What is a PESTEL Analysis?
Internally and externally, there are a multitude of forces that affect the way an organization operates. Often times, there are so many forces that we don’t even realize what they are until we sit down and actually think about it. External forces are often times so numerous that we can have difficulty identifying them all. We've already covered SWOT analyses that help organizations formulate a strategy. However, how do we identify the external forces that can then be used to help complete a SWOT analysis?
For this, we can use a PESTEL analysis. Not the most imaginative name (as we’ll cover later) but nonetheless, it is a powerful tool that can identify the external forces that have an impact on an organization. A PESTEL analysis is a framework or tool used to analyze and monitor the macro-environmental factors that have an impact on an organization. The result of which is used to identify threats and weaknesses which can be used in a SWOT analysis. [1]
Each letter in PESTEL represents a different category of external force. Again, not the most creative but it makes it easier to remember. They are:
Political - These are factors that identify how and to what degree a government exudes influence over an economy. For example; governmental policies, tax policies, labor laws, environmental policies, trade restrictions, tariffs and political stability.
Economic - These are factors that influence the economic dealings of an organization. Some examples are; economic growth, interest rates, exchange rates, inflation rates and disposable income of consumers and businesses.
Social - Social factors are the shared attitudes and thoughts of the population. How people think and feel. Some examples would include; population growth, age distribution, health consciousness, career attitudes, emphasis on safety, as well as cultural aspects and health consciousness.
Technological - Technological factors encompass, well, technology. Specifically, facets such as R&D activity, automation, technology incentives and the rate of technological change.
[Note: There is a condensed analysis called PEST. In which, we simply stop here and leave out environmental and legal forces.]
Environmental - Environmental factors are where ecological and environmental aspects come into play. Examples include; weather, climate, and climate change. This external pressure has become very prominent as we become more eco-conscious. We’ll cover this in more detail at a later date.
Legal - Since we all have to follow a set of rules and regulations, legal factors exert pressures on organizations as well. Legal covers; advertising standards, consumer rights and laws, product labeling, product safety, discrimination laws, consumer laws, antitrust laws, employment laws, and health and safety laws.
After completing the PESTEL analysis, an organization should then use the information to conduct a SWOT analysis. Using the information gathered and identified in the PESTEL analysis, organizations can then identify factors such as weaknesses and threats, as well as show potential opportunities.
More information on what a SWOT analysis is can be found here.
We hope you have found this information useful and are ready to utilize these tools when analyzing your organization.