There are loads of business analysis tools out there, but the PESTEL model, also called PESTEL analysis, is one of our favorites. The PESTEL model is a type of PEST analysis which considers six crucial business factors. The six categories are:
- Political
- Economic
- Sociocultural
- Technological
- Environmental
- Legal
Although it may seem simple at first sight, there's a lot of confusion surrounding the PESTEL model for business analysis — what is it, how does it work, and why bother? We'll answer those questions, and plenty more, in this complete guide to the PESTEL model.
What Is the PESTEL Model?
The PESTEL model is an extremely popular business analysis model, which is used in a tool called PEST or PESTEL analysis. By now, you must be wondering what the difference is between all these terms. To make your life easier, here are the definitions you need to know:
- PEST analysis is a business analysis tool that considers the Political, Economic, Sociocultural, and Technological factors affecting a business.
- PESTEL analysis is a variation of PEST analysis that takes into account two extra factors: the Environmental and Legal ones.
- The PESTEL model is the name given to the six categories used in PESTEL analysis. Most often, the two terms are used interchangeably given how similar they are.
- The acronyms PESTLE and PESTEL refer to the same thing. As such, PESTLE analysis is the same as PESTEL analysis, and the PESTLE model is the same as the PESTEL model.
With the semantics out of the way, let's dive into the PESTEL model itself. The PESTEL model takes into account the six most important factors affecting a business or individual venture. The cool thing about the PESTEL model, unlike other business analysis models, is that it can also be used to analyze an entire market or industry. It's not just limited to analyzing businesses, in the same way SWOT analysis is.
The Six PESTEL Factors
To really understand the PESTEL model, you need to dive into each individual factor. That's what we'll do in this section:
- Political
The political factors affecting a business include trade policies, workforce regulations, and various other government legislations. If you want your business to stay within the bounds of the law, these political factors are seriously important.
- Economic
The economic factors affecting a business refer to the economy in which it operates. Individual factors include Gross Domestic Product (a measure of the value of goods and services exchanged in a country), exchange rates, and inflation. Economic factors affect all sorts of businesses, but they're most important for financial ones.
- Sociocultural
The sociocultural factors affecting a business — sometimes just called the social factors — relate to the society and culture in a given area, especially in how that can affect business. Two great examples of sociocultural factors are consumer spending (in some areas, consumers spend more or less money than in others) and demographics (like population, ethnicity breakdown, and gender prevalence).
- Technological
The technological factors affecting a business include the rise of new technologies (such as robotics), as well as the prevalence of infrastructure for slightly older ones. Particular important technological factors include internet access, cellphone prominence, and automation.
- Environmental
The environmental factors affecting a business are more significant than ever, considering the toll we are taking on planet Earth. Many environmental factors are somehow related to global warming, such as climate change, pollution, and supply of natural resources.
- Legal
The legal factors affecting a business very often overlap with political factors. Nevertheless, they make the "PESTEL" acronym easier to read, and so they're worth mentioning. These include trade, consumer, and copyright laws, which usually relate to political decisions.
Who Should Use the PESTEL Model and Why?
Like with other business tools, there's a lot of doubt on which you should choose. You may be wondering who should use the PESTEL model and why they would do so, and we'll answer those two questions in this section.
Like other PEST-based business analysis tools, the PESTEL model serves to give you a complete insight into the factors that could affect a given business, venture, market, or industry. In fact, the PESTEL model forces you to think about what could affect your business. This is important because it will allow your business to 1) spot bad decisions before you make them, and 2) optimize your business strategy. Ultimately, that means less money wasted and more money earned.
Now that's a very business-centric perspective. As we mentioned earlier, the PESTEL model — unlike other business analysis models — is just as good for analyzing entire markets as it is individual businesses. This means that governments and reporting agents alike can use the PESTEL model to better understand and plan for individual markets.
When to Use the PESTEL Model
Like other business analysis tools: the earlier you use the PESTEL model, the better. If you conduct PESTLE analysis early-on, you can be sure you won't make too many bad decisions and your business strategy will be pretty well-optimized.
However, like with planting trees, it's never too late to refer to the PESTEL model. Even if you have an existing business model, you can (and should!) regularly conduct PESTEL analysis to see how the market has changed and whether you're still taking the optimal approach. For large firms with plenty of resources, PESTEL analysis should really be used on an annual basis, since there's nothing to lose. For smaller organizations, it should suffice to use PESTEL analysis once every few years.
Final Thoughts
There you have it: the PESTEL model for business analysis explained in under five minutes. As we mentioned earlier, the PESTEL model is the same framework used in PESTLE analysis. It takes into account all of the political, economic, sociocultural, technological, environmental, and legal factors affecting a business, and thus gives powerful insight into the surrounding business environment.
If you're interested in using the PESTEL model yourself, we highly suggest you read our article The Quick Guide to PESTEL Analysis, where we go into more depth on the different PESTEL factors and how they can affect your business.
