PESTEL, as a variant of PEST framework, is an external analysis framework used for identifying macro-environmental factors and presenting as a set of structured sub-headings to be taken into consideration. This is a strategic method to recognize the rise or decrease of the industry, business positions, business opportunity and direction. Organisations that successfully monitor and respond to changes in the macro-environment are able to differentiate from the competition and create a competitive advantage.
The identified factors can be broken down using the following elements:
- Political. This factor indicates the policies that may impact specific industries or industries directly or indirectly formulated by government departments. The reason for these policies would be mainly as a means of regulating the market. Hence, it would include taxation policies, trade restrictions, tariffs, political stability, etc.
- Economic. The factor regards mainly depend on the economic environment and performance of regions, including interest rates, exchange rates, inflation rates, employment or unemployment rates, raw material costs, etc. Obviously, it would greatly affect the operation and profitability of the organisation.
- Societal. There are many changing trends in social environments, such as population growth, age distribution, education levels, cultural needs, changes in lifestyle, etc. It would be helpful for the organisation to understand the real needs and wants from these perspectives.
- Technological. The development of science and technology has affected many industries. The technological factors can determine entry obstacles, optimise output performance and influence outsourcing decisions. In addition, advanced technologies will improve the performances on cost, efficiency and innovation. The factors could be considered as technology development especially in digital or mobile areas, automation, R&D, etc.
- Environmental. Environmental and ecological impacts mainly come from climate, weather, resource consumption and waste emission. With the increasing awareness of environmental protection, organizations need to consider this aspect to meet consumers and natural ecology.
- Legal. while there are some overlaps between political and legal aspects, the previous factors are led by government policies and the legal factors mainly focus on the order of societies within the territories. These include discrimination law, consumer law, antitrust law, employment law, health and safety law, etc.