How a PESTEL Analysis can help your business strategy
A PESTEL analysis is a vital part of strategic planning. Without a tactical strategy for the external factors that could affect your company, you may lose your competitive advantage in a market and never recover. However, the tools a PESTEL analysis provides will differentiate you from the competition, giving your business that competitive advantage it needs.
As the business environment is continuously expanding into new markets, understanding how these new markets function can identify significant threats.
Before you can begin dominating a new or changing market, it’s important to understand PESTEL’s framework then learn how your team can make these changes efficiently.
What is a PESTEL Analysis?
A PESTEL analysis is a tool to analyze external macro-environmental factors of change in a business environment. These are aspects a business should assess: competitors, markets, direction of operations and conditions.
Harvard professor Francis Aguilar is thought to be the creator of PEST analysis in 1967, although it has undergone some tweaks over the years to get to the current PESTEL acronym:
Political, Economic, Social, Technological, Environmental, Legal
A PESTEL Analysis is useful for four key reasons:
- It will help you notice business opportunities, or give you advanced warnings of potential threats.
- It reveals the future changes your business will face. This helps you adapt what you’re doing, so you are ready for change, rather than against it.
- It helps you avoid starting projects when you enter a new country, region, or market that are likely to succumb to external pressures and fail.
- It will put fact behind departmental research of market evaluations facing any speculations.
How to do a PESTEL analysis across departments?
It’s important to conduct it early on, a PESTEL analysis can be used for a number of use cases such as business planning, strategic planning, marketing planning, product development, and organizational planning.
At this early stage, team members from different departments need to come together to share key information they hold to ensure it is a complete overview. Whether you’re in an office or working in a remote team, one of the best ways to complete a PESTEL analysis is by using an online tool that can be completed collaboratively.
A manager can split participants into small teams to handle one of the six external drivers. Within the PESTEL template, create sticky-notes labelling which department will handle one of PESTEL factors. Since everyone would have access to this template, they can join a single board and complete their column as well as assign tasks on areas to research. This will ensure cross-collaborative thinking and let everyone’s ideas be heard.
Now, let’s take a look at the six external drivers in more depth.
The first factor to consider is how the government of a country intervenes in the national economy through setting policies or rules for business. This includes state of federal policies such as import policy, export policy, taxation policy, investment policy, competition policy, consumer protection policy, and data labor laws. It’s also important to look at levels of stability or instability, corruption, speed of changes and progressiveness of policy makers.
When considering the Political factors, here are some questions you should answer:
- Who are the stakeholders of this business unit within the wider organisation?
- Who speaks for us and who speaks against us?
- When is our country’s next local, state, or national election? How could this change government or regional policy?
- Could any pending legislation or taxation changes affect our business, either positively or negatively?
- How will business regulation, along with any planned changes to it, affect our business?
Next, you want to look at the broader economical climate your business is operating in, both from the country’s economy and the consumers side. How stable is the current economy? Is it growing, stagnate, or declining? And for the consumer, their purchasing power depends on income level, unemployment rates, savings, debt and the availability of credit. It is important to spend some time researching the current, and future interest rates, exchanges rates, and inflation.
When considering the Economical factors, here are some questions you should answer:
- Do we operate to a budget? Is it realistic? Does it give us enough flex to try things?
- How do we manage costs?
- Are customers’ levels of disposable income rising or falling? How is this likely to change in the next few years?
- How are economic trends impacting us?
- Has demand for our products services grown / shrank / stayed the same?
- Which customers could spend more with us?
- What is the unemployment rate? Will it be easy to build a skilled workforce? Or will it be expensive to hire skilled labor?
The demand for many products changes with the changes in social attitudes. Thus, it’s extremely important to look at the current socio-cultural situation. This covers things such as age and population growth rate, religious beliefs, gender norms, class structures, internet usage habits, customs and beliefs, health consciousness and lifestyle choices. This section also covers changes that may affect the workforce: increasing lifespan of the population, a trend toward fewer children, the gender-pay gap. A society’s values form the keystone of all economic decisions.
When considering the Sociological factors, here are some questions you should answer:
- How do religious beliefs and lifestyle choices affect the population?
- Are generational shifts in attitude likely to affect what we’re doing?
- What social attitudes and social taboos could affect our business?
- Have there been recent socio-cultural changes that might affect this?
- What are our society’s levels of health, education, and social mobility? How are these changing, and what impact does this have?
This section may not have ever been as important as it is today due to the extreme rate of technological advancement we are currently experiencing. The technological factors you need to examine include availability of technology available to you and to your customer, use of automation, information technology, Research & Development incentives, biotechnology, screen size, social media usage and internet safety and security.
When considering the Technological factors, here are some questions you should answer:
- How well do we use technology?
- Are there any new technologies that we could be using?
- How have infrastructure changes affected work patterns (eg, levels of remote working)?
- What can we learn from the data we collect?
- How do we measure our own performance?
- Do any of our competitors have access to new technologies that could redefine their products?
- How could technological advances impact upon the business going forward?
Environmental factors that can affect your business include weather, especially climate change and natural disasters, recycling, changes to packaging and materials, and societal rejections to certain materials, eg plastics, straws, and shopping bags. Also the availability and price of raw materials can be a major concern in some industries.
When considering the Environmental factors, here are some questions you should answer:
- Within the environment we work in, what works well and what needs improvement?
- How do we compare with other parts of the organization?
- How do we stay aligned to our objectives and what we believe in?
- Are there any current environmental programs/partnerships our brand can participate in?
- How can we source, trade and test our products?
- Is everything we do ethically sound?
In today’s global economy, it’s important that business managers have thorough knowledge about the major laws that protect the business enterprises, consumers and society in all markets they operate in. These laws include Health and safety regulations, Employment laws, Copyright infringement, Data protection laws, Consumer protection laws, just to name a few.
When considering the Legal factors, here are some questions you should answer:
- How are we impacted by changes to legislation and regulation?
- How do we keep ourselves compliant?
- What countries do we operate in?
- Are our staff protected by Unions?
- Are we up to date with data protection laws?
Key Tips For Conducting A PESTEL Analysis
As we mentioned earlier, it is best completed within a team environment to capitalise on different knowledge bases and view points, such as HR, Legal, Management and Finance.
The real value in PESTEL is found when you look at the bigger picture and subsequently act on the information. So it’s important to get up-to-date documentation from reliable resources and seek information from experts (either externally or internal staff) who are aware of current conditions with regard to each area. And to get the most out your analysis, remember to really think about the future, and potential changes, not just the present situation. By coming together as a team to complete the PESTEL, your results will convey a much more complete analysis of your target market’s environment. Getting everyone to share their market research is crucial to successfully penetrate a new or changing market.
If you were to conduct a PESTEL analysis now, you may find that a whole industry is facing disruption. By seeing this complete picture, you are able to make informed, strategic decisions that will save your business in the long term.