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PEST (EL) Analysis - Https://kfknowledgebank - Kaplan.co - Uk/business-Strategy/strategic-Analysis/pestel

The PESTEL model is a strategic analysis tool used to assess the macro-environmental factors that may have a profound impact on an organization. It stands for Political, Economic, Social, Technological, Environmental, and Legal factors. The model helps analyze how these six external factors affect key aspects of the strategic planning process for an organization.

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164 views

PEST (EL) Analysis - Https://kfknowledgebank - Kaplan.co - Uk/business-Strategy/strategic-Analysis/pestel

The PESTEL model is a strategic analysis tool used to assess the macro-environmental factors that may have a profound impact on an organization. It stands for Political, Economic, Social, Technological, Environmental, and Legal factors. The model helps analyze how these six external factors affect key aspects of the strategic planning process for an organization.

Uploaded by

Salah Uddin
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PEST(EL) analysis - https://kfknowledgebank.kaplan.co.

uk/business-
strategy/strategic-analysis/pestel
PEST(EL) is a model used in strategic planning.

The PEST model was developed first and looks at the macro-environment, as part of a strategic analysis of the
external environment, using the following headings:

 Political. The political environment includes taxation policy, government stability and foreign trade
regulations.
 Economic. The economic environment includes interest rates, inflation, business cycles, unemployment,
disposable income and energy availability and cost.
 Social. The social/cultural environment includes population demographics, social mobility, income
distribution, lifestyle changes, attitudes to work and leisure, levels of education and consumerism.
 Technological. The technological environment is influenced by government spending on research, new
discoveries and development, government and industry focus of technological effort, speed of technological
transfer and rates of obsolescence.

Some writers have extended this to a PESTEL analysis by separating out the following additional factors:

 Ecological/environmental. The ecological environment, sometimes just referred to as 'the environment',


considers ways in which the organisation can produce its goods or services with the minimum environmental
damage.
 Legal. The legal environment covers influences such as taxation, employment law, monopoly legislation and
environmental protection laws.

Overall, the model should allow a business to assess the growth prospects for the industry within which the
organisation operates.

Some of the PESTEL influences may affect every industry, but industries will vary in how much they are affected.

For example, an interest rate rise is likely to affect a business selling cars (car purchase can be postponed) more
than it will affect a supermarket (food purchase cannot be postponed).

The PESTEL model


Political / legal factors

The addition or removal of legislative or regulatory constraints can pose major strategic threats and opportunities.
The organisation needs to know:

 What changes in regulations are possible and what will their impact be?
 What tax or other incentives are being developed that might affect strategy?

Economic factors

Economic factors include interest rates and exchange rates, as well as the general state of the economy (e.g.
entering or emerging from a recession). The organisation needs to know what the economic prospects and inflation
rates are for the countries that it operates in and how will they affect strategy.

Social / cultural factors


Social / cultural factors include changes in tastes and lifestyles. They may also include changes in the demographic
make-up of a population.

For example in Western Europe people are living longer and in most countries the birth rate is falling, leading to an
ageing population. This has obvious implications for the types of products and services which businesses and other
organisations may plan to offer.

Typical questions that need to be answered include:

 What are the current and emerging trends in lifestyles and fashion?
 What demographic trends will affect the size of the market or its sub-markets?
 Does the trend represent opportunities or threats?

Technological factors

Technological factors may include changes in retailing methods (such as direct selling via the Internet), changes in
production methods (greater use of automation), and greater integration between buyers and suppliers via computer
link-ups.

The managers would need to know to what extent the existing technologies are maturing and what technological
developments or trends are affecting or could affect the industry.

Environmental factors

Environmental factors include product stewardship, which considers all raw materials, components and energy
sources used in the product and how more environmentally friendly substitutes could be used.

They also include ways in which product and product waste could be more effectively recycled.

Typical questions that need to be answered include:

 Are we adhering to the existing environmental legislation?


 Are there any new product opportunities that could be exploited that would have a favourable environmental
impact on the market?
 What impact will future environmental legislation have?

Criticisms
A PEST analysis is useful for identifying sources of change in an industry and hence highlighting growth
opportunities. However, just because a market is growing, it does not necessarily follow that a firm can make profits
within that industry.

This was the main reasoning behind Porter developing his five forces model.

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