How should we plan for the future? In which country should we invest? Which country poses the highest risk to our business?
These are only some of the questions that a PESTEL analysis framework can answer. Related closely to a PEST analysis or a STEEP analysis, the PESTEL framework is a key element in developing a successful market strategy and in understanding critical macro-environment trends to inform an organization’s growth and success. The analysis is used to map out the macro-environment of an organization across six factors, and to determine the impact each of the forces currently has or may have on its growth and profitability over time.
How is the PESTEL framework used?
By evaluating an external market situation, a PESTEL analysis can be used by management teams or other corporate stakeholders to aid in their strategic planning efforts, including supporting initiatives such as entering a new foreign market or developing an innovative market-based product. It can also be used as a risk analysis or due diligence tool by companies operating at a global scale. This allows an organization to remain informed about all the external markets impacting their business so that it can ensure continued compliance and respond quickly to changes when they arise.
It is also important to note that a PESTEL analysis has a one-way effect on an organization, meaning that each of the external factors directly impacts an organization, but the organization has no influence over any of the factors in turn.
What does the PESTEL framework analyze?
A PESTEL framework is comprised of six macro-environmental factors:
- Political factors: These factors are largely driven by government policies and actions, and the degree to which the government can intervene in the economy or certain industry the organization is currently operating in. Examples: Government policy, political (in)stability, corruption, foreign trade, tax policies, import/export restrictions, free trade disputes.
- Economic factors: These factors, largely financial and quantifiable, are related to the broader economy and an economy’s performance. They may have a direct or indirect long-term effect on an organization as they impact an economy’s supply-demand dynamics and directly affect the purchasing power of consumers. Examples: Economic growth, exchange rates, inflation rates, interest rates, consumers’ disposable income, unemployment rates, strikes.
- Social factors: Unlike economic factors, social factors are more qualitative in nature and are difficult to quantify and define. They can be sub-categorized into demographic factors and inter(cultural) factors. Demographic factors describe the characteristics of a population, while inter(cultural) factors are related more to a population’s customs, values, and lifestyles that may have a direct impact on commercial activity and purchasing behavior. These factors can also describe the characteristics of a specific workforce and its expectations and willingness to work under certain conditions. Examples: Population growth rate, age distribution, income levels, attitudes towards careers, health, lifestyle, and cultural barriers, consumer behavior.
- Technological factors: With the rapid pace of innovation and technological disruption in today’s business landscape, technological factors are one of the most important to consider as they can greatly impact an organization or entire industry. Over the last decades, we have seen technology completely transform and revolutionize the way many businesses and industries operate, therefore it is crucial to monitor how this continued innovation will shape the future. Examples: Technology incentives, technological awareness, R&D activities, level of innovation, automation, cybersecurity, technology infrastructure (e.g. 5G, IoT/IIoT, robotics).
- Environmental factors: Environmental factors have increasingly emerged in recent years due to a growing awareness of the potential impact, risks and opportunities they present for organizations. Governments and NGOs continue to place pressure on businesses to consider their carbon footprint, the increasing scarcity of raw materials, and the importance of climate action in their operations. Organizations that do not prioritize sustainable practices and focus on corporate social responsibility may face backlash. Examples: Climate change impacts, carbon footprint, extreme weather events/natural disasters, scarcity of natural resources.
- Legal factors: While these factors may overlap with political factors, they focus more on specific laws and changes to the regulatory environment. To operate successfully and lawfully, it is vital for organizations to understand the legal environment of the market or industry they are competing in, and monitor or maintain awareness of potential changes in legislation that would directly impact the business. This is especially crucial for organizations operating at a global scale, as each country has their own rules and regulations, which may change at different times/rates. Examples: Discrimination laws, employment laws, antitrust laws, consumer protection laws, health and safety laws.
Combined, the above factors provide a holistic overview of an organization’s external environment and if executed properly, can have a profound impact on a company’s strategic planning, market entry, and market analysis. It should be noted that while the factors that could be listed under each category are limitless, organizations should identify and prioritize the factors that represent the most immediate or impactful opportunities and threats to their operations. This would enable the firm to plan and act accordingly on the most essential items.
Using PESTEL at HelloInfo
HelloInfo recently conducted a PESTEL analysis to support a grocery wholesale client in understanding what their market environment might look like in 2030. The client commissioned HelloInfo to support in this work in an effort to inform the development of the company’s next corporate strategic plan.
As part of this analysis, HelloInfo conducted deep research to understand what thought leaders see as forthcoming megatrends, and to identify the impact that these megatrends will have on macroeconomic and macroenvironmental trends in the grocery industry. Factors such as aging populations, increased use of automation in grocery distribution, labor shortages, energy transition, and economy shifts all are expected to have a direct impact on what retail grocery stores, and grocery consumers will look like in 2030. This seminal piece of research commissioned by HelloInfo’s client will prove to be greatly impactful for its strategic decision-making over the next decade.
HelloInfo can support your company to plan for the future
Performing an impactful PESTEL analysis requires thorough research, to gather as much information as possible about a company’s external macro-environment. To learn more about how HelloInfo can support you in this initiative and to arm your organization with insights for future strategic planning, schedule a call with us.