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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.
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.
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:
Sign 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
Download or export your PESTEL Analysis
Once you've completed your PESTEL analysis, you can:
Download it as a PNG image: on the PESTEL analysis screen, click the download image () button towards the top right of the screen. See also Downloading Images from StratNavApp.com.
Create a report in HTML or Microsoft Word format: Select Reports and StratML on the main menu, select PESTEL and any other components you want to include in your report, then click "HTML Report" or "Microsoft Word Report" near the top of the screen. See also Generating Strategy Reports from StratNavApp.com
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 organisation. 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.
PESTEL analysis is a strategic framework used to evaluate macro-environmental factors impacting an organisation. The acronym stands for Political, Economic, Social, Technological, Environmental, and Legal factors.
What does PESTEL stand for?
PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors which may impact an organisation.
What are Political factors in PESTEL analysis?
Political factors include government actions and policies that influence an organisation, such as tax laws, trade restrictions, and political stability.
How do Economic factors affect PESTEL analysis?
Economic factors relate to the financial environment, including interest rates, inflation, GDP growth, and exchange rates, impacting an organisation's operations and profitability.
What are Social factors in PESTEL analysis?
Social factors encompass societal trends and behaviours, such as demographics, cultural trends, education levels, and lifestyle changes that influence market demand.
What role do Technological factors play in PESTEL analysis?
Technological factors involve the impact of new and emerging technologies on an organisation, including digital advancements, automation, and R&D.
How do Environmental factors impact PESTEL analysis?
Environmental factors include ecological issues like climate change, natural disasters, and sustainability efforts that can affect an organisation.
What are Legal factors in PESTEL analysis?
Legal factors cover the regulatory environment, including employment laws, health and safety regulations, consumer protection laws, and antitrust laws.
How can you conduct a PESTEL analysis?
Conducting a PESTEL analysis involves preparing by defining scope, collecting relevant data, analysing the data to identify trends, evaluating the impact, developing strategies, and continuous monitoring.
How can StratNavApp.com help with PESTEL analysis?
StratNavApp.com offers an online collaborative template supported by AI for PESTEL analysis, integrating with other strategy frameworks and allowing for easy report generation.
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.
About the author
Chris C Fox is an independent business strategy consultant and founder of StratNav. He helps consultants scale their impact, supports C-suite leaders in executing enterprise-wide strategies, and equips founders to grow and adapt with confidence.
👉 Learn more about Chris and his work.
👉 Book a strategy call or try StratNav for free.
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