What is a PESTEL analysis?
A PESTEL analysis is an acronym for a tool used to identify the macro (external) forces facing an organization. The letters stand for Political, Economic, Social, Technological, Environmental and Legal. Depending on the organization, it can be reduced to PEST or some areas can be added i.e. International.
In marketing, before any kind of strategy or tactical plan can be implemented, it is fundamental to conduct a situational analysis. And the PESTEL forms part of that and should be repeated at regular stages (6 monthly minimum) to identify changes in the macro environment. Organizations that successfully monitor and respond to changes in the macro-environment are able to differentiate from the competition and create a competitive advantage.
These determine the extent to which government and government policy may impact on an organization or a specific industry. This would include political policy and stability as well as trade, fiscal and taxation policies too.
These factors impact on the economy and its performance, which in turn directly impacts on the organization and its profitability. Factors include interest rates, employment or unemployment rates, raw material costs and foreign exchange rates.
These factors focus on the social environment and identify emerging trends. This helps a marketer to further understand their customers’ needs and wants. Factors include changing family demographics, education levels, cultural trends, attitude changes and changes in lifestyles.
These factors consider the rate of technological innovation and development that could affect a market or industry. Factors could include changes in digital or mobile technology, automation, research and development. There is often a tendency to focus on developments only in digital technology, but consideration must also be given to new methods of distribution, manufacturing and also logistics.
These factors relate to the influence of the surrounding environment and the impact of ecological aspects. With the rise in importance of CSR (Corporate Sustainability Responsibility), this element is becoming more important. Factors include climate, recycling procedures, carbon footprint, waste disposal and sustainability
An organization must understand what is legal and allowed within the territories they operate in. They also must be aware of any change in legislation and the impact this may have on business operations. Factors include employment legislation, consumer law, healthy and safety, international as well as trade regulation and restrictions.
Political factors do cross over with legal factors; however, the key difference is that political factors are led by government policy, whereas legal factors must be complied with.
A PESTEL analysis helps an organization identify the external forces that could impact their market and analyses how they could directly impact their business. It’s important when undertaking such an analysis that the factors affecting the organization are not just identified but are also assessed – for example, what impact might they have on the organization? The outcomes of a PESTEL analysis can then be used to populate the opportunities and threats in a SWOT analysis.