The PEST(EL) analysis explained

Table of Contents:

  1. When and why should I use a PEST(EL) analysis?
  2. Components of the PEST(EL) analysis
  3. What are the steps to making a PEST(EL) analysis?

When and why should I conduct a PEST(EL) analysis?

A PEST(EL) analysis can be used as part of a SWOT analysis: it helps you identify the relevant opportunities and threats in your environment. Both PESTEL and SWOT are great tools to use in preparation for a strategic planning process.

A PEST(EL) analysis can also form the basis for scenario planning and ensures you take the context into account when developing your OGSM with OGSM Software.

What are the components of a PEST(EL) analysis?

The PEST(EL) analysis is used to evaluate the macro-environmental factors that have an impact on an organisation or business plan. This analysis helps organisations identify different threats and weaknesses that can later be added to a SWOT analysis

PEST(EL) is short for political, Economic, Social, Technological (plus, optionally, Environmental and Legal) factors.

Political factors: Policies of the countries where the company operates, trades and sources; government stability and changes in legislation and international agreements.

Economic factors: How the national and international economic environment may affect the organisation. For example, labour availability, interest rates, inflation, logistics costs, among others.

Sociological factors: Geographic movements of consumers and changes in their consumption habits. For example, personal values, religious beliefs and lifestyle preferences.

Technological factors: Technological innovations that may impact a company’s products or services. For example, machine learning, digitalisation and remote working, new manufacturing processes, among others.

Environmental factors: These concern environmental requirements, such as sustainability norms, climate adaptivity and energy/resource consumption.

Legal factors: Changes in regulations, applicability of various laws, liability.

Pest Analysis

What are the steps to making a PEST(EL) analysis?

  • First, gather information on all relevant dimensions of the analysis. You can use, for example, government reports, trusted news sources, trade magazines, trend watchers and academic research.
  • Identify the opportunities: what macro developments can benefit your company?
  • Identify the threats: what macro developments can hurt your company?
  • Combine your PEST(EL) analysis with a BCG matrix to complete the preparation for your your SWOT analysis.