MM Feedback – 2022 Edition – Chapter 1

The PESTEL Framework

As you are already aware, I have been busy correcting answer papers over the last few days. At the moment, I’m done with about 60 answer sheets. While I have been making note of the issues with the assumptions that you are making, I thought there were some matters that can get addressed immediately. The first of which is the issue of PESTEL Framework.

Some framework end up being used in incorrect contexts from time to time. This may be on account of their simplicity. Remember we discussed how the BCG matrix and its correct use in one of our presentation sessions? The PESTEL framework too suffers from a similar issue.

The PESTEL framework was first introduced by Dr. Francis Joseph Aguilar in his 1967 book ‘Scanning the Business Environment. I was not able to get a hold of the book. However, there is a review that Philip Kotler had written about the book in the Journal of Business in the same year. In the article, he reveals that Aguilar had written the book after interviewing 137 managers from 41 firms. He also goes on to state that at the time the book was written, corporate scanning processes of the external business environment was largely “ad hoc” and that “great frontiers of opportunities exist(s) for those companies willing to take a fresh look at their total information needs and develop appropriate systems for information gathering and processing”. There is a reason I keep going back to the history of the techniques that we use today. And the reason is this : once we understand in what context the techniques were developed, we can easily understand the merits and demerits of the technique and choose to use it in the best possible way in our own context. Following the same logic, let’s talk about the PESTEL framework, its limitations and the correct way to apply it.

At the best basic level, the PESTEL framework is to be applied at business level (recall the name of the book – ‘Scanning the Business Environment’. This implies that we are not interested in the product level or individual level, but at the level of the firm. The reason we use the framework is to help predict what could potentially happen with the business environment. It is important to understand here that the external environment is beyond the control of any one firm. The exercise of scanning may simply provide firms with an understand of what could transpire and keep ready contingency plans. In essence, the exercise was meant to ‘see’ the ‘yet to be seen’.

In a research note published in Benchmarking: An International Journal, Dr. Liana Kourteli points out three of the key practical issues pertaining to the use of the PESTEL framework.  According to her, they are

1.     “The failure of managers to utilize relevant information, which the organization has acquired but which is scattered around”

2.     “The inability of most managers to gather information useful to others”, and

3.     “The failure to marshal the external environmental information, especially in relation to information with long-range strategic implications.”

I tend to agree with her. When you are in a firm working, you are expected to and tend to move to very specific aspects of the business. In fact, it is precisely that specialisation that makes the firm tick in the first place. Think about it. Do you really think no one in Tata Motor was able to figure out that the calling the Nano the ‘most affordable’ car may be interpreted by consumers as socially undesirable. Had the Tatas done a PESTEL analysis, they may have figured out under the ‘Social’ aspect that cars were considered predominant as a product that has tremendous social value. Let’s do another thought experiment. Had the Tatas come up with the Nano in the 1990s when India was just getting her wheels inflated, do you think a similar fate would have been meted out to the product? Probably not! This demonstrates the utility of the tool. The business environment had changed, and the Tatas had not really factored that in. Therefore, it may be wise for managers to actually have their ears tuned to the ground to listen to relevant information that can help them make sense of the environment.

Now, let’s revisit the question from the question paper: “After studying the external marketing environment, provide one positive and one negative influence for each of the PESTEL components.”

The expectation here was for students to think about the various factors – Political, Economical, Social, Technological, Ecological, and Legal aspects from the point of view of the senior management of the firm. I was hoping that the 12 odd years since the case events would have given you an edge in rightly checking what business environment changes could have influenced the business of the manufacturer of Metabical. The expectation was that you would assume that the firm was in the business of manufacturing weight loss drugs (this is required in my opinion because you don’t have much else in the case to go with) and point out to factors that could change and eventually influence their business. Once again, I am going to cite Levitt here. It would be VERY CRITICAL for you to define the business correctly.

Let me give you a few examples that illustrate my point here:

1. Politically, I may expect that the implementation of a four day work week could have some impact on firms involved in any form of weight loss treatments. I believe if the four day work week was implemented (again, you have no real control over this), then consumers in general are likely to feel less stress and therefore stay healthier. This could impact business negatively. However, should Politicians pass laws in their respective legislative bodies to relax laws that regulate weight loss medications due to the surging obesity pandemic, that may turn out to be a good thing.
2. Economically, on the pros side: rise of fast food use (did you know that restaurant use in India has surged even in tier 2 and 3 towns – I will find a citation for this one). On the cons side: Better economic opportunities helps people to invest in health and wellness.
3. Socially, Pros: It’s desirable to appear fit. Cons, people may look down on medical interventions. There are similar issues with stapling stomachs (curious? Google this!)
4. Technologically, on the pros side: Increasing use of gadgets, binge watching and screen time. On the cons side: Surgical procedures, fit bits and other devices that force you to move around and stay fit.
5. Ecologically: Honestly, I could not think of anything myself. I felt student may come up with something nice. I had a hunch that it may have something to do with air pollution and not being able to exercise outside anymore.
6. Legal: Insurance firms accepting or not accepting to pay for medical interventions to curb obesity. It could go both ways.

There could be many many more. In fact, you have also correctly pointed out to some factors that I did not originally conceive of. And that’s the amazing thing about the PESTEL framework. It gets the better with the perspectives that get added by a different stakeholders.

Hope this helps clarify the key ideas. I’m sure you’re enjoying your holidays! Have fun. See you around in campus soon!

Karthikeyan