In the current climate of rapid change there has been a resurgence of interest in organisation development (OD), particularly its value in helping organisations understand how to develop their capability to continuously adapt to changing market and social conditions. As a result there are numerous articles and other publications emerging giving a range of views on both the practice and potential outcomes of OD interventions. It therefore seems timely for the CIPD to look again at this area and consider what if any practical guidance and information practitioners might need to:
identify and implement appropriate OD solutions
develop the skills necessary to support appropriate OD interventions in their organisations.
Initial scoping of the most recent work which has been done in this area suggests there are three issues that would be worth considering in developing practical guidance for HR practitioners.
The problems of defining what OD is and what outcomes it can generate
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The case for OD, what makes it different from other change management solutions
Where OD sits in relation to the HR function, and what skills HR practitioners need to develop.
What is OD?
One of the problems in understanding and defining OD is that it is not in itself a function but rather a field of practice encompassing a range of tools and techniques. It has had a long history from its early roots in behavioural psychology through its association with organisational culture to its current focus on business improvement. As a result a single definition remains elusive and the term OD can mean very different things in different contexts.
However, OD is now billed as a whole organisation approach needing to operate outside traditional boundaries taking account of the increasing complexity of organisations and the need to manage relationships which may transcend organisational boundaries. This is reflected in the definition put forward in the CIPD factsheet on the topic published in May 2009 which describes OD as: 'a planned and systematic approach to enabling sustained organisation performance through the involvement of its people'.
So it is largely accepted that OD is holistic and applies right across the organisation to all people and every process, that it is orientated towards developing organisational effectiveness and that it embraces an emphasis on the learning cycle: generating information, processing key messages and acting on the outcomes.
What seems therefore to make OD different from other change interventions is the emphasis on learning through action and building on the knowledge that this generates to improve the planning process for the future. The final message of OD and the one encapsulated in the CIPD definition above is that it is orientated towards bringing about sustained performance improvement and recognises that people have a significant role to play in making this happen.
Why use OD interventions?
OD is a problem centred intervention. It does not result in finite solutions but rather is an on-going process of problem identification and resolution. It generates data which can be fed back into a variety of situations. This data is returned in many forms enabling individuals within organisations to collaborate in identifying and ranking specific problems, in devising methods for finding their real causes, and in developing plans for coping with them realistically and practically.
This, argue the supporters of OD, enables organisations to develop more sustainable and robust solutions and to engage in a continuous cycle of diagnosis and review which informs future strategy and enables them to develop the capacity to continuously adapt to change.
What's HR's role in making OD successful?
Rooted in the concept of a systemic organisation-wide approach to the pursuit of effectiveness it would be too limiting for OD to be seen only as an HR or even a management concept. Successful OD reaches every corner of organisational operations and brings with it real insight into all aspects of organisational activity. In fact it may positively hinder OD if it becomes too firmly rooted in the HR function and therefore not seen to be within the remit of senior executives.
However because OD has traditionally had a people focus and has developed from traditional humanistic values it seems logical that it fits within HR and indeed many of the techniques of OD are being used by HR and training specialists. Some argue that OD's ability to understand the whole structure and process of the organisation enhances the strategic nature of the HR role and has synergy with business partnering.
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Essentially there are two aspects of OD which need active involvement from the HR function:
Data: Identifying and collecting appropriate data which will inform change
Participation: Ensuring the active participation of everyone across the organisation so that this information may be absorbed and the key messages learnt and acted upon.
OD does not replace HR but it does draw heavily on many of the processes of HR in both the planning and the transformation stage. As a people- and problem-centred activity it requires skills beyond the traditional HR remit but can enable HR to develop the deep organisational insight that is required if they are to fulfil their potential in terms of ensuring the people asset of the business are fully and most effectively utilised.
Tell us what you think?
We would very much value your views on this topic and would welcome your input to a short poll.
PESTLE analysis is in effect an audit of an organisation's environmental influences with the purpose of using this information to guide strategic decision-making. The assumption is that if the organisation is able to audit its current environment and assess potential changes, it will be better placed than its competitors to respond to changes.
To help make decisions and to plan for future events, organisations need to understand the wider 'meso-economic' and 'macro-economic' environments in which they operate. (The meso-economic environment is the one in which we operate and have limited influence or impact, the macro-environment includes all factors that influence an organisation but are out of its direct control). An organisation on its own cannot affect these factors, nor can these factors directly affect the profitability of an organisation. But by understanding these environments, it is possible to take the advantage to maximise the opportunities and minimise the threats to the organisation. Conducting a strategic analysis entails scanning these economic environments to detect and understand the broad, long term trends.
A PESTLE analysis is a useful tool for understanding the 'big picture' of the environment in which an organisation is operating. Specifically a PESTLE analysis is a useful tool for understanding risks associated with market (the need for a product or service) growth or decline, and as such the position, potential and direction for an individual business or organisation.
A PESTLE analysis is often used as a generic 'orientation' tool, finding out where an organisation or product is in the context of what is happening outside that will at some point affect what is happening inside an organisation. The six elements form a framework for reviewing a situation, and can also be used to review a strategy or position, direction of a company, a marketing proposition, or idea.
Completing a PESTLE analysis can be a simple or complex process. It all depends how thorough you need to be. It is a good subject for workshop sessions, as undertaking this activity with only one perspective (that is, from just one person's view) can be time consuming and miss many critical factors. We all see things differently and harnessing the knowledge of several people will ensure the process is robust and meaningful.
The term PESTLE has been used regularly in the last 10 years and its true history is difficult to establish.
The earliest know reference to tools and techniques for 'scanning the business environment' is by Francis J. Aguilar1 who discusses 'ETPS' - a mnemonic for the four sectors of his taxonomy of the environment: Economic, Technical, Political, and Social.
Shortly after its publication, Arnold Brown for the Institute of Life Insurance (in the US) reorganized it as 'STEP' (Strategic Trend Evaluation Process) as a way to organise the results of his environmental scanning.
Thereafter, this 'macro external environment analysis', or 'environmental scanning for change', was modified yet again to become a so-called STEPE analysis (the Social, Technical, Economic, Political, and Ecological taxonomies).
In the 1980s, several other authors including Fahey, Narayanan, Morrison, Renfro, Boucher, Mecca and Porter included variations of the taxonomy classifications in a variety of orders: PEST, PESTLE, STEEPLE etc. Why the slightly negative connotations of PEST have proven to be more popular than STEP is not known.
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Some purists claim that STEP or PEST still contain headings which are appropriate for all situations, other claim that the additional breakdown of some factors to help individuals and teams undertaking an environmental scan.
Quite who and when added what elements to the mnemonic is a mystery, but what we do know is that the actual order and words contained are common to certain parts of the world and streams of academic study. The term PESTLE is particularly popular on HR and introductory marketing courses in the UK. Others favour PEST, STEP or STEEPLE.
The PESTLE model
The PESTLE model provides users with a series of headings under which users can brainstorm or research key factors:
Political: what is happening politically in the environment in which you operate, including areas such as tax policy, employment laws, environmental regulations, trade restrictions and reform, tariffs and political stability.
Economic: what is happening within the economy, for example; economic growth/ decline, interest rates, exchange rates and inflation rate, wage rates, minimum wage, working hours, unemployment (local and national), credit availability, cost of living, etc.
Sociological: what is occurring socially in the markets in which you operate or expect to operate, cultural norms and expectations, health consciousness, population growth rate, age distribution, career attitudes, emphasis on safety, global warming.
Technological: what is happening technology-wise which can impact what you do, technology is leaping every two years, how will this impact your products or services, things that were not possible five years ago are now mainstream, for example mobile phone technology, web 2.0, blogs, social networking websites. New technologies are continually being developed and the rate of change itself is increasing. There are also changes to barriers to entry in given markets, and changes to financial decisions like outsourcing and insourcing.
Legal: what is happening with changes to legislation. This may impact employment, access to materials, quotas, resources, imports/ exports, taxation etc.
Environmental: what is happening with respect to ecological and environmental aspects. Many of these factors will be economic or social in nature.
The PESTLE process
Decide how the information is to be collected and by whom (often a team approach is much more powerful than one person's view).
Identify appropriate sources of information.
Gather the information - it is useful to use a template as the basis for exploring the factors and recording the information. An example of such a practical and ready-to-use template created to accompany this factsheet can be found on the RapidBI website.
Go to the template
Analyse the findings.
Identify the most important issues.
Identify strategic options.
Write a report.
Disseminate the findings.
Decide which trends should be monitored on an ongoing basis.
Applications and when to use it
PESTLE analysis can be used for business and strategic planning, marketing planning, organisational change, business and product development and research reports. It can also be used from a departmental or individual perspective to look at what you deliver to whom and how you do it.
To be effective a PESTLE needs to be undertaken on a regular basis. Organisations that do analyses regularly and systematically often spot trends before others thus providing competitive advantage.
A PESTLE analysis is a useful document to have available at the start of a business planning process. It can provide the management team with background and context information about targets towards growth, new product development and brand positioning. The opportunities and threats identified can be fed into a SWOT (Strengths, Weaknesses, Opportunities, Threats) process and strategies identified to avoid or minimise the impact of the threats, and equally strategies employed to build on the opportunities presented. For more on SWOT analysis, see our factsheet on that topic.
Go to our SWOT analysis factsheet
As with business planning, a PESTLE analysis provides the essential element of 'climate' within a situation analysis phase of the marketing planning process.
It is often said that there are few 'bad products' but lots of wrong time and wrong places. As a PESTLE analysis provides a view of what is occurring in the external world, this will help when making the decision to enter or leave an area of product development. For example, portable tape recorders are excellent devices, but a PESTLE analysis might show that that, socially and technologically, MP3 technology is more acceptable. Equally from an environmental point of view the manufacture of tapes requires the use of heavy chemicals and would be increasingly taxed and rejected by society.
When looking at changing one function or department a PESTLE analysis can be a powerful tool for understanding the context in which the change is occurring and the potential areas of focus. Best used in association with a SWOT analysis, a PESTLE will provide information about potential opportunities and threats around labour changes, for example skills shortages.
Using the PESTLE to look at factors outside of the function but still inside the organisation can highlight factors such as:
Political: who is in what position, their power, vision, goals and directions etc.
Economic: financial implications, productivity etc.
Socially: what is and is not acceptable within the culture.
Technological: new computer systems or other new technology.
Legal: changes to employment law, recruitment, visas etc.
Environmental: the space available, what can or cannot be moved where etc.
In this situation, a PESTLE analysis can be thought of more an as audit. It is best used at the data capture phase as part of a pre-planning process of any strategic intervention.
While using the tool internally can add some value, it will focus on factors which can be changed, that is they are in the control of the organisation, if not the function concerned. So while it may be a useful framework, it should be used with caution in this context.
A PESTLE analysis can also be used as a framework for looking outside the organisation to hypothesise what may or may not happen. It is a useful framework to use to ensure that some of the basic factors are not overlooked or ignored. Used in a similar way to that of business planning - but the application of the data is different.
Advantages and disadvantages of using a PESTLE analysis
Facilitates an understanding of the wider business environment.
Encourages the development of external and strategic thinking.
Can enable an organisation to anticipate future business threats and take action to avoid or minimise their impact.
Can enable an organisation to spot business opportunities and exploit them fully.
Some users over simplify the amount of data used for decisions - it is easy to use scant data.
To be effective this process needs to be undertaken on a regular basis.
The best reviews require different people being involved each having a different perspective.
Access to quality external data sources, this can be time consuming and costly.
The pace of change makes it increasingly difficult to anticipate developments that may affect an organisation in the future.
The risk of capturing too much data is that it may make it difficult to see the wood for the trees and lead to 'paralysis by analysis'.
The data used in the analysis may be based on assumptions that subsequently prove to be unfounded (good and bad).
A PESTLE analysis can be carried at different levels depending on the context. Two case studies are offered below to illustrate what a PESTLE analysis might look like in two different situations: a more detailed level, using a soft drinks manufacturer as an example, and a simpler level, using a children's charity by way of example.
Case study 1: a detailed PESTLE analysis
What follows is a summary of the findings, not the data collection phase, of a PESTLE analysis using a soft drink manufacturer called Soft Drink Co.
The government plays a role within the operation of manufacturing these products in terms of regulations. There are potential fines set by the government on companies if they do not meet a standard of laws. The following are some of the factors that could cause Soft Drink Co's actual results to differ materially from the expected results described in their underlying company's forward statement:
Changes in laws and regulations, including changes in accounting standards, taxation requirements, (including tax rate changes, new tax laws and revised tax law interpretations) and environmental laws in domestic or foreign regulations.
Changes in the non-alcoholic business environment. These include, without limitation, competitive product and pricing pressures and their ability to gain or maintain share of sales in the global market as a result of action by competitors.
Their ability to penetrate developing and emerging markets, which also depends on economic and political conditions, and how well they are able to acquire or form strategic business alliances with local packaging firms and make necessary infrastructure enhancements to production facilities, distribution networks, sales equipment and technology.
Last year the economy was strong and nearly every part of it was growing and doing well. However, things changed. Most economists loosely define a recession as two consecutive quarters of contraction, or negative GDP growth.
Due to low interest rates it can use the borrowing on research of new products or technology. As researching for new products would cost less the Soft Drink Co will sell its products for less and the people will spend as they would get cheap products from Soft Drink Co.
Before the terror attacks on 7 July, the UK was starting to see the economy recover slightly and it is only just recently that they achieved the economic levels. Consumers are now resuming their normal habits, going to the high streets, car shopping, and eating out at restaurants. However, many are still handling their money cautiously. They believe that with lower inflation still to come, consumers will recover their confidence over the next year.
Many people are practicing healthier lifestyles. This has affected the non-alcoholic drink industry in that many are switching to bottled water and diet colas instead of beer and other alcoholic drinks. The need for bottled water and other more convenient and healthy products are important in the average person's day-to-day life.
Consumers from the ages of 37 to 55 are also increasingly concerned with nutrition. Since many are reaching an older age in life they are becoming more concerned with increasing their longevity. This will continue to affect the non-alcoholic drink industry by increasing the demand overall and in the healthier drinks.
The effectiveness of company's advertising, marketing and promotional programs. The new technology of internet and television which use special effects for advertising through media. They make some products look attractive.
Introduction of cans and plastic bottles have increased sales for Soft Drink Co as these are easier to carry and you can bin them once they are used.
As the technology is getting advanced there has been introduction of new machineries all the time. Due to introduction of this machineries the production has increased tremendously then it was few years ago
Soft Drink Co has several factories which use state of the-art technology to ensure top product quality.
With changes to the chemicals allowed in consumable drinks with the impact of upcoming EU legislation this will impact Soft Drink Co's production. They will have less than three years to comply or be forced to remove the product from the shelves.
With several EU countries introducing fines to manufacturers who do not use recycle-able packaging, Soft Drink Co will need to review its strategy of using plastic bottles - and look towards new package technology or the use of cans