PESTEL analysis

(noun)

The PEST analysis is a political, economic, social, and technological analysis that describes the framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added legal and rearranged the mnemonic to SLEPT; inserting environmental factors expanded it to PESTEL or PESTLE, which is popular in the United Kingdom.

Related Terms

Examples of PESTEL analysis in the following topics:

  • Scanning and Analysis

    • One approach is the PEST analysis.
    • Of the four categories explored in the PEST analysis, the company has the least control over economic factors.
    • Two more factors, the environmental and legal factor, are defined within the PESTEL analysis (or PESTLE analysis).
    • The segmentation of the macro environment according to the six presented factors of the PESTEL analysis is the starting point of the global environmental analysis.
    • The six environmental factors of the PESTEL analysis are the following:

  • The PESTEL and SCP Frameworks

    • PESTEL and SCP frameworks are models for understanding different industry and market factors that impact strategic management.
    • A PESTEL analysis looks at the six most common macro-environmental factors to understand their interactions.
    • A PESTEL analysis is a useful strategic tool for understanding market growth or decline, business position, potential, and direction for operations.
    • Taken into account alongside the PESTEL framework, management should carefully consider and define the structure of a given industry.
    • Apply PESTEL and SCP frameworks to industries in which incumbents operate

  • PESTEL: A Framework for Considering Challenges

    • The PESTEL framework highlights six critical factors for management to consider when approaching the general business environment.
    • Encompassing a macro-environmental perspective, these factors can be effectively summarized with the acronym PESTEL.
    • Social factors could loosely be defined as a demographic analysis, where specific groups display preferences or tendencies that can be leveraged or that can threaten a given incumbent.
    • The last factor in PESTEL concerns legal elements, which can also be tied to the political framework.
    • Assess opportunities and threats within the context of external factors using the PESTEL framework

  • Global Strategy

    • For example, companies must now conduct a PESTEL analysis for each region in which they operate and recognize expense and competition deviations between regions.
    • Managers must conduct a cost/benefit analysis to identify which country actually offers the best profit potential.

  • Combining Internal and External Analyses

    • This internal analysis requires careful consideration of the following models and factors:
    • Combining these two constitutes context analysis, which is a method of analyzing the environment in which a business operates.
    • Context analysis considers the entire environment of a business, both internal and external.
    • Using context analysis, alongside the necessary external and internal inputs, companies are able to generate strategies which actively capitalize on this knowledge in pursuit of competitive advantage.
    • Here is an example of the SWOT analysis matrix, which arranges strengths, weaknesses, opportunities, and threats.

  • The Impact of External and Internal Factors on Strategy

    • Analysis of both internal factors and external conditions is central to creating effective strategy.
    • There are many effective models to discuss, measure, and analyze the external environment (such as Porter's Five Force, SWOT Analysis, PESTEL framework, etc.).

  • Strategic Management

    • Strategic management entails five steps: analysis, formation, goal setting, structure, and feedback.
    • Analysis – Strategic analysis is a time-consuming process, involving comprehensive market research on the external and competitive environments as well as extensive internal assessments.
    • The process involves conducting Porter's Five Forces, SWOT, PESTEL, and value chain analyses and gathering experts in each industry relating to the strategy.
    • Strategy Formation – Following the analysis phase, the organization selects a generic strategy (for example, low-cost, differentiation, etc.) based upon the value-chain implications for core competence and potential competitive advantage.
    • The above model is a summary of what is involved in each of the five steps of management: 1. analysis (internal and external), 2. strategy formation (diagnosis and decision-making), 3. goal setting (objectives and measurement), 4. structure (leadership and initiatives), and 5. control and feedback (budgets and incentives).

  • Qualitative and Quantitative Analysis

  • Trend Analysis

    • In addition to using financial ratio analysis to compare one company with others in its peer group, ratio analysis is often used to compare the company's performance on certain measures over time.
    • Trend analysis can be performed in different ways in finance.
    • Fundamental analysis, on the other hand, relies not on sentiment measures (like technical analysis) but on financial statement analysis, often in the form of ratio analysis.
    • Creditors and company managers also use ratio analysis as a form of trend analysis.
    • Analyze the benefits and challenges of using trend analysis to evaluate a company

  • Overview of Inputs to Strategic Planning

    • These industry experts can move beyond the PESTEL and Porter's Five Forces frameworks, making intuitive leaps as to the trajectory of the industry.