PESTEL is a tool that analyzes the six forces that shape an organization or individual. The acronym PESTEL stands for political, economic, social, technological, environmental, and legal. This framework can be applied to anything from a company to an entire country in order to understand where its strengths and weaknesses lie as well as what could change or happen in the future. In this article, we will be digging deep into PESTEL and give a more in-depth explanation of what it is, how to use it, and some common examples.
Definition of PESTEL
PESTEL is a tool that analyzes six forces that impact an organization or individual. Each of these forces can impact an organization in different ways and understanding how each of them will affect the organization is crucial to long-term business planning. Let’s see what these 6 forces work
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Political
Political factors are basically government policies that may impact the organization directly. It is important to understand what policies they may be and how they might affect the organization.
- Tax Policy
- Bureaucracy
- Tariffs
- Trade Restrictions
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Economic
The economic factors are things like inflation, employment rates, taxes, foreign exchange rates. These factors affect the availability of money and the overall value of cash.
- Unemployment Rates
- Exchange Rates
- Interest Rates
- Economic Growth Rates
- Inflation
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Social
The social factors are basically related to cultural and demographic changes or trends that could affect the organization. It can affect consumer behavior and habits.
- Health Consciousness
- Cultural Aspects & Perceptions
- Age Distribution
- Career Attitudes
- Populations Growth
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Technological Factors
The technological factors include things like the current technology, major current events, and trends related to technology.
- The Rate of change in technology
- Availability of new technology
- Technological Infrastructure
- Automation
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Environment
As the name goes, the environmental factors are related to things that impact the business from the outside. It can be resource availability, natural disasters, weather, and so on.
- Natural Disasters
- Weather Patterns
- Resource Availability
- Climate change
- Pollution
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Legal
Legal factors are laws and regulations that can impact the organization and its business. It can include things like tariffs, patents, copyrights, international trade agreements, and much more
- Licenses
- Industrial lawsPatents
- Intellectual Property Laws
- Labor laws
PESTEL Example
Let’s take a look at an example of PESTEL analysis.
Imagine that an organization is focusing on the expansion of its business to a new region in order to increase sales. First, they need to identify the factors that could impact the success of this business decision.
They would start with Political factors by looking at things like regulations and trade agreements between different countries while also considering how political instability could affect the organization.
Next, they would look at Economic factors by considering things like interest rates and inflation rate in that region to see how it may impact costs.
Once the company has done this, it can move on to Social factors which include cultural differences and labor laws. They need to consider how different traditions might impact consumers’ buying habits as well as the kind of labor laws that could affect them
After this, they can identify Technological factors by looking at how technology is used in that region and if there are any upcoming changes or new technologies to be aware of.
Last but not least, they should take a look at the Environment factors by assessing things like natural disasters, climate changes, and resource availability.
Once the company has done all of this, they will be able to identify factors that would impact their business in deciding where to expand their sales. This is why PESTEL analysis is so useful in forecasting what might happen in the future.
PESTEL Analysis
PESTEL analysis is useful when the organization needs to identify both the threats and opportunities in order to plan for its future. The main reason why PESTEL analysis is so widely used is that it provides a full picture of the situation while identifying which factors are most important. Considering how quickly business environments change, this type of analysis allows the organization to identify factors that have a significant impact on its success so they can plan accordingly.
Conclusion
PESTEL analysis is an effective way to look at the external factors that could impact an organization. It also allows them to identify which factors are likely to have a significant impact on their success. This is why PESTEL analysis is so widely used by organizations around the world.
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