Background and development of the PESTEL analysis
PESTEL analysis originated as an external analysis framework called PEST analysis, created by Harvard professor Francis Aguilar in 1967. PEST stood for Political, Economic, Social and Technological factors.
Over time, the framework evolved to include more factors:
? "LE" for Legal and Environmental factors was added, converting PEST to PESTLE analysis.??Aspects like environmental regulations, labor laws, consumer rights became prominent.
? "EL" was rearranged to "ELP" to improve pronunciation. PESTLE became PESTEL.
? Some variations like STEEPLE, SLEPT, LONGPESTEL also emerged, incorporating other factors like ethics, demographics etc.
But PESTEL became the most widely accepted version used today in strategic planning and analysis.
Key reasons why PESTEL framework emerged
?Business environment became more complex with globalisation requiring wider external analysis.
?Rise of environmentalism and sustainability awareness called for specific focus on ecological factors.
?Growing regulatory compliance burden on businesses necessitated tracking legal factors.
?Technological advancements started disrupting industries requiring technology forecasting.
?Value of scenario planning using external factors models increased for companies.
More about PESTLE
A PESTLE analysis examines the primary external factors - Political, Economic, Sociological, Technological, Legal, and Environmental, that impact an organisation. This tool has versatile applications and can provide valuable guidance to professionals and senior managers in the process of strategic decision-making (CIPD, 2023).
Political Factors
Some key political factors that can influence business strategy and decisions:
?Government stability and regime - Political stability/instability, risks of regime change, transitions of power create uncertainty.
?Government policies - Policies around regulation, infrastructure spending, incentives, subsidies, taxes, trade, investment etc. shape opportunities.
?Regulation and de-regulation - Industry-specific regulations and regulatory changes alter the landscape. Deregulation opens up new opportunities.
?Trade control and agreements - Import/export regulations, trade partnerships, embargoes affect sourcing, supply chains and markets.
?Tax policy - Corporate tax, income tax, GST and other tax reforms and rates affect operational costs and demand.
?Labor laws - Laws on minimum wages, employee rights, workplace policies impact costs.
?Security and political risks - Risk of conflict, terrorism, civil unrest create uncertainty and higher costs.
?Corruption level - High corruption hinders fair competition and increases costs through bribery and administration delays.
?Lobbying power - The ability to lobby government for favorable policies provides competitive advantage.
Economic Factors
?Economic growth
?Interest rates
?Currency exchange rates
?Inflation rates
?Disposable income levels
?Unemployment levels
?Raw material costs
?Energy costs
?Credit availability
?Tariffs, taxes
?Recessions, crises
Social Factors
Some key social/sociocultural factors that affect businesses include:
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?Demographics
?Lifestyles and
?Consumer preferences
?Media and social media
?Ethics and social responsibility
?Health and wellness concerns
?Work-life balance priorities
?Diversity and inclusion
?Educational levels
?Cultural norms and taboos
?Life stages
Environmental Factors
Some key environmental factors that impact businesses include:
?Climate and weather
?Natural resource availability
?Waste and pollution
?Energy availability and cost
?Environmental consciousness
?Recycling infrastructure and regulations
?Sustainable practices
?Geographical terrain and location
?Biodiversity and ecology
?Renewable incentives
Environmental factors influence sourcing, supply chains, transportation and facilities costs. They also impact brand image for eco-conscious consumers. Proactive environmental management can lower costs and improve community relations.
Legal Factors
Some key legal factors that affect business environment and strategy include:
?Competition law
?Consumer law
?Labor law
?Health and safety regulations
?Product liability laws
?Privacy laws
?Tax laws
?Intellectual Property laws
?Contract law
?Trade and import/export laws
? Employment laws
Senior Lecturer/Author at National Institute for Hospitality and Tourism (NIHOTOUR)
2 个月This article indeed is an eye-opener. It covers areas not much considered by especially some small-scale entrepreneurs. I like it.