What is a PEST or a PESTEL analysis ?

pestel-analysisThe PESTEL method is a tool for analyzing the company’s macro-environment. It is particularly useful for identifying opportunities and threats within the SWOT matrix.

Let’s see how it works !

What is the PESTEL analysis?

The PEST or PESTEL analysis  makes it possible to monitor the risks and opportunities that the company and its market could encounter. The particularity of this matrix is its global vision of the environment.

It consists in studying the influence of environmental factors on the life of the company. It is therefore an approach of the company in its ecosystem, based on 6 categories of external factors, positive or negative, that have an impact on the company. The first letter of each of them is the acronym “PESTEL”.

  • The Political environment
  • The Economic environment
  • The Socio-cultural environment
  • The Technological environment
  • The Ecological environment
  • The Legal environment

The political environment

The political environment covers the influences that emanate directly from political power, whether national or supra-national (EU or WTO).

Among the main factors are:

  • Government stability;
  • The risk of nationalization;
  • The level of social protection.

The economic environment

The economic environment represents the macroeconomic situation of a given country or area. This will take into consideration:

  • The GDP growth rate;
  • Price evolution (inflation);
  • Interest rates;
  • The exchange rate
  • The unemployment rate.

The socio-cultural environment

The socio-cultural environment reflects the situation and characteristics of the population – and therefore of consumers.

We will be interested in particular:

  • Demographic criteria (average age, birth rate, etc.);
  • At the level of education;
  • Social and geographical mobility;
  • To new social practices, to fashions.

The technological environment

The study of the technological environment aims to take stock of technological advances and innovation in a given sector.

It includes:

  • The evolution of business research and development spending;
  • New patents filed;
  • The latest scientific discoveries with technological applications;
  • The obsolescence rate of current technologies.

The ecological environment

The ecological environment involves everything related to the protection of the planet, including:

  • Environmental protection laws;
  • Rules in favour of sustainable development;
  • Zero waste trend.

The legal environment

The legal environment represents the company’s regulatory framework (laws, branch agreements, internal regulations, etc.).

We find there for example:

  • Labour law;
  • The regulation of trade and commerce;
  • Tax laws.

How to use the PESTEL analysis?

  1. You must make a list of the various factors that can influence the macroeconomic environment of your company.
  2. It is necessary to extract current and future structural trends.
  3. The analysis of this information should make it possible to highlight the different scenarios of environmental change through which you can adapt your development strategy.

Once you have identified all the macro-environmental factors for each category, you need to make an inventory of the factors:

  • Which represent an opportunity for your company, i.e. they could offer you prospects for growth and evolution;
  • They represent a threat and can therefore harm your business or even the survival of your company.

These opportunities and threats should then be put in perspective with the strengths and weaknesses you have identified in your SWOT analysis, in order to establish a viable strategy.