PESTEL Framework: The 6 Elements of a PESTEL Analysis

The PESTEL framework is a template businesses use to look at how various external factors will affect their practices. PESTEL is an acronym that stands for political, economic, social, technological, environmental, and legal.

This framework grew out of the earlier PEST analysis, an approach that evolved as companies began to focus more of their energies on environmental and legal factors. People write PESTEL analysis and PESTLE analysis interchangeably. They are the same—the only difference is how you decide to write the acronym.

With the PESTEL framework, companies can gain a competitive advantage as they more deeply commit to corporate social responsibility (or CSR). This type of analysis can power a company’s individual economic growth and inform a business as to how it can better adapt to and follow external legal standards and social mores.

The PESTEL framework helps you understand your overall business environment. These are the macro-environmental factors it tracks:

1. 1. Political factors: Complete political stability from one administration to the next is hard to guarantee. By taking changing political factors into account, businesses can prepare to alter their own practices should new employment laws, foreign trade policies, deregulation actions, or trade restrictions arise. Similarly, they can watch for any incentives and subsidies the government might offer them to expedite certain processes.
2. 2. Economic factors: The broader economy has a powerful influence over both companies and consumers. Inflation rates, tariff and tax policy, exchange rates, gross domestic product (GDP) growth, and more all affect how companies can operate since they directly affect the disposable income levels and purchasing power of their customers.
3. 3. Social factors: Broader cultural factors and social trends greatly impact businesses. For example, if the age distribution of a society is skewing younger rather than older, companies that tailor their products to older generations might need to adapt to survive and thrive. Social movements—whether they reflect a broader health consciousness or calls for greater consumer protection—can also help you decide how to adapt your company’s practices to contemporary norms.
4. 4. Technological factors: From one year to the next, technological change proves constant—and new technology opens the door into new markets. Keep an eye on automation trends, data protection laws, and innovations both inside and outside of your industry. Use this sort of external analysis to further your internal research and development goals.
5. 5. Environmental factors: In an era of ecological crises and climate change concerns, it’s more important than ever for businesses to pay attention to environmental issues as they arise. This facet of PESTEL analysis informs companies as to how they can reduce their carbon footprint, respond to natural disasters, and increase their sustainability.
6. 6. Legal factors: This PESTEL factor differs from its political counterpart because it focuses on current laws rather than potential ones. In order to maintain both integrity and profitability, a company must observe all relevant intellectual property and antitrust laws. Adhering to antidiscrimination laws is also essential.

PESTEL analysis (standing for political, economic, social, technological, environmental, and legal) can set your company up for success. Here are three tips for using the PESTEL model to help you with business planning:

1. 1. Combine the analysis with others. The PESTEL framework takes a broad look at external trends, allowing you to adapt your business to them. In other words, it helps you spot a wave on the horizon. Take what you’ve learned about interest rates, policy shifts, and more and combine it with other forms of analysis to predict market trends even more concretely. Try out a SWOT analysis or consider using Porter’s Five Forces to complement the PESTEL model in your strategic planning.
2. 2. Revise your findings. If you read enough PESTEL analysis examples from your company over time, you’ll learn they shift in their focus as often as the trends in each of the core six factors do. Demographics, trade policies, and social expectations change constantly. Update your PESTEL findings regularly based on new data about any of the six factors.
3. 3. Understand the limitations. Even with the most ironclad understanding of government policies, economic trends, and technological news, you might still find the results surprising. It’s completely normal—nothing is totally predictable. Raw materials might not show up on time, the stock market might take an unexpected dip, or the unemployment rate might rise due to unforeseen circumstances. In any case, remember the PESTEL framework can help prepare you as much as possible for a world of constant flux.

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