PESTEL Analysis EXPLAINED | B2U | Business To You

so you want to map out the external environment of an organization but you don't know where to start 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 - 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 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 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 to macro environmental factors in order to explain it better let's imagine a fictional company 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 closely surrounding the company which are there for external our 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 the task environment now it's very important to realize that even though pestle is looking at external factors it is not looking at these factors like mentioned before pesto 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 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 video very soon so now we have that cleared up let's go into the pestle analysis pestle 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 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 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 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 assessing the attractiveness of a potential market economic factors are determinants of a certain economy's performance factors include the 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 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 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 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 to work under certain conditions 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 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 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 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 environmental factors have come to the forefront only relatively recently they have become important due to the increasing scarcity of raw materials pollution targets and carbon footprint targets set by governments and pressure from NGOs like for example 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 aspects such as weather climates environmental offsets and climate change basically the well-being of our planet growing awareness of the potential impacts of climate change is affecting how companies operate and what kind of products they offer this has led to many 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 employment laws consumer protection laws copyright and patent laws and health and safety laws it is clear that companies need to know what is and what is not illegal in order to operate successfully and rightfully even organization trades globally this becomes especially tricky 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 attorney to help you with this kind of things so all of these factors combine to give a good overview of the general environment out there which factors are most important for your business might vary based on the country and industry 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 use it properly I recommend you to calculate weighted averages of the available options you have imagine you are a European company and you're thinking of entering the South American markets but you don't know which country to enter first what you could do is 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 for each factor per country in the end you are able to give each option the weighted average great and compare them to each other so you might be wondering where to get the data from you will actually be surprised how many of the 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 country and of course I'm here to help you out so I included some useful links in the description down below if you like business-related stuff feel free to subscribe to not miss out on any of our future videos and if you have any 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 the discussion going thanks for watching and don't forget alone we are smart together we are brilliant see you next time [Music]

Channel: Business To You

Views: 409,497

Rating: 4.9555616 out of 5

Keywords: PESTEL, PEST, PESTLE, PESTEL Analysis, External Environment of Businesses, Strategy, Business, Tutorial, Business To You, B2U, External Analysis, Macro Environment, Political, Economic, Social, Technological, Environmental, Legal

Id: bYn4CyL3r5w

Length: 9min 49sec (589 seconds)

Published: Tue May 22 2018