PEST Analysis (PESTLE) Explained with Example

Summary

Today's lesson introduces PESTEL analysis, a strategic tool for understanding the macro environment affecting businesses. It explains the three levels of a company's environment: internal, micro, and macro. The focus is on macro factors like political, economic, social, technological, legal, and environmental influences. The script outlines how to perform a PESTEL analysis, emphasizing the importance of identifying key factors, collecting information, analyzing data for opportunities and threats, and taking informed action. It also highlights common pitfalls to avoid, such as making assumptions without data or neglecting to track factors over time.

Takeaways

• 📚 PESTEL Analysis is a strategic tool used to understand the macro environment affecting an organization.
• 🌐 The acronym PESTEL stands for Political, Economic, Social, Technological, Environmental, and sometimes Legal factors.
• 🏢 A company's environment is comprised of internal, micro, and macro levels, with PESTEL focusing on the macro level.
• 🔍 Environmental scanning is part of the PESTEL process, helping to identify trends and make strategic decisions.
• 🏛️ Political factors in PESTEL include government actions and how they can impact business operations.
• 💹 Economic factors encompass understanding a country's economic prospects like demographics and market demand.
• 👥 Social factors involve cultural and societal aspects that can influence business practices and consumer behavior.
• 💡 Technological factors consider how technological advancements can create opportunities or disrupt markets.
• 📊 The PESTEL process involves identifying key factors, collecting information, analyzing data, and taking action.
• 📈 PESTEL analysis helps businesses avoid data overload by focusing on the most relevant macroeconomic factors.
• ⚠️ Pitfalls of PESTEL analysis include making assumptions without data, collecting too much information, and neglecting to track factors over time.

Q & A

What is PESTEL analysis?

PESTEL analysis is a strategic tool used to understand the macro environment in which an organization functions. It stands for Political, Economic, Social, Technological, Environmental, and sometimes Legal factors.

Why is PESTEL analysis important for a company?

PESTEL analysis is important because it helps companies understand the external factors that might affect their operations and make better strategic decisions by analyzing trends and potential impacts.

What are the three levels of a company's environment mentioned in the script?

The three levels of a company's environment are the internal environment, the micro environment, and the macro environment.

What factors does the macro environment consist of?

The macro environment consists of factors that can influence an organization but are beyond its control, such as political, economic, social, technological, and environmental factors.

How does political factors affect a business according to the script?

Political factors can have a significant impact on how businesses operate, including government actions, legislation, and how favorable a country is for doing business.

What economic factors should a company consider during a PESTEL analysis?

During a PESTEL analysis, a company should consider economic factors such as shifting demographics, fiscal policy, market demand, interest rates, and infrastructure improvements.

What social factors are included in a PESTEL analysis?

Social factors in a PESTEL analysis include cultural and societal aspects such as career expectations, lifestyle preferences, education levels, attitudes, and entrepreneurial spirit.

How can technological factors influence a business as per the script?

Technological factors can influence how a business delivers its products or services, affecting both consumers and the company itself, and can drive globalization and competitiveness.

What is the basic process to perform a PESTEL analysis?

The basic process to perform a PESTEL analysis involves determining the most important factors to collect, collecting the information, analyzing the data, and taking action based on the findings.

What are some common pitfalls to avoid when conducting a PESTEL analysis?

Common pitfalls to avoid include making assumptions instead of collecting facts, collecting too much data, forgetting about the analysis after conducting it, and thinking that PESTEL analysis alone is sufficient for strategy formulation.

How can the results of a PESTEL analysis be used to shape a company's strategy?

The results of a PESTEL analysis can be used to identify opportunities and threats, which can then be used to shape the company's strategy by taking advantage of favorable trends and mitigating potential risks.

Outlines

00:00

🌐 Introduction to PEST Analysis

This paragraph introduces PEST Analysis, a strategic tool used to understand the macro environment in which an organization operates. It explains the concept of PESTEL (Political, Economic, Social, Technological, Environmental, and Legal) analysis and how it can help businesses make strategic decisions. The paragraph outlines the three levels of a company's environment: internal, micro, and macro. It emphasizes the importance of understanding the macro environment through PEST Analysis to make informed decisions about product development or market expansion. The paragraph also discusses the need for environmental scanning and how it feeds into stress-setting strategy.

05:01

📊 Understanding Macro Factors with PEST Analysis

This paragraph delves into the specifics of PEST Analysis, focusing on the macro factors that can influence an organization. It discusses the impact of political factors such as government actions and legislation on business operations. Economic factors like demographics, fiscal policy, market demand, and infrastructure improvements are also covered, highlighting how they can affect business decisions. Social factors, including lifestyle preferences and education levels, are explained in the context of their influence on business strategies. Technological factors are explored, emphasizing the importance of technological advancements in shaping market opportunities and competitive landscapes. The paragraph also outlines the steps to perform a PEST Analysis, from identifying key factors to collecting and analyzing data, and finally, taking action based on the insights gained.

10:02

🚀 Conducting a PEST Analysis

This paragraph outlines the process of conducting a PEST Analysis, emphasizing the importance of selecting the most relevant factors for an organization. It advises on how to collect information and analyze data to identify opportunities and threats. The paragraph also discusses common pitfalls to avoid, such as making assumptions without hard facts, collecting too much data, and neglecting to track and monitor important factors over time. It concludes with an example of a completed PEST Analysis for a company considering launching an electric car in the UK, illustrating how macroeconomic factors can be used to shape business strategy.

🔍 Conclusion on PEST Analysis

The final paragraph summarizes the lesson on PEST Analysis, emphasizing its role in helping businesses make better strategic decisions by understanding the macro environment. It reiterates the importance of being aware of global trends and how they can impact business operations. The paragraph concludes by expressing hope that the viewer found the lesson enjoyable and looks forward to future interactions.

Keywords

💡PEST Analysis

PEST Analysis is a strategic tool used by organizations to understand the macro-environmental factors that might impact them. It stands for Political, Economic, Social, and Technological factors. In the video, PEST Analysis is the central theme, used to guide businesses in making strategic decisions by examining these external factors.

💡Macro Environment

The macro environment refers to the larger economic, political, social, and technological forces that affect an organization's performance. The video explains that PEST Analysis is used to examine these forces, which are outside the control of the organization but can significantly influence its strategy.

💡Internal Environment

The internal environment consists of factors within an organization, such as employees, assets, technology, and systems. The video contrasts this with the macro environment, emphasizing that PEST Analysis focuses on external factors rather than internal ones.

💡Micro Environment

The micro environment includes factors outside the company but closely related to it, such as suppliers, buyers, competitors, and subcontractors. The video mentions that tools like Porter's Five Forces are used to analyze the micro environment, in contrast to PEST Analysis which is for the macro environment.

💡Political Factors

Political factors within PEST Analysis refer to the impact of government actions and policies on businesses. The video gives an example of legislation requiring companies to be carbon neutral, illustrating how political changes can create both challenges and opportunities for businesses.

💡Economic Factors

Economic factors in PEST Analysis involve understanding a country's economic prospects, such as demographics, fiscal policy, market demand, and infrastructure. The video uses China's economic growth and large market as an example of how economic factors can present opportunities for businesses.

💡Social Factors

Social factors encompass cultural and societal aspects that might affect a business, including lifestyle preferences, education levels, and attitudes. The video mentions the cultural norm of long lunch breaks in France and the expectation of annual promotions in China as examples of social factors.

💡Technological Factors

Technological factors in PEST Analysis pertain to the impact of rapid technological changes on how businesses operate. The video discusses how technological advancements can create new market opportunities or make previously inaccessible markets viable.

💡Environmental Factors

Environmental factors, often added to PEST Analysis to make PESTEL Analysis, consider the impact of environmental issues and policies on businesses. Although not explicitly detailed in the video, it's implied as part of the broader analysis of external factors.

💡Legal Factors

Legal factors, also included in PESTEL Analysis, refer to the laws and regulations that can affect business operations. The video does not provide a specific example, but it's part of the comprehensive analysis alongside political, economic, social, and technological factors.

💡Strategic Decisions

Strategic decisions are significant choices made by organizations to achieve their objectives. The video emphasizes that PEST Analysis helps businesses make informed strategic decisions by understanding the external environment and how it might change.

Highlights

Introduction to PESTEL analysis as a strategic tool for understanding the macro environment.

Explaining how PESTEL analysis helps in deciding between developing a new product or expanding into a new country.

Definition of PESTEL as an acronym for Political, Economic, Social, Technological, and sometimes Legal and Environmental factors.

Description of the three levels of a company's environment: internal, micro, and macro.

Explanation of how PESTEL analysis is used to examine factors in the macro environment.

Importance of environmental scanning as an input to strategy setting.

The impact of political factors on business operations and how they are analyzed in PESTEL.

Economic factors in PESTEL analysis, including demographics, fiscal policy, market demand, and infrastructure.

Social factors such as career expectations, lifestyle preferences, and education levels.

Technological factors and their influence on product or service delivery.

The process of performing a PESTEL analysis, including determining important factors, collecting information, analyzing data, and taking action.

The significance of not making assumptions and collecting hard facts during PESTEL analysis.

The importance of not forgetting about the PESTEL analysis and tracking factors over time.

The pitfall of thinking PESTEL analysis is all that's needed to formulate a market strategy.

An example of a completed PESTEL analysis for a company considering launching an electric car in the UK.

How PESTEL analysis helps in understanding long-term trends and avoiding macroeconomic data overload.

The final takeaway that a better understanding of the world around you leads to better strategic decisions.

Transcripts

hello and welcome to today's lesson

where we're looking at pest analysis or

PESTEL analysis which is a tool that can

help you understand the macro

environment in which an organization

functions next suppose a company is

considering two options should it

develop a new product or should it

expand into a new country how would a

company decide which opportunity is the

right one to pursue where would you even

start in answering this kind of big

strategic question well a pest analysis

can be a useful tool in answering these

big strategic questions now pest is an

acronym standing for political economic

social and technological and sometimes

you'll see it referred to as PESTEL

analysis which is essentially the same

analysis but where you add legal and

environmental factors

now how pass provides a view of the

different macro economic issues that

might affect an organization and the

idea is that by understanding what's

changing in the world around you you

will be better able to make good

strategic decisions now this is

sometimes known as environmental

scanning and it is an input to stress

setting strategy before we look at pest

analysis in detail let's take a quick

step back and look at the big picture to

give you some context you can think of a

company's environment consisting of

three levels now these three levels are

the internal environment the micro

environment and the macro environment

now the internal environment consists of

factors that are internal to the

organization so things like employees

assets technology systems etc the next

level is the micro environment now these

are factors outside the company but

they're still very closely related to

the company so these are things like

suppliers buyers competitors and

subcontractors and the final level is

the macro environment and these are

factors that can influence the

organization but the organization itself

has no control over these factors so

these are things are

political factors economic factors

social and technological factors now

these are the factors that a pest

analysis will examine now before you

decide what your strategy is going to be

it's a good idea to use strategy tools

at all three levels so for example at

the internal level you might use a SWOT

analysis or at the micro level you might

use Porter's five forces for example but

what we are doing today is we're looking

at this macro level using a pest

analysis now the aim of the pest

analysis is to collect information about

macroeconomic factors to gain insight

and this insight can then be used to

make better decisions so first we have

political factors politics and the

action of the government has a huge

impact on how businesses conduct

themselves it also determines how

favorable a country is to do business

with in this part of the pest analysis

is about understanding how shifts in

political power structures might impact

your business so for example consider a

country where the government introduces

a new piece of legislation stating that

all companies must be carbon neutral

within seven years for some businesses

that's going to result in increased

costs but for other businesses that

might provide a huge opportunity in that

country next we have economic factors

and the economic factor is part of a

pest analysis concerns understanding the

economic prospects for a country so for

example you want to look at shifting

demographics fiscal policy market demand

interest rates and how infrastructure is

improving and using this information you

can then determine if it makes sense to

operate within this country or within

this region so for example the economy

of China has grown massively over the

last two decades and that's evidenced by

high GDP growth almost every year and

this GDP growth combines with a huge

internal market of well over 1 billion

people and those two factors combined

present a huge opportunity for many

firms especially because

many Western markets are saturated it's

hard to grow next we have social factors

so these include all factors that are

social or cultural within a particular

country or particular society so they

include things like career expectations

lifestyle preferences education levels

attitudes and entrepreneurial spirit so

for example in France it's still very

common practice for employees to take a

two-hour lunch break in China office

workers expect to receive a promotion

every year now to be successful

businesses simply need to understand

these nuances you know if they're going

to thrive next we have technological

factors and these mean big technology

shifts now rapid technological change

has impacted many businesses since the

Industrial Revolution and technological

factors can influence how you deliver

your product or service to the market

now they can affect both your consumers

and the company itself so for example

does increased smart phone and broadband

usage or for new opportunities for

products or does increased automation

make a previously on economic market

finally accessible now technological

change is obviously vital to staying

competitive from the Industrial

Revolution to the present day it's been

a driving force behind globalization the

basic process to perform a pest analysis

is as follows so firstly determine the

most important pest factories to collect

now there is an almost infinite number

of factors that you could collect to

perform your pest analysis but the key

to a successful pest analysis is to

begin by determining which are the most

important factors for your organization

and the companion article to this video

which I've linked to below the video

provides a big list of factors you might

want to consider collecting to get you

started next step 2 is to collect the

information so once you have determined

the factories you

wants to collect the next step is to

agree who is going to be responsible for

collecting each factor and by when step

three is to analyze the data so now that

you've collected the data you should

have good insight into the major trends

that are taking place so it's now time

to analyze your data and see how that's

going to impact your organization now

this step commonly takes place in the

form of a brainstorming session and in

the session you look for firstly

opportunities what trends can you see in

the data that could provide an

opportunity for your business and second

these threats you know what trends can

you see in the data but have the

potential to undermine or jeopardize

your business now you might find it

useful to weigh each of the factors

according to how it how important it is

to your business and that's going to

highlight the most important factors

which again helps you make better

decisions and the final step is to take

action so once you've completed the pest

you're rarely immediately able to take

action as it turns out and that's

because as we described at the beginning

of the video pest analysis is just an

input to the strategy process there's

many other factors you may need to

consider before deciding your strategy

but one important thing to do is to

decide which factors you will track on

an ongoing basis you should not just

track the data but agree when it will be

reviewed again now some common pitfalls

to avoid when conducting your pest

analysis include making assumptions

rather than collecting hard facts trying

to collect too much data as we've

already mentioned there is an almost

infinite number of factors you could

collect as we've said now also

conducting your pest analysis and then

forgetting about it is a big pitfall

factors that are important to your

business should be tracked and monitored

over time and finally thinking that a

pest analysis is all you need to do to

formulate your strategy for a market it

isn't as we've already covered a pest

analysis is just one input to strategy

creation so here we have an

of a completed pest analysis and in this

example we've created a pest analysis

for a company that is considering

launching its electric car in the United

Kingdom now as you can see from the

image we've collected many macroeconomic

factors but could potentially have a

huge impact on our electric car business

including government policies are very

favorable the local population strives

to be environmentally friendly and this

is especially true for young people and

finally the low range of electric cars

is putting off consumers right now now

what we can do is we can then use these

really important macroeconomic factors

to help shape the strategy of our

business so in summary a pest analysis

involves scaling different macroeconomic

factors to understand long-term trends

and from this you can understand how

these trends might impact on your

business now it helps you avoid

macroeconomic data overload because you

have to decide what factors are the most

important for you to collect what

factors are the most important for your

business and this data can then be used

to help you take advantage of

opportunities locally whilst avoiding

threats now the basic idea as we said at

the beginning of the video is that by

having a better understanding of what's

happening in the world around you you

will be able to make better strategic

decisions so that's it for this lesson

really hope you enjoyed it and I look

forward to speaking to you again soon