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PESTEL analysis is a strategic tool primarily used in business analysis. It helps analysts make executive decisions regarding a product, business, or concept, by highlighting factors that may affect its potential success.
PESTEL requires no bells or whistles — just research, time, and dedication to understanding your topic from all angles. It begins by understanding the categories.
The Six Categories
PESTEL is broken down into six categories referencing factors which can or will affect the topic chosen for the analysis.
Business analysts will use this form of PESTEL analysis, or its brethrens: PEST analysis or PESTLE analysis.
PEST follows the first four categories and excludes ‘environmental’ and ‘legal’ factors. PESTLE includes all categories, but swaps the ‘E’ and ‘L’ (environmental and legal factors) around.
PESTEL analysis helps to identify key factors to acknowledge, understand, and potentially use to your advantage. But you can’t change them at a whim.
What exactly do the categories in PESTEL analysis consist of? Each is unique and offers a broad understanding related to factors involving politics, economy, social traits, tech uses, environment, and legalities.
Political factors: Politics, politicians, government — both local and national — and laws created by these ruling parties are considered here. This category can sometimes combine laws (from the legal group) since government and their bills are closely linked.
- Taxation policies
- Trade traffics
- Labor regulations
- Health & Safety
- Environmental laws
- Education laws
Economic factors: Goods, services, monetary value, currency, and the economy are affected by economic factors. Any business or product will be affected by general economic factors.
- Exchange rates
Sociocultural factors: Sometimes referred to as ‘social’ factors, this category focuses on buying behavior and how consumer needs can affect the value and necessity of a product or service.
- Cultural differences
Technological factors: Technology is continuously evolving — and not just digital technology, although the use of applications, websites, and similar products are on the rise. But even technology related to manufacturing, distributing, or communicating with consumers/employees must be considered too.
- Wireless internet
- 3D printing
Environmental factors: Sometimes referred to as ‘ecological’ factors. They discuss physical changes. Think less of the workplace environment — which would apply to communication amongst employees — and more about the way in which locations are affected.
- Climate change
- Solar power
Legal factors: The ways in which particular laws may affect business, idea, or concepts. They’re created by the government, which is why they are sometimes weaved within the political section of PESTEL analysis. But the regulations here focus on the well-being of the consumers or society rather than benefiting the agencies who crafted the laws.
Why use PESTEL Analysis?
When you go through each of the six categories and apply the research to your business, product, or concept, you will understand what is standing in the way of its success.
You can’t override copyright laws, just as you can’t lower taxes or inflation rates. But you can understand what percentage of taxes will cost your business each quarter. Or what it means for the economy, as a whole, if inflation rates skyrocket.
With this understanding in place, you can use it to your advantage. Especially compared to competitors who don’t use PESTEL analysis.