A PESTEL analysis, also known as the PESTEL method, helps your business identify the external forces that might be impacting your market to analyze how they are directly impacting your business. In such an analysis, it is important that the factors affecting your business are not only identified but also evaluated. The results can then be used to capture the opportunities and threats in a SWOT analysis.
In this article, we from Kenjo want to go into more detail about the Pestel analysis and its advantages and disadvantages.
What is a PESTEL analysis?
A PESTEL analysis is an acronym for a tool that can be used to identify the external forces to which an organization is exposed. The letters stand for Political, Economic, Social, Technological, Environmental and Legal. In our article, we will look at what a PESTEL analysis is used for and the pros and cons of using it for your business.
Before a strategy or tactical plan can be implemented in marketing, it is important to conduct a comprehensive analysis of the situation. This analysis should be repeated every six months to detect changes. Organizations that successfully monitor and respond to change can differentiate themselves from the competition and thus have a competitive advantage over others.
The framework is also used to identify potential threats and weaknesses used in a SWOT analysis to identify strengths, weaknesses, opportunities and threats to a company.
Why do you need a PESTEL analysis?
A PESTEL analysis is used by companies to conduct a comprehensive assessment of their environment and the external factors that may affect their business activities. The analysis makes it possible to study the political, economic, social, technological, environmental and legal factors that can affect the company.
Here are some specific reasons why it makes sense for companies to conduct a PESTEL analysis:
- Identification of Opportunities: By analyzing external factors, companies can identify potential opportunities that allow them to expand their business or enter new markets.
- risk assessment: A PESTEL analysis also allows companies to identify potential risks that could affect their business activities. By identifying risks, companies can take action to counter or mitigate those risks.
- Strategic decisions: A PESTEL analysis can help organizations make informed strategic decisions by providing insights into the environment and potential business impact.
- competitive analysis: Analysis of external factors also allows companies to better understand the competitive landscape and the positioning of their competitors.
- Long term planning: A PESTEL analysis also provides companies with insights into long-term trends and developments that could impact the business. This helps companies to align their strategies and plans accordingly and to ensure long-term success.
In summary, a PESTEL analysis helps companies better understand their environment, make informed decisions, mitigate risks and identify opportunities to grow and improve their business.
When to conduct a PESTEL analysis?
As mentioned earlier, one should conduct a Pestel analysis before implementing a strategy or tactical plan. It is important to repeat the analysis of the situation every six months.
There are several steps in conducting a PESTEL analysis. First, it is important to get a group of people together from different areas of the business and brainstorm.
Next, you should consult with experts outside your company and get their opinion. This could be your customers, distributors, suppliers or consultants who know your company well.
In the third phase, you research and collect evidence for each finding in your analysis. Then you evaluate each item according to "probability", i.e. how likely it is to occur, and "impact", i.e. how much it could affect your business.
In the final phase, you refine your ideas and repeat the tests until you have a manageable number of points in each of the six categories.
What factors and areas of influence are analysed in a PESTEL analysis?
A PESTEL analysis is an important tool for analysing the external environment of a company and helps companies to better understand the opportunities and risks in their environment and to react accordingly. In this context, it is important to identify and assess the different factors and areas of influence in order to conduct a comprehensive analysis.
These determine the extent to which government and government policies can affect an organisation or a particular industry. These include trade, tax and levy policies.
An economic factor directly affects the economy and its performance, which in turn directly affects the organisation and its profitability. Factors include interest rates, employment or unemployment rates, commodity costs and exchange rates.
The focus here is on the social environment and identifying new trends. This helps you as an entrepreneur to understand the needs and wants of consumers in a social environment. Factors include changing family demographics, education levels, cultural trends, attitude changes and lifestyle changes.
Technological factors consider the pace of technological innovation and development that may affect a market or industry. Factors include changes in digital or mobile technology, automation, research and development. There is often a tendency to focus only on developments in digital technology, but new distribution, manufacturing and logistics methods also need to be considered.
Environmental factors are factors that are influenced by the environment and the impact of ecological aspects. With the increasing importance of CSR (Corporate Sustainability Responsibility) and sustainability, this element is becoming more and more the focus of corporate action. Factors include climate, recycling practices, carbon footprint, waste management and sustainability.
Your organisation needs to know what is legal and permitted in the areas where it operates. You also need to be aware of any changes in the law and how they affect business. These factors include labour law, consumer law, health and safety, international and trade regulations and restrictions.
Political factors overlap with legal factors; however, the main difference is that political factors are driven by government policy, while legal factors need to be considered.
PESTEL analysis: Examples of factors
Here are some examples of a PESTEL analysis and its factors that companies can use to analyse their environment and make strategic decisions:
- Political factors: Factors such as laws, regulations and political instability can be analysed here. For example, a company operating in a region with political instability might face difficulties in sourcing raw materials or exporting products.
- Economic factors: Factors such as interest rates, inflation, unemployment and exchange rates can be analysed here. For example, a company operating in an economy characterised by high inflation might have difficulty maintaining its prices and remaining profitable.
- Social factors: Factors such as demographic changes, cultural trends and consumer behaviours can be analysed here. For example, a company that makes products for the elderly might grow in the market if the population in that age group grows.
- Technological factors: Factors such as new technologies, innovations and automation can be analysed here. For example, a company that does not embrace new technologies could be left behind by competitors who use these technologies to improve their products or services.
- Environmental factors: Factors such as climate change, pollution and sustainability can be analysed here. For example, a company operating in heavy industry may need to respond to new rules and regulations to reduce CO2 emissions.
- Legal factors: Factors such as laws, regulations and legal frameworks can be analysed here. For example, a company operating in an industry characterised by strict regulations might face difficulties in introducing new products or expanding into new markets.
These examples are not exhaustive, but they show how a PESTEL analysis can be used to examine the various factors that can affect a company's environment.
PESTEL Analysis Template - Download Now!
Kenjo offers a PESTEL analysis template for download. The template can help companies better understand their environment and align their business strategies accordingly.
The template is easy to use and includes a checklist of political, economic, social, technological, environmental and legal factors that companies should consider. By using Kenjo's PESTEL analysis template, companies can save time and resources and make their strategic decisions on an informed basis. Download the template now!
Advantages of a PESTEL analysis
- It can provide advance warning of potential threats and opportunities
- It encourages organisations to consider the external environment in which they operate.
- The analysis can help organisations understand external trends.
Disadvantages of a PESTEL analysis
- Many researchers argue that the model is a simple list that is not sufficient and comprehensive
- The main disadvantage of the model is that it is based only on an assessment of the external environment
Alternatives to PESTEL analysis
There are a number of alternatives to PESTEL analysis that companies can use to analyse their environment and make strategic decisions. Some of the most popular alternatives are:
- SWOT analysis: SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) is a commonly used method to analyse a company's internal strengths and weaknesses as well as external opportunities and threats.
- Five Forces Analysis: The Five Forces Analysis is a method for analysing the intensity of competition in an industry. It looks at the threat of new competitors, the bargaining power of customers and suppliers, and the threat of substitute products.
- Scenario analysis: Scenario analysis is a method for evaluating alternatives and possible future developments. It assumes that there are various possible future scenarios and examines them systematically.
- STEEP analysis: STEEP analysis (Social, Technological, Economic, Environmental, Political) is an extension of PESTEL analysis that also takes social and technological factors into account.
- Customer analysis: Customer analysis can help to understand the needs, wants and behaviours of customers and make decisions based on these.
- Market research: Market research can help to gather and analyse information about the market, the competition and the target group.
The choice of the appropriate method of analysis depends on the specific requirements and objectives of the company. It can also be useful to combine several methods to get a comprehensive picture of the environment.
This is how Kenjo can help you with the analysis of your business field
Kenjo is an innovative company that offers a wide range of human resource management solutions. With their expertise and experience in the industry, Kenjo can help companies better understand their business environment and adapt their HR strategy accordingly. Kenjo provides a detailed analysis of the business environment using data collected from a variety of sources.
This enables companies to gain valuable insights and align their HR strategy with the needs of their employees and customers. With Kenjo, companies can optimise their HR management and run their business successfully. If you want to know how to successfully conduct a PESTEL analysis, you should book a demo with our experts today.
We would like to emphasise that all content on our website, including possible legal contributions, is for general information purposes only and does not constitute legal advice in the strict sense. The information provided is not a substitute for personal and binding legal advice tailored to your individual situation. We do not assume any liability for the correctness, completeness and up-to-dateness of the information provided.