Last updated June 2016
Organisations need to carry out a situation analysis before making any strategic decisions. PESTEL is one the tools which many strategic planners find useful in situation analysis. It helps analysts understand external factors which may impact on the business. The discussion that follows focuses on what PESTEL analysis is and how it works.
Brief history of PESTEL analysis
PESTEL is also known as PEST, STEEPLE, SLEPT and PESTLE. It is very difficult to establish the true history of PESTEL analysis. However, according to Mind Tools (2016), Harvard professor Francis Aguilar is thought to be the creator of PEST Analysis. He included a scanning tool called ETPS in his 1967 book, ‘Scanning the Business Environment’.
What does PESTEL stand for?
PESTEL stands for Political, Economic, Social, Technological, Environment, and Legal. It is a very popular tool which is widely taught at colleges and universities in the UK and abroad.
Political environment can impact on businesses significantly. Businesses thrive in a stable political environment, whereas they suffer during war and political instability. Governments in some countries may be very pro-business and support them to grow. However, the opposite may also be true in some other countries.
There are a number of economic factors which can impact on a business. Disposable income of the customers, minimum wages, type of economy such as command and free market are some of the examples of economic factors. The current minimum wage in the UK for an employee (25 or over) is £7.20 per hour. The readers should note that the minimum wage is due to change soon.
Sociological factors are also important. Religion, culture, and social norms often impact on consumer buying behaviour. For example, demand for products which are suitable for vegetarian and vegan is very high in some countries. Therefore, organisations should not tamper with social norms.
Needless to say that technology has brought about numerous changes in the business world. Organisations can cut operating costs, gain competitive advantage, and create innovative products and services through technology. Technological compatibility, advanced technological skills of employees, and technological infrastructure can play a big role in today’s business.
Organisations should also consider environmental factors such as climate, weather, and natural disasters. These factors impact on businesses in general and tourism in particular. For example, UK is a very popular destination for international tourists during summer.
Businesses come under legal systems of the countries in which they operate. Companies in the UK need to abide by a number of rules and regulation. For example, an employer cannot discriminate against an employee as the latter is protected by Equality Act 2010.
The article publication date: 07 October 2016
Johnson, G., Scholes, K. and Whittington, R. (2006) Exploring Corporate Strategy: Text and Cases, 7th Edition, UK: Prentice Hall
Mind Tools (2016) PEST analysis, available from https://www.mindtools.com/pages/article/newTMC_09.htm (Accessed 29 May 2016)
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Author: M Rahman
M Rahman writes extensively online with an emphasis on business management and marketing. He is a graduate of both Leeds Metropolitan University and London South Bank University.