In this article:
- What is PESTEL business analysis?
- What does PESTEL acronym stand for?
- PESTEL factors explained
- When should you use PESTEL analysis for your business?
What is PESTEL business analysis?
PESTEL business analysis is a framework for helping entrepreneurs and business people to understand the impact of macro-environmental factors on their business.
What does PESTEL acronym stand for?
The PESTEL acronym stands for
Political
Economical
Social
Technological
Environmental
Legal
The PESTEL analysis was created in 1967 by Harvard Business School professor Francis J. Aguilar.
Francis J. Aguilar
PESTEL/PESTLE/STEEPLE – are they the same thing?
Yes, PESTEL, PESTEL and STEEPLE refer to the same business framework. The only difference is that the letters are switched between them. In the case of STEEPLE, the additional E stands for Ethics.
PESTEL factors explained
PESTEL is the second strategic tool for decision-making we are highlighting on the BRAND MINDS blog.
Our mission is to help you acquire relevant knowledge that will support you to make good business decisions. Learn how to grow your business with PORTER’S 5 Forces framework.
The factors analyzed by the PESTEL framework refer to the macro-environment of your business. Not to be confused with the external factors of your business.
Let’s think of your business as the Earth.
The Earth is made up of four layers: the inner core, the outer core, the mantle and the crust.
The inner core of your business is comprised of your business’s organizational structure, culture, employees, management and operations. They are the internal factors.
The next layer surrounding your business is the outer core: competitors, suppliers, distributors, customers and partners. They are the external factors. These factors and your business are in a two-way relationship – they influence each other. If you want to assess how much power your competitors or your buyers have on your business, apply PORTER’S 5 Forces framework. You will get a map of the industry your business operates in as well as the structural underlining drivers of profitability and competition.
The third layer of your business comes over the external factors and it’s called the macro-environment. The macro-environment includes the factors listed earlier in the article: political, economical, social, technological, environmental, legal.
Unlike the external factors, which your business can influence, the macro-environmental factors are outside the influence range of your business. But they do have the power to effect change on your business.
PESTEL analysis – Political factor
The political factor helps you appraise the degree to which a government intervenes in the economy or a certain industry.
Look at how current, past, and future regulations currently affect the market in which your business operates.
Also, take into account whether or not there is political stability and what are the consequences of political instability over your business.
Is there corruption? What are foreign trade and tax policies?
PESTEL analysis – Economical factor
The economical factor is the determinant of the economy’s performance.
Examine the economic growth, exchange rates, interest rates, unemployment rates, the state of the country’s infrastructure, taxes.
This factor affects the purchasing power of your customers and could change the demand and supply dynamics of the market. This, in turn, affects how your business prices its products and services.
PESTEL analysis – Social factor
The social factor analyzes the profile and behaviour patterns of your customers. In marketing, it’s called a buyer persona.
Gather as much information on the social aspect of your market as possible from standard demographics (age, sex, family status, professional background, education) to psychographics (pain points, dreams, goals, interests and hobbies).
Become aware of cultural differences between generations.
Is there a cultural movement that your customers are supporting? What are their values, customs and lifestyle choices? Which social media platform do they use the most?
PESTEL analysis – Technological factor
Fifty-three years ago, when PESTEL was created, technology didn’t have the essential impact on the business and our world as a whole as it does today. But there were early signs. In 1967, the first message was sent over the internet and the GPS became available for commercial use.
Taking into account the way technology has been disrupting industries and changing business models in the last decade, this factor is one of the most important to look into.
Put together a list of the technologies impacting your industry.
Check the regulations surrounding technology in your market. Are they favourable or not favourable?
What is the rate of technological change and innovation? Is the industry dominated by automation? How costly is it?
PESTEL analysis – Environmental factor
As with the technological factor, the environmental factor is today of growing importance.
Businesses are now called to account for any negative impact their operations have on the environment.
Companies big and small are expected to reduce their carbon footprint, take actions to reduce waste and pollution, and preserve the environment.
How is your business affecting the environment? What can you change to make sure your business is sustainable and environmentally responsible?
PESTEL analysis – Legal factor
The legal factor of PESTEL analysis looks into the laws and regulations of your industry.
Is your market regulated by a specific set of laws? How do they influence your business?
Also take into account other laws like discrimination, antitrust, employment, consumer protection and copyright laws.
When should you use PESTEL analysis for your business?
If you’re thinking about launching a new business, entering a foreign market or a different industry, PESTEL analysis framework is especially useful because it gives you an accurate overview of the macro-environment and how it affects your business.
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