What is PESTEL analysis?
PESTEL Analysis is a strategic framework used to evaluate the macro-environmental factors that will or could impact an organisation. The analysis can help to understand external forces and how they can influence operations and strategic planning.
What does PESTEL stand for?
The 6 letters in this acronym stand for Political, Economic, Social (or socio-economic), Technological, Environmental and Legal factors.
Why is PESTEL analysis important?
PESTEL analysis is important because it provides a structured approach to understanding the external factors that influence a business. By examining Political, Economic, Social, Technological, Environmental, and Legal elements, companies can identify opportunities and threats in their macro-environment.
The six categories help to ensure a more holistic analysis and to prevent you from accidentally omitting important considerations.
This analysis supports proactive decision-making, allowing organisations to anticipate changes, adapt their strategies, and gain a competitive advantage. PESTEL is particularly useful in dynamic industries, helping leaders align business strategies with evolving external conditions.
See also:
What are the 6 categories of PESTEL analysis?
Here are some examples of questions you might ask in each of the six domains.
Political
Political factors encompass government actions and policies that can influence an organisation's operations. These include changes in government, legislation, tax policies, trade restrictions, and political stability. For instance, new tax laws or trade tariffs can significantly affect a company's profitability and operational efficiency. Organisations must monitor political trends and anticipate how shifts in policy might impact their strategic direction.
How might political forces impact your business/you?
Consider:
- Government policy
- Legislation
- Political harmony/conflict and stability/instability
- Elections and coalitions
- Foreign trade policy, restrictions and agreements
- Tax policy
- Labour policy
- Forthcoming elections and election cycles
- Government stability
- Lobbying activity and protests
- Defence policy and spending
- Terrorism, war and other military considerations
- Environmental policy
- Funding grants and initiatives
- Subsidies and tariffs
- Fiscal policy
- Freedom of speech and the press
- Government bureaucracy
Questions to ask:
- Is the political environment stable? If not, how might it change?
- What government policies or political groups could be beneficial or detrimental to the firm's success?
Economic
Economic factors are crucial as they relate directly to the financial environment in which an organisation operates. These include interest rates, inflation, GDP growth, exchange rates, and overall economic health. For example, high inflation can erode consumer purchasing power, affecting sales, while favourable exchange rates can enhance export competitiveness. By understanding these factors, companies can better plan their financial strategies and adapt to economic fluctuations
How might the economy impact your business/you?
The Economic sector includes the general economic environment and the effects that this might have on the business and its customers, distributors and suppliers.
In conducting your analysis, it is important to distinguish between
- long-term trends and structural issues, and
- seasonal or cyclical issues.
Quick checklist
- Economic growth (e.g. GDP)
- Interest rates
- Exchange rates
- Inflation
- Disposable income of consumers and businesses
- Savings and investment rates/propensity to spend
- Taxation
- Wages (both absolute levels and growth rates)
- Employment/unemployment rates
- Financial markets
- Property prices
- Commodity and raw materials prices
- Availability of finance/credit
- Supply and demand factors
- Cycles and bubbles
These might operate in aggregate or on a sector-specific basis.
Internationally, you might also consider:
- import/export conditions,
- foreign exchange conditions, and
- trade deficits/surpluses.
Questions to ask:
- How, specifically, do each of the different economic factors impact the firm's business?
- What factors could cause an improvement or deterioration in each of the different economic factors?
Social
Social factors focus on societal trends and behaviours that influence consumer needs and market demand. These include demographics, cultural trends, education levels, and lifestyle changes. For example, an ageing population may increase demand for healthcare services, while a growing emphasis on sustainability can drive the market for eco-friendly products. Recognising these trends allows businesses to align their offerings with evolving consumer preferences.
How might social, socio-economic or demographic factors impact your business/you?
The Social sector considers changes in social preferences and norms. This is sometimes also called the Socio-Economic or Socio-Cultural sector.
Quick checklist
- Demographics, including
- Population growth
- Population age distribution
- Birth and death rates
- Family size and dynamics
- Marriage, divorce and cohabitation
- Living standards
- Wealth distribution
- Ethnic and religious view and norms
- Health and health consciousness
- Education standards
- Career choices and attitudes
- Work patterns and preferences, including attitudes towards
- retirement
- flexibility
- Customer preferences and buying trends
- Leisure activities and lifestyles
- Cultural trends
- Fashion trends and fads
- Industrial reviews and consumer confidence
- Organisational image
- Attitudes towards the government, business and equality/diversity (race, gender, ability, foreigners/immigrants, minorities, etc.)
- Crime
Questions to ask:
- How do our customers' circumstances and attitudes affect their buying habits?
- How are our customers' and other stakeholders' circumstances and attitudes changing?
Technological
Technological factors involve the impact of new and emerging technologies on an organisation. This includes advancements in digital technology, automation, research and development (R&D), and cybersecurity. For instance, rapid technological change can lead to product obsolescence, while innovations like artificial intelligence can open new business opportunities. Staying abreast of technological trends ensures that organisations remain competitive and can leverage new technologies for growth
How might technological developments and adoption impact your business/you?
The Technological sector considers the impact of all forms of technological development and innovation.
This could include
- new ways of producing goods and services
- new ways of distributing goods and services, and
- new ways of communicating with and engaging customers, suppliers and distributors.
The development of information technologies, including the internet and associated technologies such as mobile access is obviously a major factor here. This includes both the consumer and business-to-business applications of this. But it also includes improvements in manufacturing processes, materials, energy and transportation.
Quick checklist
- Research and development capability and pipelines,
- Producing goods and services
- Distributing goods and services
- Communications infrastructure
- Digital and mobile technologies
- Automation
- The Internet of Things (IoT)
- Emerging technologies
- Technological lifecycle: including maturity and obsolescence
- Target market communication
- Copyright or patent protection for intellectual property ("IP"), and their efficacy
- Increased training required to use new technologies
- Potential return on investment from new technologies
- Technological awareness and proficiency
Questions to ask:
- What innovations and technological innovations are available or on the horizon?
- How might they affect the firm?
Environmental
Environmental factors, sometimes referred to as ecological factors, relate to the physical environment and ecological issues that can affect an organisation. This includes climate change, natural disasters, environmental regulations, and sustainability efforts. For instance, companies may need to comply with stricter environmental laws or adopt greener practices to meet consumer expectations and avoid penalties. Understanding these factors helps businesses minimise environmental risks and capitalize on opportunities related to sustainability.
How might environmental issues impact your business/you?
The Environmental sector has become increasingly important in recent years as stakeholders have become more conscious of humankind's impact on the natural environment.
Consider:
- changes and opportunities throughout the value chain which could impact the environment, including,
- opportunities to communicate what the organisation is doing about them more effectively, and
- Corporate Social Responsibility (CSR) where businesses contribute to societal goals either through how they operate and/or through philanthropic activities such as volunteering or charitable donations/activities.
Quick checklist
- The availability of raw materials
- Pollution and greenhouse gas emissions
- Positive business ethics and sustainability
- Carbon footprint
- Climate and weather
- Natural disasters
- Renewable energy, waste management and recycling
- Environmental legislation
- Geographic location and accessibility
Questions to ask:
- How is the physical environment changing and how will this impact the business?
- How are attitudes towards the business's impact on the physical environment changing>
Legal
Legal factors involve the regulatory environment in which an organisation operates. This includes laws related to employment, health and safety, consumer protection, and antitrust. For instance, changes in labour laws can impact hiring practices, while new safety regulations may require operational adjustments. Companies must stay informed about legal changes to avoid compliance issues and potential legal disputes
How might legal, regulatory or legislative issues affect your organisation/you?
Finally, the Legal sector looks at changes in laws, lawsuits and regulations which affect the business. These can be general changes in the industry, or specific lawsuits or regulatory interventions or sanctions which the business is facing.
Quick checklist
- Health and safety regulations
- Equal opportunities laws
- Advertising standards rules
- Consumer rights and protections
- Privacy and data protection laws
- Product labelling requirements
- Product safety requirements
- Safety standards
- Employment/labour laws
- Anti-trust and competition laws
- Copyright, patent, intellectual laws
- Licenses and permits
Note that there is often a high cross-over between political and legal factors. However, while political policies may create certain advantages and disadvantages, legal factors must be complied with.
Questions to ask:
- What laws and regulations apply to the business across all of the markets in which it operates and how do they help or hinder the business?
- How might these laws and regulations change?
How to conduct a PESTEL analysis
To conduct a PESTEL analysis, follow these steps:
- Preparation: Define the scope, objectives, and team involved in the analysis.
- Data Collection: Gather relevant information for each PESTEL factor.
- Analysis: Assess the data to identify key trends and their potential impact on your organisation.
- Balance: Ensure you're not over-emphasising some factors and under-emphasising others.
- Evaluation: Prioritize the factors based on their likelihood and impact.
- Strategy Development: Formulate strategies to address identified opportunities and threats (together with the rest of your strategic analysis).
- Monitoring: Continuously monitor external factors and adjust strategies as needed.
Finding the Right Balance
One benefit of using frameworks like PESTEL is that they can help reveal biases.
For example, if most of your insights fall under the Economic category but very few in Technology, it might mean you focus too much on financial factors and overlook technology.
Our research, based on hundreds of PESTEL analyses, found that Environmental insights make up only about 10% of all insights. Does this suggest businesses still struggle to include environmental issues in their strategies?
Some categories may truly matter more than others in your industry right now. But it’s worth asking: could bias be shaping your view?
Get your PESTEL analysis template
You can find your PESTEL template in StratNavApp.com.
But it's not just another template you can download in PowerPoint, Word, Mural, or Miro.
It's an online collaborative template supported by AI. And it integrates with all the other strategy frameworks you need to develop and execute effective business strategies.
And when you're finished you can generate reports or copy your PESTEL into other formats.
With free and paid plans, you can be up and running in minutes and on any device - simply start here.
Where to find the PESTEL Analysis in StratNavApp.com
To find your PESTEL Analysis:
- Log in to StratNavApp.com.
- Select the project you want to work with.
- Click on "Analysis" on the main menu.
- Click on "Insights" on the drop-down menu that opens up.
- Select "PESTEL" on the model selector on the page that follows.
Using AI to generate PESTEL analysis
You can use #StratBot AI to generate suggestions for your PESTEL analysis.
Simply click on the link in the contextual help at the top of the screen (if it appears) or click on the StratBot icon at the top right of the PESTEL page.
Note that PESTEL insights generated by #StratBbot AI should be considered as "brainstorming" or "strawman" suggestions and subject to more detailed analysis and confirmation before you act on them
What to do once you've completed your PESTEL analysis
Once you've completed your PESTEL analysis, a good next step is to complete your SWOT analysis.
The insights from your PESTEL analysis will already have been placed on your SWOT analysis as either Opportunities or Threats. Our AI will have categorised each one for you. If you think it got it wrong, you can simply drag insights between the Threats and Opportunities quadrant on your SWOT.
Then you're in a position to add your Strengths and Weaknesses, relative to the Threats, Opportunities and Competitors.
Conclusion
PESTEL analysis is a valuable tool for strategic planning, providing a comprehensive view of the external factors that can influence an organization. By systematically examining political, economic, social, technological, environmental, and legal aspects, businesses can better navigate their macro-environment, anticipate changes, and make informed decisions to achieve long-term success.
Using StratNavApp.com will enable you to develop and maintain an effective PESTEL analysis and ensure it is appropriately embedded in your overall strategy development and execution process.
See also
- Some examples of PESTEL analyses.
- Why start with a PESTEL analysis when developing a new strategy for an existing organisation?
- Working with Insights and Insight-based models
- How to do a PESTEL analysis (from StrategicCoffee)
- Navigating The Turbulence: Airlines, PESTLE, 5 Forces, And The Call For Paradigm Shift (Sixcess Consulting)
- Video Introduction Course: Chapter 5: PESTEL Analysis with AI, 5 Forces and SWOT
- What's the difference between SWOT and PESTEL analysis?
