PESTEL Analysis EXPLAINED | B2U | Business To You

Learn how to use PESTEL analysis to evaluate the macro external environment of a business for better strategic decisions.

Key Takeaways

PESTEL is a comprehensive tool to analyze macro environmental factors affecting businesses.
It differs from task environment analysis, which involves direct interactions like competitors and suppliers.
Understanding each PESTEL factor helps businesses anticipate external risks and opportunities.
Political and legal factors can significantly influence market attractiveness and operational decisions.
Social and environmental factors are critical for marketing and sustainability strategies.

What the video covers

PESTEL analysis helps map out the macro external environment of an organization.
It focuses on six key factors: Political, Economic, Social, Technological, Environmental, and Legal.
The analysis is useful for new businesses, market entry, or industry changes.
Distinguishes between internal environment, task environment, and general (macro) environment.
Political factors include government policies, stability, corruption, and trade policies.
Economic factors cover growth, inflation, exchange rates, income levels, and unemployment.
Social factors involve demographics, cultural norms, lifestyle, and workforce characteristics.
Technological factors relate to innovation, regulations, and technology impact on industries.
Environmental factors address ecological and sustainability issues relevant to industries.
Legal factors include laws on discrimination, antitrust, and regulations affecting business operations.

Chapters

What does PESTEL stand for?

PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors, which together cover the macro external environment affecting a business.

How is PESTEL analysis different from Porter's Five Forces?

PESTEL focuses on macro environmental factors with a one-way effect on the company, while Porter's Five Forces analyze the task environment involving direct interactions like competitors and suppliers.

Why is it important to consider environmental factors in PESTEL?

Environmental factors address ecological and sustainability issues that can impact industries differently, such as oil and automotive sectors being more affected than software industries.

Full Transcript — Download SRT & Markdown

Speaker A

So you want to map out the external environment of an organization, but you don't know where to start. The 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.

Speaker A

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

Speaker A

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.

Speaker A

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

Speaker A

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 at macro environmental factors. In order to explain it better, let's imagine a fictional company.

Speaker A

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

Speaker A

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.

Speaker 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

Speaker A

Closely surrounding the company, which are there for external, are competitors, suppliers, distributors, customers, or strategic partners. This external element, so to speak, is in direct contact with the focal company. They interact with one another. It's a two-way relationship.

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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

Speaker A

Sometimes this part of the external environment is called the task environment. Now, it's very important to realize that even though PESTEL is looking at external factors, it is not looking at these factors like mentioned before. PESTEL 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.

Speaker A

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

Speaker A

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 a video about very soon.

Speaker A

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

Speaker A

So now we have that cleared up. Let's go into the PESTEL analysis. PESTEL 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.

Speaker A

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

Speaker A

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.

Speaker A

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

Speaker A

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.

Speaker A

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

Speaker A

Furthermore, the government 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.

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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

Speaker A

Economic factors are determinants of a certain economy's performance. Factors include 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.

Speaker A

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

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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.

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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

Speaker A

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.

Speaker A

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

Speaker A

These factors are especially important for marketers when targeting certain customers. In addition, it also says something about the local workforce and its willingness to work under certain conditions.

Speaker A

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

Speaker A

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 free to adapt it in a way that suits you.

Speaker A

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

Speaker A

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.

Speaker A

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

Speaker A

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.

Topics:PESTEL analysismacro environmentbusiness strategyexternal factorspolitical factorseconomic factorssocial factorstechnological factorsenvironmental factorslegal factors

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