Pestel Analysis

What is it about?

Changes in your business environment can create great opportunities for your organization – and cause significant threats.

For example, opportunities can come from new technologies that help you reach new customers, from new funding streams that allow you to invest in better equipment, and from changed government policies that open up new markets.

Threats can include deregulation that exposes you to intensified competition; a shrinking market; or increases to interest rates, which can cause problems if your company is burdened by debt.

PESTEL Analysis is a simple and widely used tool that helps you analyse the Political, Economic, Socio-Cultural, Technological, Environmental, and Legal changes in your business environment. This helps you understand the “big picture” forces of change that you’re exposed to, and, from this, take advantage of the opportunities that they present.

Why is it relevant?

PESTEL Analysis is useful for several reasons:

  1. It helps you to spot business opportunities, and it gives you advanced warning of significant threats.
  2. It reveals the direction of change within your business environment. This helps you shape what you’re doing, so that you work with change, rather than against it.
  3. It helps you avoid starting projects that are likely to fail, for reasons beyond your control.

Steps to conduct this activity

Step 1: Brainstorm Factors and add them on the grid below.

Examples of factors:

  • Factors: Could any pending legislation or taxation changes affect your business, either positively or negatively? Waste tax? Energy related tax?
  • Factors: How is globalization affecting the economic environment?
  • Socio-Cultural Factors: What is the population’s growth rate and age profile? How is this likely to change?
  • : Do any of your competitors have access to new technologies that could redefine their products?

Step 2: Brainstorm Opportunities

Once you’ve identified the changes that are taking place in your business environment, it’s time to look at each change, and brainstorm the opportunities that this could open up for you. For example, could it help you develop new services or products, open up new markets, or help you make some of your processes more efficient?

Step 3: Brainstorm Threats

It’s also important to think about how these changes could undermine your business. If you understand this early enough, you may be able to avoid these problems, or minimize their impact.

Step 4: Take Action

Use the results of the PEST analysis in the next steps of your transition journey. Where you have identified significant opportunities, build the actions you’ll take to exploit them into your circular brainstorming. Where you’ve identified significant risks, take appropriate action to manage or eliminate them.