The PESTEL tool is used to evaluate various threats and opportunities in 6 key areas: Political, Economic, Social, Technological, Environmental and Legal.
It is typically used as during long-term planning to get a macro (big picture) perspective on issues that could impact the organization. Combined with the SWOT Analysis, this tool can provide incredible insights for risk intelligent decision-making.
Using the PESTEL is fairly simple. Just review each of the 6 sections (see below for examples), then consider all the potential impacts of outside forces on your company.
Be sure to include every possible threat, even if has a low probability of happening or a low severity if it does occur.
Breaking Down the PESTEL
Here are the 6 parts of a PESTEL analysis:
- Policy changes
- Need for advocacy
- Changes in employment laws
- Consumer protection laws
- Environmental regulations
- Trade restrictions
- Tax regulations
- Health and safety requirements
- Market shifts
- Change in the cost of goods
- Increased or decreased buying power from suppliers
- Potential changes to inflation, taxes, interest rate, exchange rate, and trading regulations
- Emerging trends and methods
- Media connectivity
- Press releases and interviews
- Blog, article, book, and podcast content
- Age distribution
- Population growth rate
- Employment levels
- Income statistics
- Education and career trends
- Religious beliefs
- Cultural and social conventions
- Improved quality of parts and end product
- Significant cost savings
- Use of outsourcing to control costs and offer greater flexibility
- Safety and health concerns
- Seasonal impact of buyer purchasing
- Physical environment
- Consumer protection
- Employee welfare
- Waste disposal
- Industry restrictions
- Current and impending legislation
- Health and safety considerations
- Anticipated legislation changes
- Your country’s national laws
- The laws of countries that are impacted by your work (customer locations, vendors, investors)
Variations on the PESTEL
You may also want to include Demographic, Ecological, Educational, Ethical, International, and Technical factors in your analysis.
Variations on the classic PESTEL include:
- PEST – Political, Economic, Social, and Technological
- ETPS – Economic, Technical, Political, and Social
- STEPE – Social, Technological, Economic, Political, and Ecological
- STEEPLE – Social, Technological, Economic, Ethical, Political, Legal, and Environmental
- PESTLIED – Political, Economic, Social, Technological, Legal, International, Environmental, and Demographic
- STEEPLED – Social, Technological, Economic, Environmental, Political, Legal, Educational, and Demographic
When to Use a PESTEL Analysis
There are several times when a PESTEL tool is especially useful:
- When your company is going through a leadership transition
- When there is a significant shift in the political, economic, or technological landscape
- When your core service or product sales begin to decrease
- When you are about to lose key customers
- When you’re experiencing a personal or professional crisis
- When you feel frustrated about your company’s goals and objectives
By evaluating the external effects on your business, you will be able to identify possible forces that are causing these changes.
Advantages of the PESTEL
There are several great reasons to use this tool.
It’s easy to use.
Once you know where to look, the process of identifying external threats gets much easier. In fact, you may even start to see the world from a different point of view.
It gives you a framework.
I really like frameworks—structured ways to examine a problem. The PESTEL is like standing in place and doing a full-circle review of all the threats that could affect your organization. You can then identify and protect the areas that are vulnerable, and see opportunities for growth.
It encourages critical thinking.
This tool works best when it’s done with a cross-section of your company: individuals from all departments, roles, and backgrounds. By pooling the collective expertise and perspectives of your staff, you’ll benefit from a much more objective point of view on which threats are most severe and likely to happen.
It reduces threats.
Once you know where the vulnerabilities are, you will be able to take action that limits your exposure.
It helps you identify new markets.
The other great thing about the PESTEL is that you will start to see creative ways to reach new customers, break into new markets, and foresee shifts in buyer behavior and purchasing decisions.
Downsides of the PESTEL
As with any tool, the PESTEL is not perfect. Here are a few disadvantages to using it:
It can over-simplify a complicated problem.
One of the risks of using any strategy tool is an over-reliance on simplicity. Make sure you temper the situation with input from your Devil’s Advocates, who can help you find the flaws in what could be an over-simplistic solution.
It makes it easier to pass the blame.
While a PESTEL can reveal a lot of potential threats to your organization, our natural tendency to avoid any discussion of our own impact on the problems. That’s why I recommend evaluating your own blind spots, and accepting the burden of responsibility for all failures in your business.
It can keep you from feeling pain.
We often want results without any discomfort. We want a resolution that is fast, low-cost, and with the least amount of pain. But a huge risk of trying to identify external threats is that we may fail to identify and solve the real problems—internal threats. Problems we create ourselves, like transaction avoidance, unconscious aggression, and implicit bias. Although it’s not pleasant, feeling pain as a business owner will make you stronger and more resilient.
It can result in “analysis paralysis.”
On the one hand, we avoid discussing painful topics about our business. On the other, we avoid making decisions out of fear that it will be the wrong one. The PESTEL is a tool that needs to be applied. Look at what the analysis tells you, and take action to protect your company.
It needs to be done regularly.
A truly effective PESTEL analysis can’t be a once-a-year event at your strategic planning retreat. It should be built into your ongoing review process.
Many leaders don’t want to commit to spending a lot of time on planning, and this is where problems can start. If you want to avoid threats in your organization, prioritize your planning and use tools like this one on a monthly (or even weekly) basis.
I hope these ideas are helpful to you. Have you used the PESTEL before? What do you like best about it? Let me know what you think by leaving a comment below.
If you a business owner and want to reverse a toxic workplace, find out more here.
Grace LaConte is a business consultant, writer, workplace equity strategist, and the founder of LaConte Consulting. Her risk management tools are used around the globe, and she has successfully reversed toxic work environments for clients in the healthcare and non-profit fields. Grace specializes in lactation law compliance & policy development, reducing staff turnover after maternity leave, and creating a participatory work culture.