Why Companies Need PESTEL Analysis

Do you know why strategic planning is so important? If 30 years ago companies only had to release high quality products at competitive prices, now the situation is so much different. Tough competition makes business owners and top management adopt very important decisions and solve problems even before they actually occurred. Sounds weird right? How can one solve a problem that does not exist and the moment? Easy! This is where strategic planning helps. Strategic planning is about forecasting problems and offering multiple solutions to these problems.

In other words the company is ready for difficulties even before they come. In such a way it can easily solve problems and gain competitive advantage in the market, which is an ultimate goal of every commercial organization or business. However, strategic planning requires very deep analysis that covers all factors influencing company performance, including those which are not dependent on the company itself. We know that business is an inseparable part of our society, and thus it is run according to certain rules and regulations. There are a number of factors that directly and indirectly influence company performance. These factors lie in different prospects. PESTEL analysis undertakes to evaluate company position according to such factors. PESTEL stands for political, economic, social, technological, environmental and legal factors. As you can see these factors cover most important environments every business is operating in. Having performed PESTEL analysis the company top managers and owners will have the most complete information on what needs to be improved to be ready to implement company strategy. Let's give a short overview of each factor stage in its importance for particular business spheres.

Political. Although many top managers do not admit the fact that economy is closely related to politics, the reality shows that political decisions directly influence economic situation, business climate and market conditions in the country. Indeed, the controversial statement made by prominent politician can turn things upside down. This may have negative consequences for major businesses. For this reason big companies maintain own departments for political analysis that make forecasts and predictions in terms of political situation both in the national and international community.

Economic. This factor requires no explanation. Such indicators as gross domestic product, national debts amount, trade balance, inflation rate, customer purchasing power and others have a great influence on company well being, cents if customers are unwilling to buy or custom of purchasing power is too low there is no sense in entering markets with expensive products.

Social. Every company should remember that it releases products for customers or part of the society. Moreover, every company is part of the society and thus it should take into account all social problems, issues and trends.

Technological. This factor requires no explanation as well. The future of business is in development of technologies. This is an axiom to be accepted by everyone.

Environmental. This factor mostly concerns production enterprises, however all industries have to consider their impact on the environment.

Legal. All businesses operate within frameworks of certain legislation's, both national and international. It is important that all business operations comply with legislative norms.

16 Factors to Consider in Determining and Establishing Monetary and Fiscal Policy

Monetary and fiscal policies have impact on the total economy. Those macroeconomic policies shape, and guide and control the behavior of the economy. The following factor needs to be considered in making monetary and fiscal policy:

1. Inflationary state of the economy:
If the economy suffers higher inflation then increasing money supply through monetary policy can be ineffective. So in making monetary and fiscal policy this factor should be considered

2. Marginal propensity to consume:
The willingness of people to consume is another factor in making those policies. Suppose if people's tendency is to consume whatever the interest rate is then monetary and fiscal policy may be ineffective

3. Govt.'s estimated GDP target:
Every govt. has specific GDP target. Govt. makes policy to achieve the estimated GDP target. So this should be taken into consideration in making monetary and fiscal policy.

4. Economic condition of a country:
When the economy is in a recession, monetary policy may be ineffective in increasing spending and income. In this case, fiscal policy might be more effective in stimulating demand.

5. Present interest rate in the market:
In setting the policies another considerable factor is the present interest rate. The present interest rate determines whether expansionary or contractionary monetary and fiscal policy should be introduced. The success of the policy depends on considering this factor.

6. Govt. revenue target:
In each and every year govt. sets specific revenue target. Through the budget govt. specifies it. So in making fiscal policy it should be considered. Suppose, in contractionary policy tax is reduced. If this happens then the policy contradicts with the aim to achieve revenue target.

7. Govt. policy toward import and export:
Sometimes govt. wants to bar against import or export, so in making fiscal policy and monetary policy this should be taken into consideration. Reducing export duty or imposing import duty to any industry can have an impact on govt. policy.

8. If the economy is in booming situation and nation is experiencing industrialization, In that situation if govt. want to reduce the pace of industrial growth monetary and fiscal policy then become a tool. So this factor can also be considered in creating new policies.

9. Govt. policy on privatization:
If govt. want to privatize and encourage private sector to grow, Govt. will take privatization policy. In this case govt. will give facilities to the private sector by lowering taxes and decreasing interest rate through monetary and fiscal policy and vice versa. So govt. perspective on privatization is another important considerable factor.

10. Balance of payment:
Balance of payment is another important factor. If the govt. wants to decrease trade deficit certainly it can encourage export and discourage imports. So, monetary policy will reflect the desire of Govt.

11. Influence of Donor institutions and countries
As a third world and developing country like Bangladesh, where we are dependent on huge loan from the international organization. The influence of those organizations sometimes can be a considerable factor in making monetary and fiscal policy. In our country IMF and EU always pressures govt. to increase the deposit rate. So in policy making this is a considerable factor for the govt.

12. Enforcement of the policy:
In making the policies, it should be determined and ensured that the policy should be in effect. Enforcement and implication is very much important here.

13. Expectations of people regarding future:
If people expect that the monetary policy and fiscal policy will create tax burden in future, then policy implication can be difficult. So it should be taken into consideration.

14.Foreign Currency reserve:
Each and every year govt. especially central bank has some specific foreign currency reserve target. In order to increase the reserve, favorable monetary policy should be introduced. So it is also important factor in consideration.

15. Political stability:
A country's political situation is another consideration for making those policies. If there exists stable political situation then any policy can be implemented easily. But in case of unstable political situation it's difficult to implement those policies.

16.Govt. spending on structural buildup:

If govt. has a policy to build up infrastructure, then govt. make fiscal policy in favor of govt. Spending. Here govt. spends much to develop the structure in transportation or other areas

Those are some factors needed to be considered in making monetary and fiscal policy.