PESTEL Analysis: Overview, Key Factors, and more!

Has a new threat ever appeared in your business that you didn't have in mind until a few months ago? Welcome to the world of entrepreneurship, that's why from now on you should use the PESTEL analysis.

It's a mechanism that more and more corporations use to detect all those external forces that can negatively influence your business. 

Let's say that it works as a way to "shield" the project against possible bullets, although you know that you're never 100% safe in the economy, right? 

Would you like to be more relaxed in your day-to-day? Let's take a look at it:

What is PESTEL analysis?

We define PESTEL analysis as a mechanism that gives you the possibility to know the external situation of the company. It allows you through various analyses to identify possible threats from different triggers. 

In general it focuses on elements such as:

• Economic.

• Political.

• Environmental.

• Sociocultural.

• Psychological.

• Legal.

This scheme is fundamental because it demonstrates how the PESTEL analysis works. Each line is a factor that could negatively influence your project, so you must analyze all the variables involved in each one in order to take action. 

In other words, it keeps you alert to hypothetical scenarios you might encounter in the medium and long term, which helps you create alternative plans to ensure the company's stability. 

What can I use it for?

It's important to remember the importance of strategic planning in the business world. Improvisation is never a good thing, especially when you have people who are financially dependent on the organization's performance.

That's why we say that PESTEL analysis will be your new business ally. With it you will have everything under control and you will know what is cooking in the market so it won't ever take you by surprise. 

Plus, we love the fact that it takes into account factors that are of great importance to the market. Some examples would be:

• Change of government with new economic policies.

• Sudden increase in prices of products and services.

• Atmospheric phenomena that will affect the supply chain.

• Change in the regulations that regulate your sector.

It's time to take a look at the PESTEL analysis so that you can arm yourself against the threats in the environment.

6 PESTEL analysis factors

Let's take a closer look at the factors studied in PESTEL analysis:

1. Political

The government policies of a state greatly influence the possibilities of citizens and their businesses. Therefore, you have to be aware of everything that happens in the highest political spheres. 

Yes, we know you hate that news, but there's nothing we can do about it. The government can either incentivize or destabilize the business climate that exists in the nation.

However, PESTEL analysis will protect you from many threats. Here you should be aware of:

• Regulations.

• Changes in tariffs.

• Expropriations.

2. Economic

Here we talk about macroeconomic elements that may affect you depending on the sector in which you operate. What do we mean? Key factors such as:

• Inflation rate.

• Deflation.

• Interest rates.

• Legal reserve.

• Exchange rate.

• Unemployment rate. 

Imagine that your country's central bank projects an inflation rate of 80% for the second quarter of the year. This would greatly affect your project's operations, so you must prevent this type of situation. 

3. Socio-cultural

Your company's operations can be affected by seemingly insignificant elements such as socio-cultural ones. 

Religious beliefs, cultural formation of the citizens, educational level, or consumption habits, for example, intervene here. 

You may be a resounding success in your city, but it's likely that in another town you will not do so well due to the cultural beliefs of its citizens. Take this into account before thinking about expanding into new markets. 

4. Technological

Technology can be an ally or an enemy of your business, depending on how you adapt to new changes. 

Therefore, if you elaborate a PESTEL analysis, you will be aware of those innovations that could take you out of the market. Artificial intelligence, metaverse and many more are some examples of what you will encounter in the coming years.

5. Environmental

Environmental causes are becoming more and more influential in the economy. Today we find people who are very committed to the environment and are willing to bring it into any area of their lives. 

That's why we find customers who don't buy chemical products or consider themselves 100% vegan. So, if this trend increases in your market, you will have to make timely changes or your business could suffer serious problems.

6. Legal

We cannot leave aside the legal field. Regulations govern our society and businesses are not left out of the loop. 

You always have to be aware of details such as new permits, discussion of laws, changes in regulations and much more. 

Steps for a successful PESTEL analysis 

There's no doubt that the PESTEL analysis is the ideal option to get ahead of the problems that in one way or another will arrive. 

Let's now take a look at the steps you should follow to implement it.

Step 1: Determine your political factors

The first thing you need to do is to determine the political factors that could affect you negatively. 

Do your PESTEL analysis and add the following elements:

• Electoral processes.

• Change of government.

• International agreements. 

Do not underestimate any of them, it's better to be safe than sorry, especially when there's so much money involved. 

Step 2: Choose your economic factors

We are all vulnerable to macroeconomic elements. Your job is to detect which ones will hurt you the most in order to take action. 

The following list may help you:

• GDP.

• Inflation rate.

• Unemployment situation.

• Increase in bank credit.

• Minimum wage increase. 

• Special taxes.

Step 3: Identify the socio-cultural elements.

In the sociocultural factors you should pay attention to:

• Demographic details of your ideal customer.

• Educational level.

• Lifestyle.

• Religious beliefs.

• Among others. 

Step 4: Add technological factors

What we love about the PESTEL analysis is that it will warn you of those innovations that could take you out of the market. Pay attention to the following list: 

• Payment gateways.

• Artificial intelligence.

• Cryptocurrencies.

• Cloud storage.

Step 5: Don't forget environment

Did you know that up to 64% of users make sustainable choices when buying a product? It's time for you to start implementing organic practices so you don't get left out of the playing field. 

In this sense, take into account transcendental elements such as:

• Organic agriculture.

• Climate change.

• Chemical-free products.

• New environmental policies.

Step 6: Add the legal elements

Finally we have to add those legal elements that could hinder your business operations. There we find:

• Tariffs.

• Permits.

• Changes in the legal framework.

No matter the company you have, the PESTEL analysis is transcendental to ensure the future of your business. Forget about improvisation and start acting under a work plan that contemplates all the threats that may arise. 

Why else do you think it's FUNDAMENTAL to perform a PESTEL analysis? We'll read you!