PESTEL Analysis EXPLAINED | B2U | Business To You
Summary
TLDRThis video script introduces PESTEL analysis, a vital tool for mapping an organization's external environment, focusing on macro factors like political, economic, social, technological, environmental, and legal influences. Host Lars explains the difference between internal and external factors, emphasizing PESTEL's role in assessing the general environment's impact on business. He details each factor's significance and suggests using weighted averages to evaluate potential markets, recommending resources for data collection.
Takeaways
- 📌 PESTEL analysis is a tool for mapping out the external environment of an organization, focusing on macro-environmental factors.
- 🏢 The analysis does not consider internal factors of the company, such as organizational structure, culture, or management.
- 🔍 It also excludes task environment factors like competitors, suppliers, and customers, which interact directly with the company.
- 🌐 PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors, covering a broad view of the general environment.
- 🏛️ Political factors include government policies, stability, corruption, trade policies, and their impact on education, infrastructure, and health sectors.
- 💰 Economic factors encompass economic growth, exchange rates, inflation, interest rates, consumer income, and unemployment, affecting consumer purchasing power.
- 👥 Social factors involve demographic characteristics, norms, values, and attitudes that can influence market targeting and workforce conditions.
- 🛠️ Technological factors relate to innovations, regulations, and market awareness that may affect industry operations and product development.
- 🌳 Environmental factors include ecological aspects like resource scarcity, pollution, and climate change, impacting company operations and offerings.
- 📜 Legal factors involve specific laws like discrimination, antitrust, employment, consumer protection, and health and safety regulations.
- 📊 To apply PESTEL, calculate weighted averages of factors relevant to your business to assess and compare different markets or countries.
- 🔎 Data for PESTEL factors can be found on various websites that quantify these aspects per country, aiding in informed business decisions.
Q & A
What is the primary goal of PESTEL analysis?
-The primary goal of PESTEL analysis is to help analyze the external environment of an organization, which is especially useful when starting a new business or entering a foreign market or a different industry.
What does the acronym PESTEL stand for?
-PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors, which together make up an exhaustive list of the general environment.
How does PESTEL analysis differ from examining the task environment?
-PESTEL analysis focuses on macro-environmental factors that have a one-way effect on a company, unlike the task environment which includes direct interactions with competitors, suppliers, distributors, customers, and strategic partners.
What are some examples of political factors that PESTEL analysis might consider?
-Examples of political factors include government policy, political stability or instability, corruption, foreign trade policies, tax policies, and regulations affecting the education system, infrastructure, and health sector.
How do economic factors impact a company according to PESTEL analysis?
-Economic factors such as economic growth, exchange rates, inflation rates, interest rates, disposable income of consumers, and unemployment rates can have a direct or indirect long-term impact on a company by affecting the purchasing power of consumers and the demand and supply in the economy.
What demographic characteristics does the social dimension of PESTEL analysis include?
-The social dimension includes demographic characteristics such as population growth rate, age distribution, income levels, and attitudes towards careers, health, lifestyle, and cultural barriers.
Why are technological factors important in PESTEL analysis?
-Technological factors are important because they pertain to innovations in technology and the regulations surrounding it, which may affect the operation of an industry in the market favorably or unfavorably, influencing decisions such as entering certain industries or launching products.
What is the significance of environmental factors in the context of PESTEL analysis?
-Environmental factors are significant as they address ecological aspects such as weather, climate, environmental offsets, and climate change, reflecting the well-being of the planet and the growing awareness of potential impacts of climate change on how companies operate.
How do legal factors overlap with political factors in PESTEL analysis?
-Legal factors, while overlapping with political factors, include more specific laws such as discrimination laws, antitrust laws, employment laws, consumer protection laws, copyright and patent laws, and health and safety laws.
What is a practical approach to applying PESTEL analysis for a company considering entering a new market?
-A practical approach is to calculate weighted averages of the available options by selecting PESTEL factors most important to the business, assigning grades for each factor per country, and then comparing the weighted averages to determine the most attractive market.
Where can one find quantified data for the factors mentioned in PESTEL analysis?
-Quantified data for the factors can be found on various helpful websites that measure these factors per country, such as the Corruption Perception Index for corruption.
Outlines
📚 Introduction to PESTEL Analysis
In this introductory paragraph, Lars welcomes viewers to a new episode of 'Business - You' and introduces the PESTEL analysis as a tool for mapping out the external environment of an organization. He emphasizes its utility for new businesses, foreign markets, or different industries. Lars explains that PESTEL focuses on macro-environmental factors, which have a one-way effect on a company, unlike the task environment which includes direct interactions like competitors, suppliers, and customers. He also clarifies that PESTEL is not about any external factor but rather the broader environmental factors that can significantly impact a company. The acronym PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors, which together form a comprehensive list for analyzing the general environment.
🌐 Detailed Breakdown of PESTEL Factors
This paragraph delves into the specifics of each PESTEL factor. Political factors encompass government interventions, policies, and their influence on business operations, including education, infrastructure, and health regulations. Economic factors include growth, exchange rates, inflation, interest rates, consumer income, and unemployment, which affect consumer purchasing power and company pricing strategies. Social factors cover demographic trends, cultural norms, and values, which are crucial for market targeting and understanding the local workforce. Technological factors involve innovation, automation, R&D, and market awareness of technology, which can influence industry decisions and prevent investments in soon-to-be-obsolete technologies. Environmental factors, now more prominent due to climate change and resource scarcity, include ecological aspects and corporate social responsibility practices. Legal factors, while sometimes overlapping with political, include specific laws like discrimination, antitrust, employment, consumer protection, and health and safety regulations, which are vital for lawful business operations. The paragraph concludes with advice on using weighted averages to assess the importance of different PESTEL factors relative to a company's business and suggests consulting legal advisors for navigating international regulations.
Mindmap
Keywords
💡PESTEL Analysis
💡Macro-environmental Factors
💡Task Environment
💡Political Factors
💡Economic Factors
💡Social Factors
💡Technological Factors
💡Environmental Factors
💡Legal Factors
💡Weighted Averages
💡Corruption Perception Index
Highlights
Introduction to PESTEL analysis as a tool for mapping out the external environment of an organization.
PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors.
The focus of PESTEL is on macro-environmental factors that impact a company without necessarily being impacted by it.
Differentiation between internal factors of a company and its task environment, which includes direct interactions like competitors, suppliers, etc.
Suggestion to use Porter's Five Forces for analyzing the task environment instead of PESTEL.
Explanation of Political factors, including government policies, political stability, and foreign trade policies.
Economic factors encompass economic growth, exchange rates, inflation, interest rates, and unemployment rates.
Social factors represent demographic characteristics, norms, customs, and values of the population.
Technological factors involve innovations, regulations, and the level of technological awareness in the market.
Environmental factors include ecological aspects like weather, climate change, and environmental regulations.
Legal factors cover specific laws like discrimination, antitrust, employment, and consumer protection laws.
Importance of understanding legal frameworks when operating globally due to varying rules and regulations.
Recommendation to calculate weighted averages of PESTEL factors to assess the attractiveness of potential markets.
Use of quantified data from various sources like the Corruption Perception Index for assessing factors.
Practical application of PESTEL analysis for businesses considering entering new markets or industries.
Encouragement for viewers to subscribe for more business-related content and to engage in discussion.
Emphasis on the collective intelligence of the community for a more profound understanding of business topics.
Transcripts
so you want to map out the external
environment of an organization but you
don't know where to start
best tool is your answer today I'm going
to tell you everything you need to know
about the PESTEL analysis my name is
Lars and welcome to a new episode of
business - you PESTEL best steeple desk
step or the spell it analysis they're
all different versions of basically the
same thing with the exact same goal
which is to help you analyze the
external environment of an organization
this is especially useful when starting
a new business or when entering a
foreign market or a different industry
with an existing company before I go
into the actual framework
I want to clearly define the external
environment that is being examined
because PESTEL analysis does not just
look at any external factor out there
but more specifically to macro
environmental factors in order to
explain it better let's imagine a
fictional company first of all you have
the company itself everything that
exists and happens within that company
can be considered internal think about
the organizational structure of the
company the culture the employees the
management shareholders reward systems
etc closely surrounding the company
which are there for external our
competitors suppliers distributors
customers or strategic partners this
external element so to speak are in a
direct contact with the focal company
they interact with one another it's a
two-way relationship sometimes this part
of the external environment is called
the task environment now it's very
important to realize that even though
pestle is looking at external factors it
is not looking at these factors like
mentioned before pesto looks at the more
general environment the macro
environmental factors which can have a
massive impact on a company but not the
other way around they therefore have a
one-way effect rather than an
interaction like with the task
environment if you want to look more
into the task environment I advise you
to use Porter's five forces which I will
make video
very soon so now we have that cleared up
let's go into the pestle analysis
pestle is an acronym that stands for
political economic social technological
environmental and legal factors together
they make up quite an exhaustive list of
the general environment in other words
if you look at all of these six factors
combined when scanning the
organization's environment you are less
likely to miss out on any important
macro environmental factors let's go
through all of them one by one political
these factors are all about how and to
what degree a government intervenes in
the economy or a certain industry
basically all the influences that a
government has on your business could be
classified here this can include
government policy political stability or
instability corruption foreign trade
policies tax policies etc furthermore
the government's may have a profound
impact on how a nation's education
system works how infrastructure looks
like and how the health sector is
regulated these are all factors that
need to be taken into account when
assessing the attractiveness of a
potential market economic factors are
determinants of a certain economy's
performance factors include the economic
growth exchange rates inflation rates
interest rates disposable income of
consumers and unemployment rates these
factors may have a direct or an indirect
long-term impact on a company since it
affects the purchasing power of
consumers and could possibly change the
demand and supply in the economy
therefore it also affects the way
companies price their products and
services you can imagine that in a
country where purchasing power is
relatively low prices are also lower the
social dimension this dimension of the
general environment represents the
demographic characteristics norms
customs and values of the population
within which the organization operates
this includes trends such as the
population growth rate age distribution
income levels but also attitudes towards
careers health lifestyle and possible
cultural barriers these factors are
especially important for mark
tears when targeting certain customers
in addition it also says something about
the local workforce and its willingness
to work under certain conditions some
people like to distinguish these factors
by separating social factors into
demographics and cultural or
intercultural factors that explains
these different versions of the PESTEL
analysis personally I'm fine with the
social category since it combines all
factors related to the people but feel
feel free to adapt it in a way that
suits you of course technological
factors these factors pertain to
innovations in technology and the
regulations surrounding technology that
may affect the operation of the industry
in the market favorably or unfavorably
think about technology incentives the
level of innovation automation R&D
activity technological change and the
amount of technological awareness that
the market possesses these factors may
influence decisions to enter or not
enter certain industries to launch or
not launch certain products or to
outsource production activities abroad
by knowing what is going on technology
wise you may be able to prevent your
company from spending a lot of money on
developing a technology that would
become obsolete very soon due to
disruptive technology called changes
elsewhere environmental factors have
come to the forefront only relatively
recently they have become important
due to the increasing scarcity of raw
materials pollution targets and carbon
footprint targets set by governments and
pressure from NGOs like for example
Greenpeace it is important to mention
that you shouldn't be confused about the
term environmental here since we also
use that to indicate all external
factors combined environmental simply
has a double meaning here and in this
context we use it to address ecological
aspects such as weather climates
environmental offsets and climate change
basically the well-being of our planet
growing awareness of the potential
impacts of climate change is affecting
how companies operate and what kind of
products they offer this has led to many
companies getting more and more involved
in practice
such as corporate social responsibility
and sustainability so finally the legal
factors
although these factors may have some
overlap with political factors they
include more specific laws such as
discrimination laws antitrust laws
employment laws consumer protection laws
copyright and patent laws and health and
safety laws it is clear that companies
need to know what is and what is not
illegal in order to operate successfully
and rightfully even organization trades
globally this becomes especially tricky
since each country has its own set of
rules and regulations in addition you
want to be aware of potential changes in
legislation and impact it may have on
your business in the future so recommend
it is to have a legal advisor or an
attorney to help you with this kind of
things so all of these factors combine
to give a good overview of the general
environment out there which factors are
most important for your business might
vary based on the country and industry
you are in as you might be able to
imagine environmental and ecological
factors are more important to the oil
and automotive industry now for example
the software industry so if you want to
bring PESTEL into practice and actually
use it properly I recommend you to
calculate weighted averages of the
available options you have imagine you
are a European company and you're
thinking of entering the South American
markets but you don't know which country
to enter first what you could do is
select a number of peso factors that are
most important to your business let's
say we want to look at the economic
growth corruption and how intellectual
property is protected give them a
weighting of their importance relative
to the other factors and assign grades
for each factor per country in the end
you are able to give each option the
weighted average great and compare them
to each other so you might be wondering
where to get the data from you will
actually be surprised how many of the
factors that I have just mentioned in
this video are already meant
measures and given a score even
something as corruption for example is
measured by the corruption perception
index there are many helpful websites
where these factors are quantified per
country and of course I'm here to help
you out so I included some useful links
in the description down below if you
like business-related stuff feel free to
subscribe to not miss out on any of our
future videos and if you have any
question on the subject please ask them
below in a comment section because I
will try to answer as many as I can and
of course I highly encourage all of you
to help each other out as well and get
the discussion going thanks for watching
and don't forget alone we are smart
together we are brilliant see you next
time
[Music]
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