The business world is constantly changing, and it's important for businesses to be able to analyze their environment and make changes accordingly. One tool that can help with this is the PESTLE analysis tool. This tool can help you assess your business environment by looking at six factors: political, economic, social, technological, legal, and environmental. Let's take a closer look at each of these factors.
The details of each of the six PESTEL factors (Political, Economic, Social, Technological, Environmental, and Legal) are broken down below. The conclusions drawn from a PESTEL analysis may be utilized in other strategic frameworks such as SWOT Analysis and Porter's 5 Forces where relevant.
1) Political Factors
When you examine political variables, you're considering how government policy and activities affect the economy as well as other elements that may influence a company. The following are some of them:
Elections
Cold-war
Trade Restrictions
Tariffs
Bureaucracy
2) Economic Factors
Economic Factors consider a number of variables in the economy, as well as how various parts of the economy may influence your company. Central Banks and other government agencies frequently track and publish these economic indicators. The following are some examples:
GDP value and growth rate
Taxation
Interest Rates
Exchange Rates
Inflation
Consumer Price Index (CPI)
Unemployment Rates
3) Social Factors
The PESTEL analysis takes into account sociological aspects that are linked to society's cultural and demographic changes. The influence of social norms and pressures on consumer choice is critical in determining consumer behavior. The following factors must be considered:
Cultural Aspects & Perceptions
Eating Habits
Festivals
Religion
4) Technological Factors
Technological elements are related to innovation in the sector and the overall economy. Being unaware of current industry trends might be detrimental to a company's operations. The following are examples of technological components:
Internet connectivity
Automation
5) Environmental Factors
These factors have little to do with the company's actual operations, such as climate, pollution, weather, and environmental regulations. The company might have to spend money on green technologies, or it may be affected by government regulations. Key environmental factors include the following:
Waste Treatment
Usage of raw materials
Temperature
Climate Change
Pollution
Natural disasters (tsunami, tornadoes, etc.)
6) Legal Factors
The distinction between political and legal variables is frequently unclear in the context of a PESTEL analysis. Legal factors are concerned with any legal forces that restrict or enable a company's activities. Legal factors include the following:
Industry Regulation
Licenses & Permits
Labor Laws
Concluding thoughts
The PESTEL framework is an important strategic tool for understanding the macroenvironment in which your business operates. By taking into account all of the factors that can impact your business, you are able to make more informed decisions about where to allocate resources and how best to respond to changes in the environment. For example, if you notice a significant change in one of the PESTEL factors (e.g., a new law that affects your industry), you can use this information in the SWOT analysis and develop strategies specifically tailored to address the new challenge. As another example, if there is an impending recession and it will have a negative effect on your sales, you may want to consider cutting costs or increasing prices.
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