How to do PESTEL Analysis

PESTEL Analysis is a macro-scanning framework for identifying trends in the environment which will or could impact your business.

The 6 letters stand for Political, Economic, Social (or socio-economic), Technological, Environmental and Legal.

Here are some examples of questions you might ask in each of the six domains.

Political

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

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

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

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

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>

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?

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