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PESTEL analysis
v Is a useful tool for understanding the “big
picture” of the environment in which you are
operating
v By understanding your environment, you

PESTEL ANALYSIS can take advantage of the opportunities and

minimize the threats.
v This provides the context within which
more detailed planning can take place to take
full advantage of the opportunities that
LOGO present themselves.

The factors in PESTLE analysis PESTLE vs. SWOT

vP – Political v In contrast to a SWOT, PESTEL

§ The current and potential influences from political pressures
encourages you to think about the wider
vE - Economic
§ The local, national and world economic impact environment and what might be happening
vS - Sociological now and in the future which will either
§ The ways in which changes in society affect the project

vT - Technological benefit or be of disadvantage to the

§ How new and emerging technology affects our project / organization
organization, individual, etc.
vL - Legal (– a kind of radar which picks up trends and developments in
§ How local, national and global legislation affects the project
the external environment which can be used to inform longer
vE - Environmental term planning and strategy making)
§ Local, national and global environmental issues

PESTEL PESTEL

1. Political 2. Economic
v Stage of a business cycle
v Government type and stability
v Current and projected economic growth, inflation
v Freedom of the press, rule of law and levels of
and interest rates
bureaucracy and corruption v Unemployment and supply of labor, labor costs
v Regulation and de-regulation trends v Levels of disposable income and income
v Social and employment legislation distribution
v Tax policy, and trade and tariff controls v Impact of globalization
v Likely impact of technological or other changes
v Environmental & consumer-protection legislation
on the economy
v Likely changes in the political environment
v Likely changes in the economic environment

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PESTEL PESTEL
3. Sociological 4. Technological
v Cultural aspects, health consciousness, population v Maturity of technology, competing technological
growth rate, age distribution. developments, research funding, technology legislation.
v Organizational culture, attitudes to work, v Information technology, internet, global and local
management style, staff attitudes. communications.
v Education, occupations, earning capacity, living v Technology access, licensing, patents, potential
standards. innovation, replacement technology/solutions,
v Ethical issues, diversity, immigration/emigration, inventions, research, intellectual property issues,
ethnic/religious factors. advances in manufacturing.
v Media views, law changes affecting social factors, v Transportation, energy uses/sources/fuels,
trends, advertisements, publicity. associated/dependent technologies, rates of
v Demographics: age, gender, race, family size. obsolescence, waste removal/recycling.

PESTEL PESTEL
5. Environmental 6. Legal
v Ecological v Current home market legislation, future
v environmental issues, environmental regulations legislation.
v customer values, market values, stakeholder/ v International legislation.
investor values v Regulatory bodies and processes.
v management style, staff attitudes, organizational v environmental regulations, employment law,
culture, staff engagement. consumer protection.
v industry-specific regulations, competitive
regulations.

PESTEL analysis and projects Issues of concern

v It is possible to use the PESTLE analysis on v The main problem with these external PESTEL
projects as well for organizations. factors is that they are continuously changing.
v It is not always needed, especially if the v Therefore PESTEL analysis should include a
projects are small. thorough analysis of what is affecting the
v If PESTEL analysis is used for a project, then organization or a project Now, and what is likely
the focus should be on solving the “focal problem” to affect it in the Future.
v The result of a PESTEL analysis is usually a list
and analyze how the external environment is
of positive and negative factors that are likely to
affecting the process of solving the “focal
affect a project
problem”. § However, by themselves, theses factors they mean very little.
e.g. the guidelines from the European Commission do not § It is important to bear in mind, that PESTLE analysis requires
include PESTLE in their logical framework approach careful Application of results.

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Five forces model Five Forces Model

Threats Of New Entrants
F1: Rivalry among existing Competitors
vCompetitors
•How many direct or indirect competitors are there?
•What are the size of my competitors?
•How diverse are my competitors?
Bargaining Rivalry Among Bargaining vIndustry
Power Of Existing Power Of
Suppliers
Competitors
Buyers •What is the industry growth rate?
•What are the strategic stakes?
vProducts
•How different is my product?
•What are the byers’ switching costs?
Threats Of Substitutes

Five Forces Model Five Forces Model

F2: New Entrants Threats F3: Bargaining power of Suppliers

v Production costs
•Are there any economies of scale?
•What are the capital requirements?
•What is the absolute cost advantage?
v Brand
•How different is the product?
•How strong is the brand identity?
•How high are the switching costs?
v Distribution
•Is it easy to access distribution channels?
•What are the government policies?
vSubstitution
•What are the switching costs of suppliers and firms in the
industry?
•Is there any presence of substitute inputs?
vPlayers
•What is the suppliers’ concentration?
•How high is the concentration of suppliers?
vIntegration
•What is the suppliers’ threat of forward integration?
•What is the buyers’ threat of backward integration?

Five Forces Model Five Forces Model

F4: Bargaining Power of Buyers F5: Threat of Substitute Products

v What is the relative price performance of substitutes?
vBuyer‘s type
•What are the prices of my products comparatively?
•What is the buyer volume? •Are the substitute prices stable? (increase or decrease)
•What are the buyer switching costs relative to the firm’s? v How high are the switching costs?
•Is the buyer capable of backward integration? •What are the differences relative to my products?
vInformation •What would the costs incurred be to change my products?

•How much information does the buyer have? v What is the buyer propensity to substitute?
•What are the buyers preferences on the product category?
•Are they attracted by substitutes or product differences?
•What are the differences regarding my products? (quality, prices)
vBrand awareness
•How does the buyer judge the brand identity?
•How high is the impact of quality/performance?

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OVERVIEW ON SWOT

v SWOT an acronym that stands for

Strengths, Weakness, Opportunities
and Threats.

SWOT ANALYSIS v SWOT analysis is a careful evaluation of

an organizational internal Strengths and
Weaknesses as well as it environmental
Opportunities and Threats.
LOGO

SWOT Analysis Framework Evaluating an organization Strength

Environmental Scan
1. Strength: A firm’s strengths are its
resources and capabilities that can be used
Internal External as a basis for developing a competitive
Analysis Analysis
advantage.
v Patents
Strengths Weaknesses Opportunities Threats v Strong brand names
v Good reputation
v Cost advantages
v Exclusive access to high grade resources
SWOT Matrix
v Favorable access to distribution networks.

Evaluating an organization Strength Evaluating an organization Strength

2. Weakness: for an organization include 3. Opportunities are favorable factors in

internal limitations and negative situational the external environment that can help the
factors that may interfere the organization organization to generate high performance.
mission. v An unfulfilled customer need
v Lack of patent protection v Arrival of new technologies
v A weak brand name v Loosening of regulations
v Poor reputation v Removal of international trade barriers.
v High cost structure
v Lack of access to the high grade resources
v Lack of access to favorable networks.

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Evaluating an organization Strength For external factors

4. Threats are unfavorable external factors Seriousness of Impact

that can create difficulty for organization in Low High

their performance.
v Shift in customer needs away from the firm’s High Minimum
resources if any Must plan for
service
v Emergence of substitute Services/products Probability of
occurrence
v New regulations, and
v Increased trade barriers. Low Maintain
Forget it flexibility in plan

SWOT Analysis Active SWOT Actions

Internal •Weaknesss/Threat: Just Survive,
•People… ST •People… Monitor or invest to build new strength
RE WE
•Resources… NG •Resources… AK STRENGTHS to handle the problem
TH NE WE
•Ideas… S •Ideas… SS AK
ES NE
•Marketing… •Marketing… SS
•Operations… ES
•Operations…
•Finance… •Finance…
Positive Negative
•Competitors •Maximise Strengths and Opportunites •Use a Strength to negate threat and
•Marketplaces
OP •Less demand to create offensive tactics limit damage or turn into opportunity
•Segments PO
RT •New entrants TH OP
•Partnerships UN RE PO TH
ITI •New barriers AT RT RE
•New markets ES S UN AT
•Legislation ITI S
•Reputation building ES
•Change
•Alliances
External

SWOT Matrix SWOT Matrix

v S-O strategies pursue opportunities that

are a good fit to the company’s strengths.
v W-O strategies overcome weaknesses to
Strengths Weaknesses pursue opportunities.
v S-T strategies: identify ways that the firm
Opportunities S-O Strategies W-O Strategies
can use its strengths to reduce its vulnerability
to external threats.
Threats S-T Strategies W-T Strategies
v W-T strategies: establish a defensive plan
to prevent the firm’s weaknesses from making
it highly susceptible to external threats.

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LOGO