What is a PESTEL Analysis?
A PESTEL analysis is designed to scan the external environment that your business is operating in. It takes into account various external factors, trends and influences that affect your business’ ability to compete & sustain long-term growth.
Why it matters?
While there are limitations to this analysis as a standalone audit, coupled with various other models, you will have deeper, more accurate understanding of the environment you are operating in. It will help equip you with the knowledge to develop a sustainable strategy that is in tune with your market/ industry.
These are often influences we see & take into account on a daily basis and once we realise, adapt accordingly. The problem with this approach is that when that we are reacting based on the information coming to us. By that time, it is common knowledge and you are acting on the defence not the offence. You are also operating on limited information.
By proactively taking the time to research and understand the environment you are operating in, you are at an advantage. You can play the game and score the touchdown. You’re on the offence and have the ability to eat up market share and be the key player in your field.
Before Carrying Out A PESTEL Analysis
It isn't enough to research changes /influences, it's crucial that you report them too. This way you have a well-documented, objective picture of the environment not just one small piece of the jigsaw puzzle, especially when used in conjunction with other analysis frameworks. You will have the information you need to create and maintain competitive advantage.
There are many ways you can do this. Below I have included my own very simple method:
- Description of Change | Influence
- The Impact & Implications of this change on your business.
- The level of certainty (number 1-5)
- Quick notes on potential solutions
Carrying out a PESTEL Analysis
Are you ready? Let’s Do It!
These are political changes that influence our business and it's operations. The Internet and vast growth in Social Media has levelled the playing field. We can and do carry out our business transactions across the globe therefore we need to take into account the political changes not only in our own country but also in all those we are operating in.
Consider the political and government stability within each country. What are the major issues and how may they influence the economy and your business operations? Are there elections coming up? If so, ensure you are familiar with the major party’s policies in relation to business and the economy. Write down all potential implications for your business.
How is the economy performing? Is it in your favour? What are the potential threats and if followed through, what impact would that have on your business?
Look at the various business cycles, pay attention to the level of government debt and referring back to your political influences, look at the ways the government plans to deal with that debt. Other indications include interest & inflation rates, employment levels, GNP trends, small businesses and their survival rates.
Side Note: During the economic downturn, businesses faced one of the toughest financial challenges they has faced in many years. While many struggled to survive, others continued to grow. This is because they had a plan in place and were able to adapt to the situation. They had an understanding of the economy and the market environment.
Social- Cultural Change
Understand the geographic, demographic, psychographic and demographic characteristics not only of your audience or online community but society in general. Although your focus may be on your target audience, they may be late adopters. Think about all the people who resisted Social Media… what would have happened if you listened to their resistance rather than the wider shift to social?
To be more specific; take a look at lifestyle choices, attitude towards trends and consumerism. Over the last few years, the shift to social has had a significant impact on our businesses. More recently, the increase in mobile over desktop usage has and will continue to affect our marketing and business operations.
These both cross over with technological advancements. You will find the digger you deep, the more links you will find across these 6 major influences. It’s these links that will formulate the bigger picture and help uncover greater opportunities and/or threats.
We are all aware of the HUGE technological advancements over the last few years. There is more information created in 48 hours than the information created from the beginning of time until 2003 (Jeff Bullas 2012). It is CRUCIAL that we keep on top of this change and are quick to adapt our strategies accordingly.
This includes everything from technology advancement and transfer, our adoption of technology and how we are utilising it to things like product life cycle. Innovation and our ability to make incremental changes on a continuous consistent basis is essential for maintaining a competitive advantage.
Side Note: Looking at economic and social changes, we can see that the business that saw these trends and utilised technological advancements as low barriers to entry were the ones that have been able to create 6-7 figure business. Where others suffered, those who took to time to understand these changes, put them together, spotted a gap in the market and took advantage of this massive opportunity.
This includes all changes to the physical environment that we live in locally and globally. Environmental change affects every person and business even if they are based online. It’s important to take account of environmental changes and take the actions you can to support the environment and adhere to the increasing legislation requirements with regard to the environment.
Environmental influences could come from changes in sustainability legislation, the physical changes such global warming and/or your current business energy usage. Is there a way you can reduce your usage, recycle more or lower your carbon footprint? Environmental change & influence is important whether you are a large organisation or a Sole Trader.
This section is focused on all changes and influences in relation to the law. When it comes to the law, you don’t have much of a choice yet many businesses don’t take the time to even check whether they are keeping within the law. This can get a little more complicated when you have an online business and are operating within different countries. It is so important that you take time out regularly to research and ensure you are operating within the law. If in doubt, consult a lawyer. If lawyers are a little outside of your budget, there are free services available e.g. Citizen’s advice bureau.
This includes everything from trade policies (including foreign trade) to employment legislation. Focus on the legal structures and laws relevant to your business. At the moment, copyright issues are a huge issue online. While it may seem like sharing photos and images online is perfectly acceptable, companies are clamping down on infringement even when credit is given. This is only one of many legal changes you need to be aware of.
And there we have it.
This Week's Action Step
This week your action step is to create a PESTEL analysis for your business. This will take some time, you might not get is all done but do as much as you can to provide an understanding of these 6 key changes and influences within your market. It might be boring, it might be time consuming but it will always be worth it.
If you have any further questions or would like to send a copy of your PESTEL analysis for a review, please feel free to email me at firstname.lastname@example.org. I will do my very best to take a look and provide feedback as soon as I can.
As always, I really hope you found this post useful and valuable. If you did, it would mean the world to me if you would scroll down and leave a quick comment or tweet me @C4Compete :-)
Until next time, be awesome and keep smiling :-)