Pestle Analysis of Lego

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Environmental analysis occupies a significant position in the strategic management process (Swayne, Duncan & Ginter, 2012). It helps a company to analyse the factors affecting its internal and external business environment. It forms the basis of organisational decision making and helps in aligning strategies within the business environment (Freeman, 2010). The rapid changes occurring in the business environment heavily impacts the performance level of the organisations. It is therefore necessary for organisations to analyse their business environment. The PESTLE tool used for this purpose provides a detailed overview of the organisation’s current position in the business environment (Wheelen & Hunger, 2011).

The paper gives a detail description of the PESTLE analysis tool as instructed by Mr Gibbs, the Manging Director. It analyses the relevant contribution of the tool in determining the relative importance of analysing the external business environment. It presents a comparative study of various authors regarding the perceived importance of the PESTLE analysis tool. The paper has further elaborated the importance of the strategic tool by analysing the external business environment of The Lego Group, a Denmark based construction toy manufacturing company.

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Understanding PESTLE Analysis Tool

PESTLE Analysis

PESTLE analysis provides an analytic framework for determining the macro environmental factors affecting a business and its performance level (Yüksel, 2012). It is used for environment scanning, an essential element of organisational strategic management process. PESTLE is the acronym for the political, economic, social, technological, legal and environmental factors, each of which has a significant influence on the business performance level (Yuksel, 2012).

Fig 1: PESTLE Analysis Tool (Source: Author’s Creation)

PESTLE Analysis Tool

  • Political: The political factors highlight the opportunities and restrictions imposed by the government and several political institutions of the country of operation (Gupta, 2013). It consists of the government rules and regulations, taxes and levies imposed on the trade operations of a company. It also consists of the stable relationship of the country’s government with the opposition political parties along with the level of corruption and conflicts arising due to terrorism and inter-state conflicts (Yuksel, 2012).
  • Economic: The economic factors focus on the economic policy and structure of the country in which an organisation is operating and the extent to which it affects the operational activities of the company (Z. Srdjevic, Bajcetic & B. Srdjevic, 2012). The economic policy of a country takes into consideration the various factors such as inflation rate, monetary policies, present rate of employment, currency exchange rates and the disposable income of the target market (Babatunde & Adebisi, 2012).
  • Social: The social factors highlights the cultural implications of the country and takes into consideration the belief, values and attitude of the people (Furrer, Thomas & Goussevskaia, 2008). The social factors are analysed on the basis of several factors such as population growth rate of the country, demographics, and purchase behaviour of the people, cultural trends and life style (Yüksel, 2012). It helps the organisations to have better understanding of their target audience and thereby develop products based on the taste and preference of the country’s population (Babatunde & Adebisi, 2012).
  • Technological: Technology is of prime significance for ensuring organisational success. The rapid changes taking place in the technological world makes it essential for the organisations to upgrade themselves at regular intervals to give a tough competition to its competitors (Wheelen & Hunger, 2011). Moreover, it helps in analysing the customer’s reaction to the incorporation of latest technological innovations and the perceived benefits associated with it (Wheelen & Hunger, 2011).
  • Legal: The legal factors consists of the regulations imposed on the company regarding the product developed by them, the advertising and promotional strategies and most importantly in maintaining the health standards of their offerings (Wheelen & Hunger, 2011). It is therefore essential for the companies to abide by the legal implications of the countries in which the business is operating (Yüksel, 2012).
  • Environmental: Environment is the major issue of concern due to the increased concern of pollution and global warming (Wheelen & Hunger, 2011). Thus is it necessary for the business organisations to make sure that their production and manufacturing operations does not cause any harm to the surrounding environment (Yüksel, 2012). The adoption of green marketing strategies by the business corporations is one of the factors contributing to the high demand of its offerings among the customers (Wheelen & Hunger, 2011).

Application

The PESTLE analysis gives a detail overview of the macro environmental factors affecting the external business environment of an organisation (Cadle, Paul & Turner, 2010). It is mainly used by the companies to identify the relative strengths and weaknesses to which the present business operations are exposed to. The results of this analysis helps in shaping the long term strategic objectives of an organisation and give a tough competition to its competitors (Freeman, 2010). Therefore, the PESTLE tool occupies a prominent position in the organisational strategic decision making.

Relative Contribution to the Business Environment Analysis

The PESTLE tool largely helps in developing future strategies of an organization by considering the relative importance of the various environmental factors affecting the business operations of an organisation. According to Spender (2014), the PESTLE strategic tool contributes significantly to the development of strategies to overcome the negative impacts of the macroeconomic environmental factors. However, Freeman (2010) has determined that the strategic business tool provides valuable insights to the identification of present strengths and weaknesses of the company in the highly competitive business scenario.

According to Babatunde and Adebisi (2012), the political and legal factors are the major dimensions to be considered by the companies in their strategic decision making since a politically unstable environment largely affects the business operations. It is also essential for the business organisations to ensure that the legal rules and regulations of the country and the specific industry in which they are operating is maintained (Cadle, Paul & Turner, 2010). Failure to comply with the political and legal standards will hamper the operational activities of the business (Babatunde & Adebisi, 2012). Srdjevic et al., (2012) has pointed out that all the factors of the PESTLE analysis tool occupies equal importance and relevance in analysing the company’s present business environment. Therefore, it has been observed that although the authors differs in determining the importance of the individual factors of the strategic business tool but everyone agrees that PESTLE is the most important tool used to have a clear understanding of the business environment.

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PESTLE Analysis of Lego

Company Background

The Lego Group is a world leading construction toy manufacturing company based in Denmark (The Lego Group, 2017a). It is known for its innovative contribution towards developing toys and in maintaining high quality standards. The business philosophy of Lego focuses on developing toys that enriches the ability of the children to learn new things (The Lego Group, 2017a). The organisation occupies a significant position among the top five toy manufacturers of the world (Statista, 2017).

PESTLE Analysis

  • Political: The 100 year old world renowned toy manufacturing company Lego is known for its excellent ability to maintain neutrality in dealing with the perceived political problems of the country in which it operates (The Lego Group, 2017a). The company’s success is mainly due to the neutral attitude of the company towards any political instability prevailing in the countries in which it operates.
  • Economic: The toy manufacturing industry occupies a relatively stable position in the global economy, thereby favouring the expansion and growth rate of The Lego Group (Statista, 2017). Moreover, the stable economic condition of the global economy is favouring the success rate of the company. The increase in disposable income of people favoured the preference of high quality toys manufactured by the company for their children (Gupta, 2013). However, the fluctuations involved with the currency exchange rates of the various countries in which Lego is operating is a serious issue of concern to the company’s global business operations (Gupta, 2013).
  • Social: The high demand for toys among children provides huge opportunity to Lego in satisfying and fulling the customer requirements (The Lego Group, 2017a). The company is trying their level best to innovate their offerings by incorporating the concept of learning with the help of toys manufactured by Lego (The Lego Group, 2017a). However, the technical advancements along with the increased use of internet services is causing a dynamic change to the use of traditional toys among children, thereby causing a serious threat to the organisation (Babatunde & Adebisi, 2012).
  • Technological: The prime objective of Lego is to provide children with unique and joyful experience with their offerings incorporates the latest technological advancements. It uses high technological devices in manufacturing unique products (The Lego Group, 2017b). Moreover, the technological advancements contributed largely to the company’s research and development initiatives to understand the changing preferences of the customers (The Lego Group, 2017b). The rapid adaptation to new technologies helps the company in occupying a distinctive position among all the toy manufacturers of the world.
  • Legal: There are huge restrictions imposed on the manufacturing of plastic based products by companies all over the globe due to the adverse impact on the environmental safety (Furrer et al., 2008). Therefore, the manufacturing activities of the organisation are in accordance with the environmental safety standards. However, the company had to face the issue of poor copyrighting in many countries, where the small scale manufacturers in the name of Lego started selling products made of cheap plastic (Butler, 2015). This was a serious threat to the company’s reputation and Lego took necessary legal actions to cope up with the situation. Due to this copyright trend, Lego had to file several lawsuits against the companies involved in such illegal activities (Austen, 2005).
  • Environmental: The business activity of Lego ensures that their business operation ensures environment protection and safety (The Lego Group, 2017c). Environment is the major issue of concern among people and thus the company took advantage of this fact to win the trust of their global customers. The main aim of Lego is to create a positive image of its offerings by making use of energy efficient business methodologies along with efficient waste management procedure (Perella, 2014). Lego is highly concerned about the future generations due to which it has implemented waste reduction and environmental friendly manufacturing techniques (The Lego Group, 2017c). The Lego Group is the only toy manufacturing company of the world to be part of the United Nations Program concerning environment safety.
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Inference

The strategic business tool helped Lego to identify the extent to which the macroeconomic factors of the environment affects its growth rate in the highly competitive global business scenario. From the PESTLE analysis of Lego it can be inferred that neutral behaviour of the company towards the political issues of the country in which it operates is the driving factor for its global success. Moreover, the increased demand of innovation in the toy industry favours the incorporation of latest technological advancements in their offerings. However, the change in preference among children towards electronic gadgets is a serious threat to the company in the future. The incorporation of environmental friendly and waste reduction business methods is helping it in occupying a distinctive position in the toy industry.

Conclusion

The PESTEL analysis tool is identified as the most significant strategic business tool used for analysing the influence of the macroeconomic factors of the environment. It provides important information regarding the extent to which the individual environmental factors affects the business activities. It is used for strategic decision making of an organisation and in developing future business strategies. The significance of the PESTLE tool lies in its ability to perceive the future business risks and therefore helps in developing strategies to overcome adverse business situations. The PESTEL analysis of The Lego Group, the world renowned toy manufacturing company presents a detailed overview of the factors hindering its global business operations. It has been observed that adoption of environment friendly manufacturing technologies and innovative products is the major factor for Lego to retain its position among the top five toy manufacture ring organisations of the world.

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  1. Austen, I. (2005, February 2). Building a Legal Case, Block by Block.
  2. Babatunde, B. O., & Adebisi, A. O. (2012). Strategic Environmental Scanning and Organization Performance in a Competitive Business Environment. Economic Insights-Trends & Challenges64(1), 24-34.
  3. Butler, S. (2015, June 16). Lego blocks legal bid to remove trademark protection for its mini-figures.
  4. Cadle, J., Paul, D., & Turner, P. (2010). Business analysis techniques: 72 essential tools for success. London: BCS, The Chartered Institute.
  5. Freeman, R. E. (2010). Strategic management: A stakeholder approach. Cambridge: Cambridge University Press.
  6. Furrer, O., Thomas, H., & Goussevskaia, A. (2008). The structure and evolution of the strategic management field: A content analysis of 26 years of strategic management research. International Journal of Management Reviews10(1), 1-23.
  7. Gupta, A. (2013). Environmental and pest analysis: An approach to external business environment. Merit Research Journal of Art, Social Science and Humanities1(2), 13-17.
  8. Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Boston: Cengage Learning.
  9. Perella, M. (2014, April 11). Lego: how the signature brick is going green.
  10. Spender, J. C. (2014). Business strategy: Managing uncertainty, opportunity, and enterprise. Oxford: Oxford University Press.
  11. Srdjevic, Z., Bajcetic, R., & Srdjevic, B. (2012). Identifying the criteria set for multicriteria decision making based on SWOT/PESTLE analysis: a case study of reconstructing a water intake structure. Water Resources Management26(12), 3379-3393.
  12. Statista. (2017). Toy Industry – Statistics & Facts.
  13. Swayne, L. E., Duncan, W. J., & Ginter, P. M. (2012). Strategic management of health care organizations. New Jersey: John Wiley & Sons.
  14. The Lego Group. (2017a). The Lego Group.
  15. The Lego Group. (2017b). Safe and High-Quality Play.
  16. The Lego Group. (2017c). Our Responsibility Ambitions.
  17. Wheelen, T. L., & Hunger, J. D. (2011). Concepts in strategic management and business policy. New Delhi: Pearson Education India.
  18. Yüksel, İ. (2012). Developing a multi-criteria decision making model for PESTEL analysis. International Journal of Business and Management7(24), 52-66.
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