A strategic management framework: PESTEL
When discussing about strategic planning, there are a few effective tools that can be used in order to have an overview of the business environment. In a previous article we have discussed about Porter’s five forces model and today we will discuss about the PESTEL analysis.
PESTEL or PESTLE analysis is an abbreviation for Political, Economic, Social, Technological, Environmental and Legal. By analyzing these 6 categories (the external environment), the strategic planning process will be more accurate and it will offer many different angles that one wants to keep track of when designing the strategy of the company.
Given the fact that there are 6 categories that should be analyzed when using PESTEL, a deeper understanding for each one of them is mandatory:
1. Political: Refers to the specific means through which the government can influence a certain industry’s economy. For example, the government may impose trade restrictions for the products your company exports. In this case, the business will not be profitable in that country and will probably fail.
Other factors, also recommended by Strategic management insight, which managers can examine when analyzing the Political environment are:
| Political factors | |
| Government stability and likely changes | Environmental Law |
| Bureaucracy | Education Law |
| Corruption level | Anti-trust law |
| Tax policy (rates and incentives) | Discrimination law |
| Freedom of press | Copyright, patents / Intellectual property law |
| Regulation/de-regulation | Consumer protection and e-commerce |
| Trade control | Employment law |
| Import restrictions (quality and quantity) | Health and safety law |
| Tariffs | Data protection law |
| Competition regulation | Laws regulating environment pollution |
| Government involvement in trade unions and agreements | |
2. Economical: Refers to the factors that influence the economy’ performance, a factor that has direct impact on the company. For example, if the level of consumers’ disposable income is high the company may sell its product to more customers and at a higher price.
Other factors, also recommended by Strategic management insight, which managers can examine when analyzing the Economic environment are:
| Political factors | |
| Growth rates | Trade flows and patterns |
| Inflation rate | Level of consumers’ disposable income |
| Interest rates | Monetary policies |
| Exchange rates | Fiscal policies |
| Unemployment trends | Price fluctuations |
| Labor costs | Stock market trends |
| Stage of business cycle | Weather |
| Credit availability | Climate change |
3. Social: Refers to the factors that influence the demographic and cultural aspects of the external environment. An example might be the population education level. If this factor is high and your company is developing IT products, it will probably be a good idea to develop the business in that certain area.
Other factors, also recommended by Strategic management insight, which managers can take into consideration when analyzing the Social environment are:
| Social factors | |
| Health consciousness | Attitudes toward “green” or ecological products |
| Education level | Attitudes toward and support for renewable energy |
| Attitudes toward imported goods and services | Population growth rate |
| Attitudes toward work, leisure, career and retirement | Immigration and emigration rates |
| Attitudes toward product quality and customer service | Age distribution and life expectancy rates |
| Attitudes toward saving and investing | Sex distribution |
| Emphasis on safety | Average disposable income level |
| Lifestyles | Social classes |
| Buying habits | Family size and structure |
| Religion and beliefs | Minorities |
4. Technological: Refers to the factors that may affect the operations of the industry. An example can be the basic infrastructure level which may influence the efficiency of the operations.
Other factors, also recommended by Strategic management insight, which managers can examine when analyzing the Technological environment are:
| Technological factors | |
| Basic infrastructure level | Technology level in your industry |
| Rate of technological change | Communication infrastructure |
| Spending on research & development | Access to the newest technology |
| Technology incentives | Internet infrastructure and penetration |
| Legislation regarding technology | |
5. Environmental: Refers to the factors that are determined by or influence the environment. An example can be an agricultural company which has to analyze the weather conditions in a particular country to determine if their crops will grow.
Other factors, also recommended by Strategic management insight, which managers can look into when analyzing the Environmental aspects:
| Environmental factors | |
| Weather | Waste management |
| Climate change | Attitudes toward “green” or ecological products |
| Laws regulating environment pollution | Endangered species |
| Air and water pollution | Attitudes toward and support for renewable energy |
| Recycling | |
6. Legal: Refers to the factors that can affect the company form a legal perspective. An example can be the employment law, which will obligate each employer to give a minimum amount of salary.
Other factors, also recommended by Strategic management insight, which managers can consider when analyzing the Legal aspects:
| Legal: factors | |
| Anti-trust law | Employment law |
| Discrimination law | Health and safety law |
| Copyright, patents / Intellectual property law | Data Protection |
| Consumer protection and e-commerce | |
PESTEL analysis is useful when scanning the macro-environment, and given the factors may differ from one country to another, it is recommended to analyze all targeted countries and then compare the results. It is only after the external scan of the environment and the internal scan of the company that the strategy formulation process can start. This will ensure that there is enough data to develop a solid strategic plan.
References:
- Strategic Management Insight (2013), PEST & PESTEL analysis
- PESTLE Analysis (n.d.), PEST Analysis: What is PESTLE Analysis?
Tags: Strategy
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