The PEST(EL) analysis explained
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.
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.
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.