What is PESTEL analysis?
How to grow a business? What tool is considered essential to progress within the industry in which it operates? Read on as we focus on the well-known PESTEL Analysis, a solution to highlight what could impact the company's future, allowing for anticipation and the search for alternatives and/or solutions.
‘Political, Economic, Social, Technological, Environmental, and Legal’.
These words correspond to the acronym PESTEL, the name given to this tool that we will explore below. PESTEL analysis – also known as PEST – is a solution included in the strategic sphere, typical of the business intelligence area of companies and organizations. It is a ‘formula’ that should be essential knowledge for entrepreneurs and professionals developing their careers in business management and administration.
What is PESTEL analysis?
How can this concept be defined? What is PESTEL analysis? It is a strategy aligned with financial models and planning methods that allows the creation of a map with the key factors defining a specific industry. Figures in motion, revenue, users, audience, companies operating in the same sector… These and other pieces of information provide a macro view of a specific area within the markets.
PESTEL should be included in the same group as other frameworks such as SWOT, Canva analysis, or Porter’s Five Forces. These are tools put into practice by entrepreneurs, business owners, managers, and corporate directors, whether in SMEs or large companies.
What is PESTEL analysis used for?
The framework is highly productive for achieving specific objectives. Below are several aspects that define what PESTEL analysis is used for at an organizational level:
1. Make informed decisions
When a brand wants to move in one direction or another, it is important to consider what is happening in its sector, the landscape, and trends related to its target audience. Using PESTEL analysis greatly aids in this.
2. Evaluate threats and opportunities
That is, what works against the company and what current factors are favorable for the business, enabling the making of certain decisions or pausing changes that may be underway.
3. Identify external influencing factors
This is very important as it allows managers and administrators to anticipate possible market risks and, therefore, stay ahead of potential developments.
4. Anticipate a constantly changing environment
Linked to point 3, this fourth item highlights that one of the purposes of PESTEL Analysis is to anticipate and understand changes occurring in the world and how they would affect the industry and, consequently, the company.
5. Establish medium- and long-term plans
Having up-to-date information on how events unfold and how developments progress concerning the target audience and the market is crucial for planning objectives and strategies to achieve them.
6. Manage new regulations and legislation
It facilitates compliance with new laws and rules that are implemented and affect the company.
PESTEL analysis factors
These are the six factors mentioned at the beginning of the article that give this strategy its name: Political, Economic, Social, Technological, Environmental, Legal.
- Political: government situation, measures related to businesses and the economy, international agreements, etc.
- Economic: country’s financial health, state economic growth, inflation, employment/unemployment, among others.
- Social: population, average age, lifestyle, consumption habits, and trends regarding products/services…
- Technological: innovations that help or affect the company’s activities (e.g., when e-commerce became popular, or now in the AI era).
- Environmental: natural disasters, environmental risks, specific policies related to this area, etc.
- Legal: labor safety regulations, health regulations, usage licenses, copyright, and countless other laws that could affect a business or sector.
Advantages of PESTEL analysis
How does a company benefit from this framework? What are the advantages of PESTEL analysis that make it so renowned in business management?
- Anticipate events that may affect the company.
- Improve corporate decision-making.
- Identify new business opportunities.
- Optimize business strategy and medium- and long-term plans.
- Increase the company’s adaptability to the market.
How to perform a PESTEL analysis step by step
Now it’s time to get practical. It is important to note that this tool should be applied by professionals who know it and have experience in its execution, as it is essential to understand how to conduct a PESTEL analysis for it to be truly effective.
- 1º Template in hand and a defined team to start the work.
- 2º Determine each of the PESTEL factors: economic and political aspects that could influence a company’s activity, audience-related situations, social and cultural factors defining your target, technological advancements that may impact the brand positively/negatively, environmental changes, and current or upcoming legislation and regulations.
With all this information organized in the PESTEL analysis template, with free downloadable versions available online, it is time to study the findings. That would be the third step.
- 3º Study the sector reality and the company’s position within that context.
- 4º Make decisions if necessary. Whether the goal is to move forward and grow or to pause certain projects based on current developments. This information is obtained after preparing the PESTEL analysis.
Examples of PESTEL analysis
The practical part is crucial to better understand this concept, which is why we include PESTEL analysis examples below.
- Nike: the sportswear and footwear manufacturer, when entering a new market, must consider the country’s regulations and legislation, consumer preferences and buying habits, economic factors such as taxes and transport costs… These are some PESTEL analysis factors to evaluate.
- Grupo Bimbo: the food company must consider current regulations and laws related to the agri-food sector, changes in consumer behavior, consumer preferences when launching marketing and communication messages, the socio-economic situation of the state where they operate, and many other factors to consider.
It is essential that professionals implementing this strategic tool fully understand what PESTEL analysis is and which factors are key. Educational programs at EAE Barcelona – including the Master in Entrepreneurship and the Executive MBA – include matrices like this in management, strategy, and business intelligence courses.
