Sometimes known as the STEP analysis, PESTEL stands for Political, Economic, Social, Technical, Environment and Legislative. It is a great tool for any size organization who would like to have a simple to use tool for understanding the external forces influencing their market and performance. If you would like a good tool for external forces, I would recommend using this one.
PESTEL is a strategic planning tool; it helps you see the landscape beyond your own market. This is important because as we are seeing in the stock markets, what happens in China, does impact what happens on Main Street. The PESTEL is great for ensuring you don’t thinking yourself into a vacuum. There are times when an organization thinks itself too internally and forgets to understand the power of the outside forces. PESTEL helps to remind people, there are forces out there, directly and indirectly, impacting how your business performs.
A PESTEL can be used with other tools such as a SWOT analysis, helping you understand in some cases, why a particular service or product is performing the way it is. For example, say you have a product that has seen significant decline in the past few years in terms of sales volume in your traditional markets. A SWOT analysis may reveal that the market has matured and their tastes have changed to the point they are out growing your product. A PESTEL may indicate that external forces that created the change in your traditional market have created opportunities in new markets outside your traditional market. Economic growth and legislative changes may have created an opening in new geographic areas that now give you access to new markets that do want your product. There are thousands of variables that can help you see this.
A PESTEL can be used in Scenario based forecasting. These are your “what if” situations. You can take the PESTEL data and forecast future trends and develop a more global and typically better forecasting model for your Scenario based forecasts.
The down side to a PESTEL is that it will generally give you general data, this is a lot of economic and trend data you can find in the Wall Street Journal. For a small business, that’s just fine, that level of information is generally all you need. If you want a more detailed and robust tool, you need to move up to the Market Review Tool which does create a more detailed picture.
PESTEL is simpler to use than the Market Review tool which is a rather advanced tool that does the same and then some. It provides more detailed analysis, but also you really need to know what you are doing in order to perform the Market Review. For those of you who are a small business owner or a start up, a Market Review is probably more work than you want or need. In a larger organization, you need someone who is a marketing analysis expert in order to do a Market Review, otherwise you are going to end up with a lot of misleading information. If you don’t have such a person, go with a PESTEL instead. I ONLY recommend the Market Review if you have someone who really understands market forces and marketing principles. I’ve done many Market Review analysis and am quite good at it, but I also know the pitfalls and what to look for in terms of the data getting warped by biases. If you don’t have someone who knows this tool well, they just might snap in frustration. So stick with the PESTEL or hire someone like me who knows the Market Review.
Either way, get someone to do the external analysis for you and tie it in to your marketing efforts, it is very simple to do and saves a lot of money when used properly.