What is PESTEL Analysis? Definition and Templates

When it comes to developing business strategies and performing risk assessments, PESTEL analysis plays a significant role.

This comprehensive framework functions as a tool for examining various external factors that can affect the operations and decision-making of an organization. The outcome of this analysis can be in other frameworks, such as SWOT analysis.

Read on as we will shed light on PESTEL analysis and its benefits in this article. Moreover, you will learn how to perform this analysis and platforms where PESTEL templates are available.

What Is PESTEL Analysis?

A PESTEL analysis means analyzing factors of different sectors that can have a direct or long-lasting impact on the organization. PESTEL includes political, economic, social, technological, environmental, and legal factors. It is basically an extended version of the PEST model primarily used for environmental scanning.

This framework is part of a strategic planning or risk management process. Through this analysis, organizations can get an overview of the external factors that can affect their operation and create strategies based on those factors.

Elements of PESTEL Analysis

Political Factors

These factors involve the government’s actions and policies of the business locality. Some common political factors include corporate taxation, antitrust policies, fiscal policies, and free trade disputes. Companies can even wait for the election results to see if the party coming to power is favorable to their business.

Economic Factors

Economic factors refer to the economic environment and variables crucial for organizations. These factors can shed light on the economic situation, trends, and influences of the market.

Economic growth, inflation rates, deflation rates, interest rates, exchange rates, unemployment rates, income levels, and monetary policies are usually considered economic factors.

Social Factors

In PESTEL analysis, social factors are the societal and cultural factors that can influence businesses and organizations. These factors include factors like demographic trends, sociocultural norms, consumer behavior, wellness trend, and ethical considerations that can shape consumer behavior and market trends.

Technological Factors

Another PESTEL analysis element is technological factors that help businesses to find out their opportunities for innovation and chances of technological disruptions. After identifying these, companies can be ready to embrace digital transformation and have an advantage over competitors.

Research and development, automation and process efficiency, internet connectivity, technological infrastructure, technological innovation and disruption, and copyright protection are some major technological elements.

Environmental Factors

In the present time, these have emerged as sensible factors that the business community should consider. It refers to the ecological and environmental aspects that may have implications for the industry or market. 

Common environmental factors for a business include natural resources and scarcity, climate change, environmental regulations, environmental consciousness among the users, carbon footprint, chances of environmental disasters, and biodiversity.

Legal Factors

Legal factors mean the entire legal framework, including the laws and regulations that affect businesses and organizations. These reflect the legal environment of a company that can impact its operations and strategies. 

IP rights, labor laws, consumer protection laws, data privacy regulations, antitrust laws, and licensing requirements are some major legal factors.

When to Use PESTEL Analysis

Business Launching and Expansion

Before you decide to launch a business, you must run the PESTEL analysis. The business launch is a big decision, and nobody wants to face any socio-political or legal difficulties. 

With the analysis, you can understand the issues that might affect your organization in a new situation. Therefore, it should also be done during market expansion.

Facing Problems

If your business faces any issues, you need to learn the actual and probable reasons behind them. In this case, also, PESTEL analysis can help. It can identify the external factors that might be causing the problems.

Long-Term Planning

This analysis also assists in long-term planning by providing forecasts on external factors that can affect the future of the organization. It is helpful to locate future trends, industry shifts, and potential disruptions, so companies can make plans.

Risk Assessment

Another scenario when PESTEL analysis is crucial is during risk assessment and management. You can identify risks that may come from political, economic, social, technological, environmental, and legal factors and proactively act to mitigate them.

Decision Making

When companies conduct strategic planning, they should perform this analysis. It will not only give them a thorough understanding of the external environment but also let them make informed decisions about the opportunities and challenges of the present market.

Benefits of Using PESTEL Analysis

• Identifying all the factors that can affect and influence business operations, economic growth, market trends, consumer behavior, climate change, industry-specific regulations, and more
• Assisting organizations with risk assessment and management by adapting to evolving external conditions.
• Understanding industry-based trends and dynamics for market analysis.
• Identifying and evaluating potential opportunities for geographic expansion
• Highlighting opportunities, threats, and potential challenges for strategic initiatives and business strategies
• Providing a base for forecasting and scenario planning for any unfavorable scenarios
• Helping with better stakeholder management considering the interests of all the stakeholders
• Monitoring the changes in external factors over time so that companies can be ready for strategic adjustments
• Identifying the competitive advantages over the competitors through external factor analysis

How to Perform PESTEL Analysis

Perform the Groundwork

You need to start the analysis with the necessary groundwork. This will ensure the accuracy, quality, and focus of your PESTEL analysis. You should have a clear idea about the purpose of this analysis, the involved people, methods of finding the information, and important dates.

Gather Necessary Information

Now is the time to collect data and information on each of the PESTEL factors. Make sure to have a thorough understanding of each factor and utilize reliable sources such as government reports, market research, and industry publications.

Add Data to a PESTEL Diagram

After raw data collection, you have to put the main points into a PESTEL diagram. Remember that PESTEL analysis diagram. Appropriately categorize the factors so that the teammates can easily understand.

Evaluate the Results

Use the data included in the diagram to interpret the macroenvironmental factors. Since different factors will have different impacts on your organization, you also need to assess the probability of occurrence to prioritize strategic initiatives. 

Develop an Action Plan

The insights generated from your PESTEL diagram can be used to create an action plan addressing the risks and opportunities. This crucial step can help an organization successfully skip possible business threats.

Monitor External Signals

On-time PESTEL analysis is not enough for the ever-evolving global dynamics of different sectors. Disruptive technologies can arrive, and market trends can shift. Hence, you need to regularly monitor the fundamental parts and make changes to your strategies accordingly.

Sample PESTEL Analysis Templates

#1. Lucidspark

On Lucidspark, you get a template for the PESTEL framework. Using it, you can analyze the external factors that could impact your organization. The template can be exported in PDF, SVG, PNG, and JPEG formats.

#2. Creately

Creately also offers a PESTEL template that can be easily edited using the online diagram editor tool of this platform. Post editing, it can be converted into PDF for printouts or exported as PNG, SVG, and JPEG formats to be used in Word, Excel, and PPT files.

#3. EDIT.org

EDIT.org has a large collection of free PESTEL templates. You can easily edit the templates to add your analysis to the fields and then print them on paper to share in a meeting. Companies can choose a template that suits their brand design or edit the template design with custom tools.

Wrapping Up

With PESTEL analysis, businesses can identify the factors that can have an impact on their market and business expansion. While performing this analysis, remember that the identified issues have to be addressed properly.

Now that you know how to do PESTEL analysis, you can perform it for your business or organization. You can also use the templates from the resource platform mentioned to make the job easier for you.

Also, read how to use conjoint analysis.