Ads

How to do a PESTEL analysis

A PESTEL analysis explores the threats and opportunities a firm faces. These result from the Political, Economic, Social (or Socio-Economic), Technological, Environmental and Legal changes occurring in its competitive environment.

It is often termed a macro-scanning tool. This is because it involves looking a the big-picture long-term changes in the environment.

Political


The Political sector includes any government, parastatal and special interest group actions or lobbying in the form of policy, taxes and duties. It is important to understand the political agenda and how it might move for or against certain industries or practices.

This might include:
  • 'positive' moves such as the subsidies offered for alternative green energy production, or
  • 'negative' moves such as increasing taxes on alcohol or tobacco.
Depending on your firm, it may be important to consider both domestic policy as well as international policy, trade policy and pressure groups.

Quick checklist


  • Government policy
  • Political harmony/conflict and stability/instability
  • Elections and coalitions
  • Foreign trade policy
  • Tax policy
  • Labour laws
  • Terrorism, war and other military considerations
  • Environmental laws
  • Funding grants and initiatives
  • Trade restrictions
  • Fiscal policy

(See, for example, Three different regulatory responses and their impact on industry.)

Economic


The Economic sector includes the general economic environment and the effects that this might have on customers, distributors and suppliers.

In conducting your analysis, it is important to distinguish between
  • long-term trends and structural issues, and
  • seasonal or cyclical issues.

Quick checklist


  • Economic growth (e.g. GDP)
  • Interest rates
  • Exchange rates
  • Inflation
  • Disposable income of consumers and businesses
  • Taxation
  • Wage rates
  • Employment/unemployment rates
  • Financial markets
  • Property prices
  • Commodity prices
  • Availability of finance
  • Supply and demand factors

These might operate in aggregate or on a sector-specific basis.

Internationally, you might also consider:
  • import/export conditions,
  • foreign exchange conditions, and
  • trade deficits/surpluses.

Social


The Social sector considers changes in social preferences and norms. This is sometimes also called the Socio-Economic or Socio-Cultural sector.

Quick checklist


  • Demographics, including
    • Population growth
    • Population age distribution
  • Family size and dynamics
  • Living standards
  • Ethnic and religious view and norms
  • Health and health consciousness
  • Education standards
  • Career choices and attitudes
  • Work patterns and preferences
  • Customer preferences and buying trends
  • Leisure activities and lifestyles
  • Cultural trends
  • Fashion trends and fads
  • Industrial reviews and consumer confidence
  • Organisational image


Technological


The Technological sector considers the impact of all forms of technological development and innovation.

This could include
  • manufacturing, production and transportation technologies, as well as
  • the use of technology in coordinating and communicating activities both upstream and downstream in the supply chain.
The development of information technologies, including the internet and associated technologies such as mobile access is obviously a major factor here. You should consider both the consumer and business-to-business applications of this. But you should also consider improvement in manufacturing processes, materials, energy and transportation.

Quick checklist

  • Research and development capability and pipelines,
  • Producing goods and services
  • Distributing goods and services
  • Emerging technologies
  • Technological maturity and obsolescence
  • Target market communication
  • Copyright or patent protection for intellectual property ("IP"), and their efficacy
  • Increased training required to use new technologies
  • Potential return on investment from new technologies

Environmental


The Environmental sector has become increasingly important in recent years as stakeholders have become more conscious of man's impact on the natural environment.

Consider:
  • changes and opportunities throughout the value chain which could impact the environment, including, and
  • opportunities to communicate what the organisation is doing about them more effectively.

Quick checklist


  • The availability of raw materials
  • Pollution and greenhouse gas emissions
  • Positive business ethics and sustainability
  • Carbon footprint
  • Climate and weather
  • Renewable energy, waste management and recycling
  • Environmental legislation
  • Geographic location and accessibility


Legal


Finally, the Legal sector looks at changes in laws, lawsuits and regulations which affect the business. These can be general changes in the industry, or specific lawsuits or regulatory interventions or sanctions which the business is facing.

Quick checklist


  • Health and safety regulations
  • Equal opportunities laws
  • Advertising standards rules
  • Consumer rights and protections
  • Privacy and data protection laws
  • Product labelling requirements
  • Product safety requirements
  • Safety standards
  • Employment/labour laws
  • Anti-trust laws
  • Copyright, patent, intellectual laws


Variations


There are countless varieties of the traditional PESTEL analysis, such as PESTLE, PESTLIED, STEEPLE, SLEPT, STEPE and even just PEST, with the additional letter variously standing for Ethical, Labour, International, Demographic, etc. The existence of all of these variations drives home the fact that it does not really matter which words and letters you use as long as you have a systematic review of the competitive environment.

Do it well!


PESTEL analysis, like SWOT analysis is frequently criticised. Usually, this is usually on the basis of an analysis that has been done poorly. For example, PESTEL analysis often degenerates into long lists of 'things' without context, relevance or evidence. Don't fall into that trap. If you do, most of the time you spend doing PESTEL analysis will be wasted.

As you work through each quadrant, it is important to identify and document:
  • What is happening or could happen.
  • What is or could be the impact on your firm/division/department. (That is, be sure to answer the proverbial "So what?" question.)
  • What evidence you have to support this assessment.
A good way to express something on a PESTEL would be along the lines of:
X could/will/is caus(e/ing)/lead(ing) to Y (which leads to Z)
with evidence provided in supporting paragraphs and charts. 
Depending on how thorough you are being, you could also try to quantify the likelihood and impact of various levels of change happening, and the time frames over which they might happen.

Finally, you should consider the environmental signals you intend to monitor to stay abreast of any changes, or the actions you might take to influence the outcomes (such as joining an industry or policy group and or lobbying for changes).

The PESTEL analysis is an essential strategy analysis tool for any strategist's toolkit. It is particularly powerful when used in conjunction with a Porter's 5 Forces analysis to identify the threats and opportunities a firm faces as part of a SWOT analysis. A PESTEL analysis is also vital input to Scenario Planning.

You can build a PESTEL analysis, alone or with a team, using StratNavApp.com, the online collaborative tool for business strategy development and execution.

No comments:

Post a comment