless of its

Functional Level Strategies
Strategies for different functions of management are known
as functional level strategy.
Functional Level Strategy is concerned with operational level
decision making, called tactical decisions, for various
functional areas such as:
▪ Marketing
▪ Finance
▪ Production
▪ Logistics
▪ Research & Development
▪ Human Resource

Functional Level Strategies
Functional level Managers operate at lowest hierarchical
level of strategic management.
This level is responsible for specific business functions or
operations that constitute a company or one of its divisions.
Functional managers play a strategic role to develop
functional strategies in their area to fulfill objectives set by
business and corporate level managers

Types of Functional Level Strategies
Types of
Functional Level
Strategies
R & D
Human
Resource
FinanceMarketing
Production

References
1. Strategic Management - Fred R. David, Published by
Prentice Hall International.
2. Business Policy and Strategic Management - Dr. Azhar
Kazmi, published by Tata McGraw Hill Publications
3. Nagpal, Sharma: Strategic Management, SYBMS (Sem. 3),
Sheth Publishers
4. Nagpal, Shelankar, Sharma: Strategic Management,
M.Com (Sem. 3), Sheth Publishers

Dr. Parveen Nagpal
www.linkedin.com/in/dr-parveen-kaur-nagpal-82965b15

Environment Analysis, PESTLE, Levels of Strategy

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