Strategic Tool Box Serie (#3) The PESTEL Analysis : determine your environment

The analysis of an environment is key in business. The analysis can be carried out within the company, but also externally. In the latter case, many tools are available to the business strategist to carry out his investigation. The PESTEL analysis of a company is one of the best known. What is a PESTEL analysis concretely? What are its components? How to do a PESTEL analysis and what examples can be given?

PESTEL analysis: definition

Distinction between micro-environment and macro-environment

In order to best define what the PESTEL method is, it is first necessary to make the difference between the micro-environment and the macro-environment.

The micro-environment will focus on the actors closest to the company, namely customers, suppliers, competitors, commercial intermediaries and other partners. To analyze the state of its micro-environment, a company must carry out an external study in order to identify all the opportunities and threats of the market in which it operates.

Note: the company may be able to impact its own micro-environment.

For its part, the macro-environment has a more global vision and concerns all the variables over which your company has no control. Unlike the micro-environment, the company must adapt to be sustainable.

Example: legislation, technological evolution, cultural change, environment, etc.

Historical reminder of the PESTEL analysis

This analysis was created by a Harvard professor and expert in strategy and management, Mr. Francis Aguilar. The objective was to analyze the business environment. At first, he does not talk about PESTEL analysis but uses the acronym ETPS for the acronym for Economic, Technical, Political, Social.

It will then undergo many modifications in the 80s by other authors to finally be the PESTEL model of today, which some reduce to PEST.

PESTEL analysis of a company

Nowadays, we no longer speak of ETPS analysis but of PESTEL analysis, also called PESTEL model or PESTEL matrix.

The vocation remains the same as at the beginning in the sense that this tool will make it possible to analyze the macroeconomic PESTEL environment of a company to identify opportunities and threats.

Its objective is simple: to simplify a company's understanding of the functioning of its market. In summary, this study makes it possible to discuss scenarios so that your company can adapt its strategy in order to change its environment and ensure its sustainability on the market.

The model is however more complete because it is now composed of 6 parts, one per letter:

The political variable

The economic variable

The social variable

The technological variable

The ecological Variable

The legal variable

In the event of a detected threat, the entrepreneur must make sure to adapt his strategy as far as possible or, in the worst case, reconsider the relevance of his business project.

On the other hand, the entrepreneur who identifies an opportunity within his macro-environment must make sure to take full advantage of it.

What are the components of a PESTEL analysis?

Politics

The political variable includes all the measures that are taken by governments or public institutions. Politics can be assessed at different scales: global, European, national or regional.

A concrete example of a political variable is the plan to accelerate the ecological transition of VSEs-SMEs which, as its name suggests, will financially help companies wishing to adopt an ecological approach.

Economic

The state of the national economy can have a strong impact on businesses. GDP is therefore often a key indicator to monitor.

Consumer confidence is also an important element to monitor, as is purchasing power. In times of crisis, individuals tend to be vigilant in terms of spending, for example.

The evolution of bank interest rates is also to be followed, especially for companies for which consumer loans are common.

As for companies wishing to trade abroad, the exchange rate can also be an indicator to watch carefully.

Social or sociological

This variable consists of clearly identifying the demographic components of the population (age and sex) as well as behaviors.

This variable is particularly important when the company wishes to conquer new markets. Indeed, a marketing strategy that works in France will not work

Technological

Technological advances are one of the most moving components. An innovation can go from disruptive to obsolete in a few years.

Startups, often linked to a technological innovation, must particularly monitor this component.

Ecological

The environmental component has seen its importance grow very strongly in recent decades. Awareness of environmental degradation has resulted in increasingly high consumer expectations of companies.

This change in mentality has prompted many companies to review their production methods. Many labels are also increasingly present on a daily basis: “certified organic farming”, “Eurofeuille logo”, “red label”, “fair trade”...

Legal

Legislation is constantly changing, especially in certain sectors. Make sure you are aware of the latest regulations to avoid any problems when launching the project and regularly monitor the reforms.

In recent years, laws regarding internet privacy policy have intensified with the advent of GDPR. Any company with a website must therefore ensure that it is up to standard.

How to do a PESTEL analysis?

Collect and distribute information

The PESTEL method is not complicated to understand, but its implementation must be meticulous to ensure that you have reliable information that will help in decision-making.

The entrepreneur can very well carry out his PESTEL analysis on his own. You can find analysis templates on the internet. In this case, all that remains is to classify the information into the relevant categories.

Focus on key components

The components have an importance that varies depending on the type of business. Startups linked to innovation must, for example, pay particular attention to the technological variable. This aspect must therefore be further developed in the PESTEL method.

Identify if it is an opportunity or a threat

One of the limits of the PESTEL model is that initially the exercise does not involve defining whether the major facts observed constitute an opportunity or a threat. It is therefore strongly recommended to make a clear distinction, for example by using a color code to make it easier to read later.

Business case?: CORONA

by www.etudes-et-analyses.com

In 2020, the brand's turnover is 4 billion euros. In France, the volume of sales has not decreased, the brand corresponds to 0.7% of the market in volume and 1.1% in value.

Over one year, growth increased by 5.4%, Corona also recorded sales of $2.4 billion worldwide. Nevertheless, at least 10 million liters had to be destroyed due to the virus.

The beer sector is very famous in France. 30 liters per year and per inhabitant are consumed. More than two million hectoliters are produced worldwide. 35% of global alcohol consumption is generated by beer.

Politics

Corona is a company that is, as we have seen, present in several countries, and for this reason it must comply with the rules in force in each of them. Alcohol consumption is not regulated in the same way everywhere, and fines and other penalties can sometimes be very significant in the event of non-compliance with regulations in certain countries.

Economic

Beer consumption is very important in France, and the sale of Corona is therefore also very important for the country's economy. France is the country of gastronomy, and that also includes drinks.

Economics and politics are closely linked, since everything related to economics is important for political groupings.

Corona beer has developed various marketing strategies over the years to attract customers, especially since competition is very fierce in the sector.

We were talking about the Coronavirus above; unfortunately, this epidemic did not help the brand's sales, which fell several points in some countries.

Sociological

In each country where the Corona brand is present, it is necessary to adapt to customs as well as notoriety to develop a reliable marketing strategy.

In France, the consumption of beers is important, the offer is therefore adapted to the expectations of the population. The brand has also launched an alcohol-free beer and another light beer to broaden its target and meet consumer expectations, which tend to change over time, with consumers more attached to consuming healthier products.

In France, as in many other countries, alcohol is associated with convivial moments with family or friends.

Technological

Corona makes extensive use of technology to connect with potential consumers and customers, as well as to maintain constant interaction with them.

Social networks and other websites, mobile marketing, etc. are used to gain consumer trust.

Thanks to new technologies, the group can also know more precisely the expectations of consumers and the trends that are emerging over time and according to periods.

Ecological

In order to be able to make Corona beer, a close relationship with agriculture is necessary. Hops, barley, rice, there is also a relationship with the climate which affects crops and therefore production volumes.

Like many brands, Corona has an obligation to pay closer attention to protecting the environment.

Legal

One of the priorities is consumer protection, and the fact that ingredients must always be subject to increased controls to guarantee their safety.

Conclusion

PESTEL is a tool available to everyone that allows you to take stock of your business environments on a regular basis. Of course, an analysis does not preclude calling on a specialist auditor, if only to consolidate and develop your analysis.