PEST Analysis (PESTLE) Explained with Example
Summary
TLDRToday'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
🌐 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.
📊 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.
🚀 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.
Mindmap
Keywords
💡PEST Analysis
💡Macro Environment
💡Internal Environment
💡Micro Environment
💡Political Factors
💡Economic Factors
💡Social Factors
💡Technological Factors
💡Environmental Factors
💡Legal Factors
💡Strategic Decisions
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
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