[MUSIC] Continuing with our theme of assessing the external business environment. And I want to introduce you to PESTEL analysis. And PESTEL analysis is focused on the environment in which the organization is operating within. So, it is not an analysis of the organization, itself. It's analysis of the factors which can impact on the organization. It's important to make that difference. Focus on the environment, not the organization. So, six factors to PESTEL. The first one is political. The second one is economic factors. The third one is social factors, sometimes you'll read and it'll say social cultural factors. The fourth is technological The fifth is Legal. And finally, the second E is Environmental. Now, looking down that list, you'll be able to see that every organization is impacted in some way against all of these factor. And what's really important with all these strategic management tools, it's the quality of the assessment. The analysis rather than the quantity. So, when organizations are analyzing their environment, they're only putting in the key factors that really will have an impact, potential impact, on the strategic success of the organization. What I wanted to do is actually apply PESTEL in this video to a very recent merger and that's of the Kraft Heinz company merger which came about in 2015. Now, when Kraft and Heinz merged, their combined value is predicted to be $21 billion. This is a big organization. Ranked fifth largest in the world, and third largest food and beverage retailer in the US. So, you may be aware of Kraft products, Mac and Cheese. Heinz baked beans, Heinz tomato sauce. But what we're going to do is actually apply a PESTEL analysis to this newly merged organization. So, when we think about the political aspects, we have to think about where these two organizations are operating. So, Heinz is operating on a very much a global scale. Kraft, at the moment, is mostly focused, mostly not entirely, on North America. So, this merged organization has to understand the political stabilities of the different countries that they're now going to be operating within. They need to, if they want global expansion which is a strategy that I believe they do want. Then, they need to think about the countries that they want to go into and what the political ideas are in those countries. We also need to be aware of how the government itself, can actually impact on these organizations. So, things like setting a minimum wage, like we have in the UK. There's also political pressure on organizations such as this. And again, if I can use the UK as an example, there's talk about adding taxes to food that's got high sugar content. And there's a big pressure now for food retailers to actually have very specific labeling and reduce the fat content, the sugar content in their goods. So, these are political factors going on in the environment, in which this huge food and beverage organization is now operating within. If we think about economic, we're thinking about things like the recession. How is that going to impact on our organization? Now, the recession is now different stages in different countries of the world. Again, we need to look at each country individually. We need to think about how certainly in the U.K., the supermarket wars, the big four and the discounters [INAUDIBLE] are actually pushing prices down for customers that's affecting our business. Can we afford to sustain these very low prices? We also have to think about inflation and tax in the different countries that we're operating in. So, that's examples for economic. Then we move down to social. And when we're talking about social, we're talking about trends, social trends. So again, thinking about these one now organization Kraft Heinz. What we're thinking about is people's buying behavior, their shopping habits have changed. So, rather than doing big monthly shops, people are now going into supermarkets more frequently. They're happy to be in the smaller supermarkets. More and more people now are buying their goods online. There's definitely been rise in organic local produce which these organizations currently, certainly local produce, fresh produce isn't their main product line. Healthy eating is a big thing. So, people are moving away from processed foods to more fresh foods. People are interested in where foods come from, the ethical sourcing and the fair trade. So, this merge organization needs to really make sure that they can tap into the customer base now. As it is now, what customers are wanting, listening to customers. So, coming up with innovative ways to actually, please their customers and meet their customers needs. In terms of technological, here we're looking at how the organization can actually improve some of the systems that they currently have. Maybe they need to have special apps for specific promotions or loyalty schemes to attract new customers. Or new product innovations, that something I'm sure they're going to be looking to do. And currently they both do on quite a large scale. So, how can we improve our systems to make ir even better, the products, for our customers? And then we have the legal side of things. Now, in food there's lots and lots of different laws associated with things like food hygiene, food labeling, Food Standards Commission, U.K. fat tax, it was so called. Food safety, health and safety, etc. So, what we're looking at there is all the different legal factors that can impact on our business. And what the government is introducing in terms of new laws, organizations have to adhere to. So, this is a must. We have to be aware of what they are. And we have to make sure that we are within, operating within, the legal systems of our industry. >> And then finally, and equally as important as all the other factors, is the environmental. So, when we're talking about corporate social responsibility, business ethics, this is all coming under here. So Kraft and Heinz need to make sure that they do purchase from sustainable sources. They need to use recyclable packaging, fair trade goods, etc. So, we want to see that this organization cares for the environment and acts in a corporate social responsible way. That's PESTEL. Fact is explained to you and applied in context. You will now apply your own PESTEL to the organization of your choice. Thinking about the environment in which it operates within, and then that will lead us to the end of this first lesson. And I sure then look forward to seeing you for Lesson two which we're exploring strategic direction and strategic choice. [MUSIC]
