This is a framework that is used to analyze and monitor the macroenvironmental forces that influence an organization. These factors are Political, Economic, Social, Technological, Environmental, and Legal which make up the acronym PESTEL.
The framework was previously referred to as PEST analysis before the addition of the environmental and Legal factors were added. American Scholar Francis J Aguilar is credited with developing the concept of the PESTEL analysis in the 1960s.
The concept is now widely used in business analysis to identify threats and weaknesses.
Political factors - this refers to government policies, changes in leadership, international policies, trade policies, tax regulations, etc.
Economic factors - this refers to projected economic conditions, interest rates, labor cost, income, economic growth rate, unemployment rate, job growth, and changes in the economy.
Social factors - this refers to social-cultural factors like demographics (age, population size, gender), education, religious beliefs, values and ethics, buying habits, opinions, etc.
Technological factors - this refers to the role of technology in business whether it’s in product development, marketing strategy, logistics, customer services, etc.
Environmental factors - this includes carbon footprints, pollution standards, availability of raw materials, and all ethical considerations that a business must consider while doing business in any environment.
Legal factors - this refers to issues like health and safety, employee rights, equal opportunities, product safety, consumer rights, and all other legal obligations that must be met.
PESTEL analysis is used in strategic business planning, risk management, and even financial analysis. The framework is often used alongside other important frameworks like SWOT analysis, Porter’s Five Forces, and Ansoff’s Matrix.