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.

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.

Pest Analysis

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?

  1. 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.
  2. Identify the opportunities: what macro developments can benefit your company?
  3. Identify the threats: what macro developments can hurt your company?
  4. Combine your PEST(EL) analysis with a BCG matrix to complete the preparation for your your SWOT analysis.