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The Pestel Framework Categorizes Environmental Influences Commerce Essay

Paper Type: Free Essay Subject: Commerce
Wordcount: 4005 words Published: 1st Jan 2015

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The PESTEL framework categorizes environmental influences into six main forms: political, economic, social technological environmental and legal. Where by the politics highlight the role of government; economic refers to macroeconomic factor such as exchange rates, and discrepancy economic growth rates around the world; social influences include changing culture and demographics; technological such as internet; environmental issues such as pollution and waste; and finally legal embraces legislative constraints.

The Western European brewing industry is highly penetrated; The PESTEL framework can be used to help identify the key forces that are driving the change in the market.


Factors might be the dynamic operation of European government against drunken driving, binge drinking, and consequently long term health and fitness problems. These campaigns have the potential to push for law changes surrounding what alcohol can be bought in restaurants, pubs, bars and retail outlets.

Decrease in the consumption of beer in Europe as many traditional key markets have increased awareness of the social problems associated with alcohol drinking.


Economic recession in 2009 has also lead to an effect on beer sales mainly in the United Kingdom where an estimate of 50 pubs closed per week due to downturn.

Beer consumption per capita varies broadly among countries, for example being four times higher in Germany than in Italy. Example in table 1 comparing year 1980 to 2000 the consumption of beer has increased from 3534000 hectoliters to 6453000 hectoliters which is approximately 82.60%.


Lifestyle in emerging market has changed due to the increase in the availability of disposable income, leading to an increase in beer consumption. The new trends like wines, non alcoholic beers, extra cold lagers and fruit flavored beers will adversely affect the consumption of beers.

Education and health; there is an increasing awareness of the effect of alcohol on health and fitness. Particularly in the United Kingdom there is increasing hostility to so called ‘binge drinking’ excessive alcohol consumption in pubs and clubs.


Rate of technological change; as seen in the Anheuser Busch InBev (Belgium) company that efficient advantages will come from more central management of purchasing, together with media and IT from the optimization of its hereditary network of breweries and from the distribution of finest practices across sites internationally.

Innovation of new products; the case witnesses that the introduction of higher priced premium products such as non alcoholic beers, extra cold lagers or fruit flavored beers has led to increase in sales.


Pollution; population are getting more and more alert of the environment and it is essential that the companies do everything to avoid environmental pollution. It is important that the environmental load through the brewing development is as low as possible.

Waste and recycling; reusability and recycling is significant, the brewing industry for instance treats their effluents so that they can use it again for irrigation. Through this they save power and lessen sludge disposal.


International law; when comparing Europe with the United States we have witnessed that in America it is prohibited to drink in public places comparing to Europe where one can drink alcohol wherever they want. This could lead to new laws that restrict drinking in the public places.

Acquisition, licensing and strategic alliance have all take place as an important brewers conflict to control the market. For example in 2004, Belgian brewery Interbrew merged with Am Bev, the Brazilian brewer group to create the largest brewer in the world.

A five forces analysis

The five forces study was originally developed by Michael Porter in 1990, as a way of assessing the attractiveness of different industries or sectors in terms of competitive forces. The five forces constitute an industry’s structure, although initially developed with businesses in mind the industry structure analysis with the five forces framework is of value to most of the organizations. As well as assessing the attractiveness of the brewing industry the five forces can assist set an agenda for action on the range of areas that they identify. The five forces are:

Threat of new entrants

Threat of substitutes

Bargaining power of buyers

Bargaining power of suppliers

Competitive rivalry



Threat of entry

Threat of substitutes

Bargaining power

Bargaining power






Threat of substitutes

The threat of substitute is high because there is an availability of wine, fruit flavored beer and also extra cold lagers. From table 1 and 2 in the case study we can witness the negative effect of the substitute on beer; taking an example of Denmark table 1 shows a decline in the beer consumption and in table 2 shows increase in the importation of exotic beers from overseas.

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Threat of new entrants

Threat of entry depends on the degree and height of barriers to entry; barriers of entry are factors that need to be defeated by new entrants if they are to battle effectively. According to the case the threat of new entrants is very low because the industry is highly penetrated and mergers taking place, also there are global pressures for consolidation which sustain their competitive position in the industry. There are very few big brewery companies which makes them dominate the market, so for a new entrant would be hard to have that financial effort.

Bargaining power of buyers

Customers of course are necessary for the survival of any business, but sometimes consumers can have such high bargaining power that their suppliers barely make any profits. The bargaining authority is high due to the supervision campaign strongly against drunken driving, and binge drinking which has led to an increase in off trade (retail) than on trade (beer consumption in pubs or restaurant). The off trade is increasingly more conquered by big supermarket chains such as Tesco and Carrefour which gives them the bargaining power.

Bargaining power of suppliers

Suppliers are those who supply the organization with what it needs to produce the product or service. The main purchasing costs are wrapping, raw material such as barley and power. The case shows that the bargaining power of supplier in packaging is high due to the availability of only three can makers and shifting cost from one can maker to the other could be high either in terms of money or even technology.

Competitive rivalry

Competitive rivalry is are businesses with same products and services aimed at the same customer group. The competitive rivalry in the brewing industry is very high because almost all companies have the same product/ product differentiation is low, high rate of acquisitions, alliances and strategic alliance and also consolidation due to over capacity within the industry.


With regard to the PESTEL analysis and the Porters five forces analysis I conclude that in order to sustain the competitive position and market share in the brewing industry, one should acquire, license or strategic alliance with an existing company could be small, medium or already a large company.

Question 2

Anheuser-Busch InBev [Belgium]

A-B InBev is the largest brewer in the world; it achieved this position when InBev acquired the leading American brewer Anheuser Busch for 52bn. The company now has nearly 300 brands and approximate 50% share of the US market and owns 50% of Mexico’s leading brewers. The company is frank about the approach to renovate itself from the biggest brewing company to the best.



Largest brewer in the world

Inherited network of breweries

Strong financial power

The merger of Belgian Interbrew and Brazilian Am Bev in 2004

The company’s strategy to transform itself from the biggest to the best by:

Building strong global brands

Increase competence through more central management of purchasing including median and IT.

Greene King [United Kingdom]

Greene King is now the largest domestic British brewer, which was established in 1799. It has expanded through a series of acquisition including Ruddles [1995], Morland [1999] and Hardys and Hansons [2006].



Brew high quality beer from an efficient single site.

Medium size brewing company

Focused brand portfolio which is minimizing the complexity and cost of a multi brand strategy.

Less financial power

2000 pubs across the UK with a particular dominant position in its home region of East Anglia.

Expansion through acquisition, which led to critics calling the company greedy king.

Tsingtao [China]

Tsingtao brewery was found in 1903 by German settlers in China, after state ownership under communism Tsingtao was privatized in the early 1990s and listed on the Hong Kong stock exchange in 1993. Tsingtao has 13% market share of its home country, the company has described its ambition thus; to promote the continuous growth of the sales volume and income to step forward the target of becoming an international great company.



It is the Chinese brand leader in United States

Small brewing company

It’s now sold in more than 62 countries.

Less financial power

Almost 50% of exports

Home market share is very low {13%}

A bottle of Tsingtao appeared in the 1982 science fiction film blade Ronner.



Fundamentals of strategy (CH 2)

By: Gerry Johnson, Kevan Scholes and Richard Whittington

Lecture slides (LE 4&5)






Strategic capabilities refer to the adequacy and suitability of the resources and competences of an organization for it to survive and prosper. The framework used to analyze the strategic capabilities is the VRIO framework; the acronym stands for four questions that need answering to determine the competitive potential of an organization’s resources or capabilities: the question of Value, Rarity, Inimitability [easy/difficult to imitate] and Organization [ability to exploit the resources].

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Dyson’s has value because of being distinctive from the customer; the distinctive factor is built upon the innovative products like bag less vacuum cleaners to energy efficient and time efficient hand dryers for public places to desk fan with no blades. Dyson’s believes in patent to protect its differentiated but that doesn’t mean competitors don’t try to imitate, within Dyson’s vacuums there is patented Ball technology for improved maneuverability.

Dyson’s products are rare because even after the competitors trying to imitate the vacuum cleaners they aren’t able to make an exact copy of it. Example the Dyson’s vacuum and Hoover USA; Dyson’s colors are usually bright and it does launch exclusive editions based on novel colors while Hoover USA wind tunnel vacuums are available in fresh colors.

The inimitability in Dyson’s is very difficult because it believes that the combination of design engineering and manufacturing is crucial in developing the most inimitable competences which could be protected through patents.

The business is organized to fully exploit its competitive advantage; like in their UK headquarter access to the building and then subsequent area is via thumb print and even then some areas are out of bounds. They have even developed their own sound absorbing panels to ensure that conversations can be kept serious.

Question 2

Competitors, especially in this area could imitate several capabilities of the Dyson’s company are:

Technology and design [color, durability, and packaging]: Dyson’s follow a superior design result; in order to provide legitimate competition for Dyson, the competitors will have to hire superior engineer designers and also focus much on innovation.

Cost efficiency: it’s possible for competitors to copy the relocation strategy; by moving the manufacturing plant to a cheap labor country like china rather than producing in home country with high cost. By adopting the cost efficient strategy the completion would increase because competitors like Miele and Excel Dryer Corporation will be having a competitive price as Dyson.

Product features: Competitors are already trying to imitate these products with the USA wind tunnel vacuums and Mjele swivel head vacuums; however, the patent Dyson’s has placed on their products prevents other companies from outright stealing their ideas.

Question 3

Threshold capabilities are capabilities needed for businesses to meet the basic necessities to compete in a given market. These could be threshold resources required to meet minimum requirements of its customers and threshold competences required to deploy resources so as to meet customer’s requirements and support particular strategies. The distinctive capabilities which may overtime become a threshold capability are:

Engineering design is like an identity of Dyson’s products and which makes them distinctive in the market. With time engineering design which is currently a distinctive capability could become one of the most necessary capabilities in order to survive in the market. The existence of Dyson in the market is due to the strength of innovative high quality design and engineering of their products which is due to having highly specialized engineers and the updated technology. It is a product engineering that takes centre stage on the company website and generally in all company communication.

Low cost manufacturing; currently it gives James Dyson a distinctive capability and a high profit margin but with time as the competition is increasing low manufacturing cost will become a threshold capability in order to survive in the market.

Innovation; the company is obvious in its desires to promote the idea that a “Dyson product means new, different, and a radical change”; a Dyson product whether vacuum or washing machine is an innovation that the bright colors help these clever product stand out from the crowd. It is witnessed in the case that Dyson has been the starting point of the product and then follows the competitors; due to the quality and differentiated factor the consumers are ready to buy Dyson’s products at a high price. One main factor which is maintaining Dyson’s primary conceit is the improvement of a design which will clearly be threshold capability overtime.

Question 4

With regard to answers to question 1 and 2, Sir James Dyson seems to be very serious with the company’s future. The strategic capabilities are maintained strongly and those capabilities which a competitor could imitate are not easily given a chance, the competitor has to really put in effort to try imitating Sir James Dyson’s products.

The effect of completely leaving or selling the company will be much more on the negative side because mainly the customers who value his innovation won’t get the innovative products anymore and even if they it do it won’t be Sir James Dyson’s standard. It is witnessed in the case that “Though by 2010 the company was run by CEO Martin McCourt, James Dyson’s own image and personal brand remained central to the firm’s promotion”.

Due to that may be the there could be a decline in the customer base which could directly or indirectly affect all parts of the company; finance, sales, marketing and also production. And the decline in production could affect the china market also because it is said that “contracts like Dyson’s help pull china up the manufacturing value chain too towards ever more complex products of the highest quality”.



Fundamentals of strategy (CH 3)

By: Gerry Johnson, Kevan Scholes and Richard Whittington

Lecture slides (LE 6)






Question 1

John Howie has pursued changes in many parts of Faslane, some of the changes are:

Change in management structure; as it is witnessed in the case study that there was a management structure which wasn’t right to deliver change. There were seven layers in it and now [2006] it’s down to a maximum of four layers. In the process of change in the management structure there was also reappointment of jobs.

Changing in mindset; it is believed that a big opportunity might come from changing the mindset, to see their job as to deliver with the possible minimum spend. They believing in changing the mindset because the public sector manager who’s got wide ranging responsibilities and a fairly large budget has no incentives to reduce cost and don’t share any benefits and were brought up in a system where if the budget hadn’t spent this year, it would be cut next year.

Another change pursued by Faslane was the change in management system from infrastructure focus to naval focus. The commodore in charge saw partnering as an opportunity to better manage the people, but in the management team there were a mix of people who believed and were willing to give partnering or people who were likely to be personally disadvantaged by partnering and were less supportive.

Also cost reduction is one the change pursued by Faslane, as it is witnessed in the case that by 2000 the MOD had decided to significantly reduce the cost and improve operational effectiveness of their naval bases. And in 2002 they signed a contract of cost affecting without affecting the service provided to the navy.

Question 2

Change can be managed using different styles; clear direction may be vital to motivate a desire or create readiness to change; participation or intervention can help in gaining wider commitment across the organization and develop capabilities to identify blockages to change. The managing styles used in the case of ‘Managing change at Faslane’ are as follows:

Direction or coercion managing style; by definition direction managing style means making use of private managerial authority to establish a clear future strategy and how will the change occur. As it is witnessed in the case that “we asked other companies which had been through large scale changes, what we should learn from what you did? And the answer was implementing the management structural changes.” The change in the management structure was influenced from other companies which gave Faslane an advantage and £14 million in the first year against the target of £3 million.

Participation or collaborative managing style; is mainly concerned with the contribution of those who will be affected by the change agenda. As seen in the case where it says that there was a process that required any change to be documented and passed through a series of review points. At each stage of the process people were given 14 days to review it but everybody looked at it on the thirteenth day so a total of 56 days process. By removing those stages people are free from the bureaucratic burden and instead of 56 days they are only given 14 days to review it.

Performance scorecard; it is another change brought in by Craig Lockhart it was intended to measure the outputs and let the business system transparent. Everyone down to team leaders had become acutely aware that business performance is not something to be hidden, however it mainly didn’t aim at measurement but also the business plan had been top-down.

Question 3

Levers for managing change need to be considered in terms of the type of change and context of change. Such levers include changing operational processes and routines, the importance of political processes and other change tactics. The levers of changes used and others which could be used are:

Changing operational process and routines; strategies are always delivered through day to day processes and routines of the operations of the organization. There is therefore a need for planning operational change: the identification of key changes in the routines of the organization. In effect strategic change needs to be considered in terms of the re-engineering of organizational process. This lever of change is used in the case and witnessed where it explains “an example of the process that required any change to be documented; now that 56 days process is 6 days, a simple example of process of re engineering”.

Power and political processes; there is a need to consider the management of strategic change within this political context and also the stakeholder relationships in and around the organization. As seen in the case firstly it is important to understand who you need to have as allies such as the naval base commander. Above that the wider stakeholders like the commanding officers of the ships and submarines, security and also the local community are to be looked at.

Question 4

The change brought in by Craig Lockhart and John Howie has been very much effective in terms of savings, service. Their target was achieved over 20% reduction in annual running costs, by the end of year 10 they are expecting a saving of £280 million which is 38.2%. The navy’s view was that the service they received was better; the attitude, communication and responsiveness towards the navy were also better. So by making a few changes they brought about cost reduction and service improvement.

The changes made in the management structure [from seven layers to four layers] have made them reappoint all the jobs, and the implementation has positively affected the cost by a saving of £4milion in the first year against a target of £3 million.

Faslane’s change in the measuring of outputs through performance scorecard has made the business system transparent. Everyone down to team leaders has become acutely aware that business performance is not something to be hidden.

The changes led Craig to announce that in April 2010 Faslane would become the home base, not just for nuclear submarines but for the whole UK submarine fleet. This change is expected to create more jobs and the expansion of Faslane which will fulfill the need of the unemployed; the ways used to work together and bring about effective change within Faslane worked luminously.



Fundamentals of strategy (CH 10)

By: Gerry Johnson, Kevan Scholes and Richard Whittington

Lecture slides (LE 12)





Fundamentals of strategy (CH 2,3 & 10)

By: Gerry Johnson, Kevan Scholes and Richard Whittington

Lecture slides (LE 4,5,6 &12)


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