PESTEL framework is one of the popular strategy planning tools, it helps organizations to conduct an analysis of the external factors. In this article, we’ll show how a PESTEL template can be used to formulate strategic hypotheses and present them on a strategy map.
Here are the key topics of the article:
- Acronym and its variations – from PEST to PESTEL and LoNGPEST
- Five Steps of PESTEL Analysis – learn how to generate strategic hypothesis
- PESTEL Template – review the starting point of the analysis
- Example of PESTEL Analysis – analysing some popular trends with PESTEL
- Advantages vs. Disadvantages – the benefits and limitations of the framework
PEST analysis provides a framework for the review of macro-environmental factors. The original PEST acronym stands for:
The acronym has a number of variations that add additional external perspectives to the framework.
For example, the popular PESTEL variation adds:
- Environmental, and
LoNGPEST focuses on different geographical scopes:
- Local + National + Global factors + PEST
Whatever variation you use, a general approach to the PEST analysis remains the same. Below, we discuss how this framework can be used during strategic planning sessions.
Five Steps of PESTEL Analysis
Here are the steps of the PESTEL process.
- Take the first component of PESTEL – Political
- Find trends that could potentially influence your organization in the context of this component
- Discuss with your team the possible implications for your organization
- Note down the relevant findings as strategic hypotheses
- Process to the next component of PESTEL
Repeat the process every 6-12 months.
What happens with the strategic hypotheses formulated on step 4? We can use them when building a strategy map:
- We’ll need to convert those findings into strategic goals
- Understand the cause-and-effect logic between them
- Quantify them with leading and lagging metrics or probably KRIs (metrics of risk probability and risk impact)
- Develop action plans as an initiative for the strategic hypothesis
PESTEL Template in BSC Designer
Let’s review the PESTEL analysis template that we have in BSC Designer.
Access the Template
- Sign up with a free plan account or login into an existing account
- Go to the “My Scorecards” section
- Select “New” > “New Scorecard”
- Select “PESTEL Analysis” in the list of templates
The framing idea of the template is:
- Conduct an analysis of the external factors.
The template is presented by six perspectives of PESTEL:
- Political. How may government and other political factors impact our organization?
- Economic. What economic trends could have an impact on our organization?
- Social. What are emerging social and demographic trends?
- Technological. What technological innovations could affect our market?
- Environmental. What ecological aspects influence our business environment?
- Legal. What changes in legislation could impact our organization?
If needed, you can modify the perspectives according to your needs – rename existing perspectives or add a new one. As we have discussed before, original PEST analysis is subject to many variations.
Inside each of the perspectives, you’ll find some examples that could direct your analysis of external factors:
- Government policies (competition, foreign trade, taxes, etc.)
- Political stability
- Bureaucracy and corruption
- Country’s political climate, pending legislation
- Economic growth, inflation rates, exchange rates
- Availability of credit, interest rates
- Unemployment rates
- Purchasing power of consumers
- Changes in demographics (age, growth rate, education level, etc.)
- Workspace and lifestyle changes
- Diversity and inclusion (gender-pay gap)
- Emerging technologies (AI, Big Data)
- Mobile technologies and infrastructure
- R&D incentives
- Climate changes, natural disasters
- Recycling, CO2 footprint, trends in materials (plastic)
- Environmental policies, pollution laws
- Corporate environmental responsibility
- Protection Laws (data, labor, environmental, intellectual property, consumer)
- Tax laws
- Employment laws
- International and trade regulations
Example of PESTEL Analysis
Follow these steps to conduct PESTEL analysis using the template.
Step 1. Review Perspectives
Review the perspectives of the template. Are you fine with classical PESTEL perspectives, or do you need to add/remove some?
Step 2. Update Trends
Look into the trends examples included in each perspective:
- Some might not be relevant for your organization or your country.
- Some emerging trends for your industry might not be reflected.
Update the items within perspectives. Save the updated template to your account to re-use it in future.
Step 3. Discuss Trends
Discuss trends with your team. Map your findings using the “Initiatives” function of BSC Designer.
- We can map “Remote employment is getting more popular” within the “Workspace and lifestyle changes” trend.
- We can map the Sustainable Development Goals (SDGs) as a trend within the “Environmental” perspective. We have discussed it in detail before, so I can add a link to the article in the initiative.
- One of the emerging legal trends is the Personal data protection legislation (GDPR law in Europe).
We mentioned some trends; it’s a good idea to explain why these trends are important for our organization, and what might be a possible response plan.
- We can use the “Initiatives” function to map all necessary details.
For example, for “Remote employment,” a rationale might sound as:
Remote employment is an emerging trend today. Being able to hire talents remotely will allow us to work with professionals all over the world; this will also imply important changes in the way we manage teams.
Step 4. Update Strategy Map
The next step is to formulate the findings of the PESTEL analysis as strategic hypotheses or even specific goals. We can use the popular Balanced Scorecard strategy map approach for this.
Let’s continue with “Remote employment trend” as an example.
We can start with a Learning and Growth perspective where we typically talk about infrastructure and general skills needed. In the context of remote employment, we might have these thoughts:
Impact on HR Systems:
Understand how we can update our talent management systems to find and on-board remote employees effectively.
- Finding talents remotely
- Hiring procedures
How the intellectual property is regulated in the context of distributed teams.
- Intellectual property
- Payments and invoicing
To make the remote employment possible, we also need to update our internal processes:
Impact on Business Systems
What business systems do we need to manage remote teams effectively?
- Communication tools
- Training systems
We need to understand the implications on the customers:
External Customers Implications
Would customers be affected by shifting to a distributed team?
- Time differences
- Local presence
How to keep the remote team engaged and accountable.
- Regular virtual meetups
- Meeting in person
Finally, we map the financial impact of the new trend:
What are the expected impacts on costs? What are the financial benefits of having a distributed team?
- Office costs
- Management costs
It’s important to keep the connection to the rationale behind these hypotheses (in this case, the link to the PESTEL analysis), so it’s a good idea to save the link to the results of PESTEL analysis in the description of this scorecard.
- What we have so far are not the strategic goals, but some aspirations, or hypotheses that we want to test.
From this point, we can:
- Convert this map into a real strategy map
- Use this map for further discussions
- Include the findings of the analysis into the overall talent strategy or specific training strategy.
You can find more ideas about managing remote employees as well as specific KPIs in this article.
In complex cases, moving the findings of strategy formulation frameworks directly to the strategy map might be a challenge. In such cases, use the Strategic Change Agenda framework as a pre-filter. This framework facilitates converting insights into the goals and creates a context for the new goals.
Advantages and Disadvantages of PESTEL
Similar to other strategy formulation tools, the obvious advantage of PESTEL analysis is a more disciplined approach to the analysis of external factors.
What are the disadvantages of PESTEL?
Like many similar frameworks:
- There is no guarantee that all important external factors were analysed
- The framework doesn’t guarantee the quality of the findings
Basically, the framework prescribes starting points for the analysis, but the level of further research depends on the team and its experience.
- Access templates. Sign-up with a free plan at BSC Designer for immediate access to 31 scorecard templates, including PESTEL Analysis Template discussed in this article.
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