What a PESTEL Analysis is, how to do it and examples

To strategically plan and make decisions, it is important for organizations to have an understanding of the external business environment. PESTEL analysis is one of the best ways to achieve this. It allows businesses to assess macro-environmental factors that may impact them.  

What is a PESTEL analysis? How can it be conducted? What are some examples of PESTEL analysis? These are the questions this post will answer. 

We will also discuss ESIC University’s Bachelor’s Degree in Digital Business as the best choice for those who want a career in digital businesses. 

What is a PESTEL Analysis? 

A PESTEL analysis studies the Political, Economic, Social, Technological, Environmental and Legal factors that can influence an organization. This acronym represents a strategic framework which helps an organization understand its external environment.  

Companies can use these six groups systematically while considering opportunities and threats within their macro environment more effectively using this method. 

Political factors 

Government factors include policies, regulations and political stability that affect business organizations. They can change tax policies, set up trade barriers or tariffs and make labor laws among others. For example, when there is a change in regime, new policies may be enacted which could favor some businesses while being disadvantageous to others. It is important for firms to be aware of what goes on politically so they can predict and handle changes appropriately. 

Economic factors 

Some economic factors are inflation rates, interest rates, exchange rates, economic growth rate and unemployment levels. These are the most influential decisive factors of consumer purchasing power and the cost of doing business. For instance, during a recession, people usually have low available incomes, which leads to reduced sales volumes for many firms. For this reason, enterprises need to evaluate different economic indices to be able to reposition themselves strategically when necessary. 

Social aspects 

The word social refers to all aspects related to society or its organization; this can include changes in the population structure, cultural beliefs and practices as well as population growth rates. These factors indicate what customers want and thus, the type of goods they demand from the market.  

For instance, an increase in the number of elderly people might lead to a higher need for healthcare products. Businesses should be aware of current events within communities since it also means that clients’ needs are changing. 

Technological factors 

These relate to changes brought about by inventions or innovations such as technological advancements and how quickly they occur, etc. which can either facilitate operations in any industry or make it impossible for them to survive competition in those sectors.  

For example, among other things, e-commerce has had a huge impact on retailing. Following technology trends enables companies to come up with new ways of doing things that enhance their performance levels on various platforms. 

Environmental factors 

These may include ecological factors, global warming, sustainability or environmental regulations and  have become more important nowadays, as business are being asked to  go green worldwide, which is recommended as the best solution for a better planet.  

Even organizations can come up with their own brands beyond these requirements. 

Legal aspects 

As we now know, there are many ways in which management can be affected by the justice system. This may be called legal considerations in human resource management and marketing strategy development. They include employment laws such as safety standards at work, among others, which form part of legislation that protects consumer rights, for example, antitrust laws. 

If a company is found guilty within its jurisdiction (and not outside it) where it should have done things differently according to what can be referred legally, it will have to faec  many lawsuits until heavy fines are imposed on them. That’s why organizations should stay awake because failure brings individual litigations against them when people feel aggrieved during such periods. 

How to perform a PESTEL Analysis 

The steps that make up any PESTEL analysis are: 

• Identify the factors of interest. Determine which political, economic, social, technological, environmental and legal issues are relevant in the context of your organization. 

• Get data. Gather information about these factors from credible sources. 

• Study the influence. Assess how each factor impacts on your business as well as its operational processes. 

• Consider the consequences. Establish what threats or opportunities may arise due to those factors. 

• Come up with strategies. Plan what should be done to take advantage of identified opportunities while mitigating against highlighted threats through the discovery process. 

PESTEL Analysis examples 

When a tech firm enters new markets, it might take the following form: 

• Political: government policies that encourage technological progress 

• Economic: strong consumer buying power and rapid economic development 

• Sociocultural: increasing demand among young people for technology devices 

• Technological: fast-growing artificial intelligence (AI) and machine learning (ML) 

• Environmental: development of sustainable tech products and e-waste management etc. 

• Legal: strict data protection legislation relating to privacy rights over personal identifiable information (PII) etc. 

If you want to know more about the most recent intricate digital business, don’t look any further than ESIC University.  

Students are awarded diplomas on electronic commerce, as well as in other courses that reflect their understanding of online transactions and also open their eyes to the fact that career paths change with technological advancements. 

If you are interested in delving deeper into theory of constraints, we encourage you to learn more about our Bachelor’s Degree Program in Digital Business.