What is PESTEL Analysis?

Updated: Aug 22

Understanding business 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.

In marketing, before any kind of strategy or tactical plan can be implemented, it is fundamental to conduct a full situational analysis. This analysis should be repeated every six months to identify any changes in the macro-environment. Organizations that successfully monitor and respond to changes in the macro-environment can differentiate from the competition and thus have a competitive advantage over others.



Political factors:


A country’s government plays a key role in its economic environment, business climate, and regulatory environment. Political factors like the structure of government, political stability, and the level of corruption in a country may also play a significant role in the firm’s operations. Key questions to consider in a PESTEL analysis include: What is the country’s political environment like? What is the political stability of the country like? What is the role of government in the economy of the country? What are the levels of corruption in the government? Political factors can positively and negatively impact a firm’s operations. In some cases, political factors may be irrelevant to the firm’s operations; in other cases, political factors may be highly important and significantly impact the firm’s operations.



Economical factors:


A country’s economy may have a significant impact on the firm’s operations due to effects such as the availability of raw materials, the overall demand for the firm’s products, the level of competition in the market, and the relative strength of the firm’s overall supply chain. Key questions to consider in a PESTEL analysis include: What is the economic environment like in the country? What is the economic strength of the country like? What is the overall demand for the firm’s products like? What is the level of competition in the market like? The economic factors that are relevant in a PESTEL analysis will vary based on the nature of the firm’s operations. If a firm’s operations are supply-driven, the overall demand for the firm’s products will be an important factor to consider. If a firm’s operations are demand-driven, the overall demand for the firm’s products will not be an important factor to consider.



Socio-cultural factors:


A country’s socio-cultural environment may have a significant impact on the firm’s operations due to effects such as the general attitudes and behaviors of customers in the market, the attitudes and behaviors of employees, and the ease of government approval for the firm’s operations. Key questions to consider in a PESTEL analysis include: What is the socio-cultural environment like in the country? What are the general attitudes and behaviors of customers in the market like? What are the attitudes and behaviors of employees like? What is the ease of government approval for the firm’s operations like? The socio-cultural factors that are relevant in a PESTEL analysis will vary based on the nature of the firm’s operations. If a firm’s operations deal with customers directly, the attitudes and behaviors of customers will be an important factor to consider. If a firm’s operations do not deal with customers directly, the attitudes and behaviors of customers will not be an important factor to consider.



Technological aspects:


A country’s technological environment may have a significant impact on the firm’s operations due to effects such as the availability and cost of new technologies, the ease of access to technologies, and the availability of expertise in the country. Key questions to consider in a PESTEL analysis include: What is the technological environment like in the country? What is the ease of access to technological resources like? What is the cost of technological resources like? What is the availability of expertise in the country like? The technological factors that are relevant in a PESTEL analysis will vary based on the nature of the firm’s operations. If a firm’s operations require the use of new technologies, the availability and cost of new technologies will be an important factor to consider. If a firm’s operations do not require the use of new technologies, the availability and cost of new technologies will not be an important factor to consider.



Environmental factors:


A country’s environmental factors may have a significant impact on the firm’s operations due to effects such as the overall health of the local ecosystem, the ease of obtaining necessary permits, and the risk of natural disasters. Key questions to consider in a PESTEL analysis include: What is environmental health like in the country? What is the ease of obtaining necessary permits like? What is the risk of natural disasters like? The environmental factors that are relevant in a PESTEL analysis will vary based on the nature of the firm’s operations. If a firm’s operations deal with the use of natural resources, the overall environmental health of the ecosystem will be an important factor to consider. If a firm’s operations do not deal with the use of natural resources, the overall environmental health of the ecosystem will not be an important factor to consider.



Legal factors:


A country’s legal environment may significantly impact the firm’s operations due to effects such as the ease of obtaining patents and licenses, the overall level of litigation, and the overall level of regulation. Key questions to consider in a PESTEL analysis include: What is the legal environment like in the country? What is the ease of obtaining patents and licenses? What is the overall level of litigation like? What is the overall level of regulation like? The legal factors that are relevant in a PESTEL analysis will vary based on the nature of the firm’s operations. If a firm’s operations deal with the use of intellectual property, the ease of obtaining patents and licenses will be an important factor to consider. If a firm’s operations do not deal with the use of intellectual property, the ease of obtaining patents and licenses will not be an important factor to consider.



Conclusion:


A PESTEL analysis is a strategic framework commonly used to evaluate the business environment in which a firm operates. It is used to assess the external environment. Traditionally, the framework was referred to as a PEST analysis, which was an acronym for Political, Economic, Social, and Technological; in more recent history, the framework was extended to include Environmental and Legal factors as well. A PESTEL analysis is a strategic framework commonly used to evaluate the business environment in which a firm operates. It is used to assess the external environment.

Key points from a PESTEL analysis can be incorporated into other industry and firm-level frameworks, such as Ansoff’s Matrix, Porter’s 5 Forces, and SWOT Analysis.



Today’s post was written by our guest writer, Samanyu. Thank you for reading!!


For more posts written by him, please check his website:

https://samanyu.medium.com/what-is-inflation-and-its-types-80928b764eff



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Factors in PESTEL (Source: business-to-you.com)



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