PESTEL Analysis: What Is It and How Does It Help in the Strategy?

What is PESTEL Analysis?

The Analysis PESTEL It is one of the best-known tools together with the SWOT analysis, to carry out a macroeconomic and strategic analysis of a company's situation.

This analysis allows identify external factors that may affect the activity and normal functioning of companies. Good companies use this analysis to keep up to date with everything around them to be able to make decisions in real time. A quick reaction can prevent greater evils in the long term.

PESTEL Analysis Factors

Political Factors. They come to be broadly speaking, the degree of government intervention in the economy. These political factors include tax, legislative and commercial terms, as well as the degree of political instability. It should be noted that government activity has a large influence on a country's health, education and infrastructure. This affects practically all other factors, so political stability is of vital importance.

Factors Economical. They are those that directly affect the economy such as: inflation rate, exchange rates and interest rates, among others. These factors have a great impact on companies, since, for example, if interest rates are very high, companies will have more difficulty obtaining financing and because it will be much more expensive.

Factors Sociales. They include the cultural aspects, the population pyramid, the level of education of the population and security. To give a concrete example, a population with an index of elderly people seriously affects the long-term economic health of society. The labor force is shrinking, the active population is falling and the financial effort to cover pensions is greater. This factor is currently occurring in Spain, where births are very low and the tendency is for the population pyramid to reverse.

Factors Technological. In general terms, they are those activities that encompass the R+D of a nation. Technology is advancing by leaps and bounds, so a company that has large technological advances, can avoid many of the risks that can affect your normal functioning.

Factors Eco-friendly. Climate change has a major influence on companies. Some industries, such as tourism, insurance companies and farming companies, are the most affected. On the other hand, it should be noted that there are many companies that are increasingly aware of the environment such as Tesla or Apple, are managing to improve their reputation for helping the planet.

Legal Factors. They include the entire legislation. Anything that involves the compliance with established laws. It is very important to know the current legislation and how the changes that occur affect companies both directly and indirectly.

Advantages of PESTEL Analysis

1. Anticipation. PESTEL analysis allows users to see the trends that the market is taking and to anticipate them in order to take action positions. Having a constant knowledge of all the variables that surround a company is crucial to be able to pilot the different strategies and to be able to adapt to any change. If, for example, there are signs of an economic recession, more conservative positions must be taken and financially hedged.

2. Adaptation. It is adapted to each specific case. It has already been mentioned that there are factors that can be included within others. For example, the legislative can be integrated into the political and the industrial can be included in the economic one. It should be noted that the political factor affects practically all the others, since the government has a lot of power to act.

3. Decision-making. It helps to make decisions and to adapt better to changes. This point has a lot of synergy with the first one, since once we see how the market can fluctuate, it's time to make decisions and assess which of them will bring the best results according to the objectives set. Changes in government tend to be a reason for alert for any company, since a shift in the tax burden causes short-term profits to deteriorate.