Week 6

WEEK 6

What is meant by the term External Analysis?

Every business organizations have to operate in an uncertain, challenging and risky environment. These environmental factors have to be identified whether they are internal or external so that the business can gain competitive advantage over other similar or different businesses. Internal environmental factors comprises of employers, systems, employees, technological capacities, strategies etc. Businesses can control and have power over the internal environmental factors. Whereas, external environmental factors comprises of the political, legal, cultural and social factors and cannot be controlled by the business. The analysis of these factors in order to identify the opportunities and threats, assessing the environment, affects of these factors on businesses and making forecasts accordingly is called the external analysis. External analysis is a part of strategy making process. It is only after conducting external as well as internal analysis that managers develop strategies considering the key factors and issues identified during the analysis. 

What is the purpose of PESTEL Analysis?

PESTEL analysis can be defined as the tool of analysis which helps to analyze the external environmental factors such as political, economic, social, technological, environmental and legal factors and its impact in the decisions, strategies, operations, plans, policies and the overall success of the business.

The purpose of PESTEL analysis is:

Ø  To identify the factors which affect or are likely to affect the operation of the organization.

Ø  To identify the opportunities and threats of an organization. For instance: identifying the new market for its product is an opportunity for the organization whereas identification of entrance of new competitor is a threat for the organization.

Ø  It is important to conduct PESTEL analysis before developing any strategy. The results generated by PESTEL analysis need to be considered while developing any kind of plans and strategies.

Ø  External environmental changes cannot be predicted and keeps on changing. Analysis of PESTEL factors helps to identify the changes occurred and helps the organization to make decision on the basis of those changes.

Read the article about Big Mart Super Store – what external issues are the Super Markets would have to consider at this time to have competitive advantage over others?   

Big Mart Supermarket started operating in Nepal from July 10th 2009 at City-Centre mall. It is one of the well known departmental store which provides wide variety of grocery items of good quality as well as cosmetics. Currently it has 2 stores in the Kathmandu. Big Mart is planning to open up new stores at seven different places as well as many in future, there are various external factors to be considered in order to gain competitive advantage over others and some of those are as follows:

Ø  One of the biggest threat or competitor of Big Mart is Bhatbhateni Supermarket. Bhatbhateni is Nepal’s one of the oldest and biggest supermarket and provides varieties of product such as from groceries to clothes and

electronics. Since Bhatbhateni is the oldest supermarket they have gained customer loyalty so Big Mart has to check what kind of products they offer, at what rate and the quality of food. Big Mart can offer products at competitive price. 

Ø  Big Mark has to know that people are conscious about the environment so they should try to provide customers with environmentally friendly products. For instance they can use paper bags instead of plastic bags and even they can try to sell organic vegetables. As people are becoming more environmental conscious in this way Big Mart can gain competitive advantage.

Ø  We know that external environment keeps on changing constantly hence, they should keep on revising their strategies according to the changes. By conducting PESTEL analysis they can identify the new opportunities.

Ø  Social trend is also one of the factors that Big Mart should consider. Unlike earlier, these days’ people are becoming more diet conscious and they prefer healthy diet. Hence, Big Mart should try to provide more healthy food.

Ø  Technology is one of the fastest changing factors. According to these changes Big Mart should try to update and install the new technology. Use of information technology is must as the supermarket is expanding in different places, there will be lots of transaction data to be recorded and IT will certainly help them store, use and retrieve data well. 

If all these above external factors are considered then Big Mart can gain competitive advantage.

References:

Ovidijus Jurevicius. (2013). PEST & PESTEL Analysis. Available: http://www.strategicmanagementinsight.com/tools/pest-pestel-analysis.html. Last accessed 09/04/2013.

cipd. (2013). What is PESTLE analysis?. Available: http://www.cipd.co.uk/hr-resources/factsheets/pestle-analysis.aspx. Last accessed 09/04/2013.

Thapaliya, B.. (2013). Nepal’s business environment: stained by political uncertainties.. Available: http://www.globalpolitician.com/print.asp?id=5019. Last accessed 09/04/2013.

Paudyal, R.. (2009). Environmental issues in Nepal.. Available: http://rajib-paudyal.blogspot.com/2009/02/environmental-issues-in-nepal.html > . Last accessed 09/04/2013.

bigmart. (2013). Big mart supermarket.. Available: http://www.bigmart.com.np/. Last accessed 09/04/2013.