A (Steepl) PESTEL analysis is an acronym for a tool used to identify the macro (external) forces facing an

organisation. The letters stand for Political, Economic, Social, Technological, Environmental and Legal. In
this blog, we will look at what a PESTEL analysis is used for as well as the advantages and disadvantages
of using it in a business setting.

In marketing, before any kind of strategy or tactical plan can be implemented, it is fundamental to
conduct a full situational analysis. This analysis should be repeated every six months to identify any
changes in the macro-environment. Organisations that successfully monitor and respond to changes in
the macro-environment can differentiate from the competition and thus have a competitive advantage
over others.

The framework is also used to identify potential threats and weaknesses which are used in a SWOT
Analysis when identifying any strengths, weaknesses, opportunities and threats to a business.

Let’s look at each element of a PESTEL analysis.

Political Factors:

These determine the extent to which government and government policy may impact on an organisation
or a specific industry. This would include political policy and stability as well as trade, fiscal and taxation
policies too.

Economic Factors:

An economic factor has a direct impact on the economy and its performance, which in turn directly
impacts on the organisation and its profitability. Factors include interest rates, employment or
unemployment rates, raw material costs and foreign exchange rates.

Social Factors:

The focus here is on the social environment and identifying emerging trends. This helps a marketer to
further understand consumer needs and wants in a social setting. Factors include changing family
demographics, education levels, cultural trends, attitude changes and changes in lifestyles.

Technological Factors

Technological factors consider the rate of technological innovation and development that could affect a
market or industry. Factors could include changes in digital or mobile technology, automation, research
and development. There is often a tendency to focus on developments only in digital technology, but
consideration must also be given to new methods of distribution, manufacturing and logistics.
Environmental Factors

Environmental factors are those that are influenced of the surrounding environment and the impact of
ecological aspects. With the rise in importance of CSR (Corporate Sustainability Responsibility) and
sustainability, this element is becoming more central to how organisations need to conduct their
business. Factors include climate, recycling procedures, carbon footprint, waste disposal and
sustainability

Legal Factors

An organisation must understand what is legal and allowed within the territories they operate in. They
also must be aware of any change in legislation and the impact this may have on business operations.
Factors include employment legislation, consumer law, healthy and safety, international as well as trade
regulation and restrictions.

Political factors do cross over with legal factors; however, the key difference is that political factors are
led by government policy, whereas legal factors must be complied with.

How to do a PESTEL Analysis?

There are several steps involved when undertaking a PESTEL analysis. At first, it is important to get a
group of people together from different areas of the business and brainstorm ideas.

Next, you will want to consult and seek the opinions of experts from outside your business. These could
be your customers, distributors, suppliers or consultants who know your business well.

The third stage will involve you researching and gathering evidence for each insight in your Analysis.
Then you will want to evaluate and score each of the items for ‘likelihood’; how likely it is to happen and
‘impact’; how big an impact it could have on your business.

The final stage involves refining your ideas and repeating the proves until you have a manageable
number of points in each of the six categories.
Advantages and Disadvantages of a PESTEL Analysis

It is an essential analysis tool for any strategist’s toolkit but there are some benefits and challenges
associated with it.

Advantages of a PESTEL Analysis:

It can provide an advance warning of potential threats and opportunities

It encourages businesses to consider the external environment in which they operate

The analysis can help organisations understand external trends

Disadvantages of a PESTEL Analysis:

Many researchers argued that simplicity of the model that it is a simple list which is not sufficient and
comprehensive

The most significant disadvantage of the model is it is only based on an assessment of the external
environment

Final Thoughts

A PESTEL analysis helps an organisation identify the external forces that could impact their market and
analyse how they could directly impact their business. It’s important when undertaking suc