PESTEL Analysis

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Application of the PEST Analysis for Strategic Planning
By Ronald Buye Introduction

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Fwww.strategicmanagementinsight.com
A PEST?E analysis is a commonly used for strategic planning . It is used by many to identify the
political, economic, social and technological factors that may have an effect on a project and its planning
process. Sometimes it's expanded to include legal and environmental factors and called a PESTLE
analysis. PESTLE Analysis is sused in organizations in recognizing and thereby capitalizing on
opportunities offered by existing conditions in orgnizational environment. It identifies present to future
challenges.

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Organizations are composed of group of people working together for a common purpose to accomplish
desired goals (North, 1990: 5). Organizations are open systems with subsystems and therefore
paradigm shift is necessary which focuses on interrelationships rather than cause-effects (Senge,
1990).
Organizational development efforts are designed to improve the achieve the organizations goals.
Profit is largely used to measure performance, while for non-profit organizations, performance
is measured in terms of relevance, effectiveness and efficiency. On the whole it’s
therefore important to examine how the external environment affects the organization’s performance.
What happens outside the organization’ sprecincts without a doubt influences
organizational behavior. Consequently, organizational learning should constantly focus on
the milieu to enable an organization to have the ability to develop effective strategies to improve
performance. The article critically examines one of the models used in organizational
analysis abbreviated as PESTLE for political, economic, social, technological, legal and

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environmental(natural)dimension of the external environment. Each of the dimensions is
presented to give justification for the model.
 The macro environment analyzed using the PESTLE is congruently important as the
micro environment.

Organizational environment comprises all factors and forces outside the organization that affect
and can be affected by the organization. The internal setting "consists of those relevant elements and
factors within the boundaries of the organization that influence organizational

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performance they include organizational members, physical infrastructure,
organizational leadership, culture, systems and structure. External environment. The external
environment consists of forces and factors outside the boundaries of the organization that
influence how the organization operates.
The external environment can be direct (micro) or indirect(macro). The external environment can
provide both facilitating and inhibiting influences on organizational performance. Direct environment can
affect its operations. It consists of clientele, suppliers, and competitors or entities that
do similar work.
The most important aspect of micro-environments the clientele. Competitors are also important in
the micro-environment and they include organizations with similar or related products. To
remain competitive an organization should have competitive and comparative advantage
over its rivals. Strengths and weaknesses analysis focuses on all aspects of internal
operations, for example, people, finance, services.
Macro Environment: The macro Environment includes all the factors and forces that are part of
the larger society and also affect the immediate-environment. These factors are not directly under
the control of the organizational but can have serious consequences on organizational
performances.
The factors can be categorized Political, Economic, Socio-Cultural, Technological,
Legal and Environmental.
Organizational analysis:
This is the collection, analysis and use of data focusing on forces from outside the organization more
often than not to improve organizational effectiveness. It’s the process of examining the operations and
performance of an organization. Organization analysis is a diagnostic process that helps to better

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understand the performance of an organization. It can be undertaken after an initial capacity assessment
to obtain deeper knowledge about the causes of organizational weaknesses and to identify
emerging opportunities. The analysis is often carried outdo take action to respond to negative forces. It’s
helpful to be acquainted with forces that have cropped up in the organization such that appropriates
strategies are developed to address the challenges. This is an analytic process that enables organizations to
assess organizational performance, by identifying strength, weakness, threats and
opportunities. There are different organizational analysis tools that can be used which
include: McKinsey 7SFramework,Porter's Five Forces framework,
 PESTLE(political, economic, Social, Technological ,legal and natural
environment),
 SWOT (strength, weakness, opportunities, threats),POCC (potential, opportunities,
challenges, constraints) ;
 SOAR analysis (strength, opportunities, aspirations and results). The focus is on PESTLE
analysis which is one of the tools for conducting environmental scans on the
organizations’ environment they areuseful organizational development tools for
determining organizational growth
decline, organizational current state, capacity and strategic direction.
PESTLE Analysis
The PESTLE Analysis is one of the tools that is used to identify and analyze the key drivers of change in
the organizational environment. The PESTLE Analysis is an acronym for political, economic, Social,
Technological, legal and natural environment. PESTLE analysis is an organizational audit of the
firm’s operations in order to determine the different factors and forces in the external
environment that affect the success of an organization.

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What is PEST Analysis?
PEST Analysis is a strategic framework used to evaluate the external environment for a business by
breaking down opportunities and threats into Political, Economic, Social, and Technological factors.
PEST analysis can be an effective framework to use in Corporate Strategy Planning, useful in identifying
the pros and cons of a Business Strategy. Below we break down each of the4 Factors of PEST – Political,
Economic, Social, Technological originated from Aguilar(1967) who presented
ETPS (Economic, Technical, Political, and Social) in his book Scanning the
Business Environment. . Methods of data collection include in discussions, interviews, and
surveys can be used to assess the internal environment. The tool allows the assessing of the

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current environment and potential changes. It’s based on the premise that organizations that
continuously scan their environment have competitive advantage because it helps in gathering,
analyzing, and usingthe information to improve organizational performance. More so it’s used in
predicting and evaluating the future state of affairs. It’s generally seen as part of SWOT analysis
process because it examines opportunities and threats in the organization’s external environment.
It is a part of the external assessment, appraisal, review and evaluation. as well as the interests
of political. Economic, social, legal economic related stakeholders who can also be identified from the
analysis and included in the results. It is very useful when an organization is commencing or
introducing a different product. PESTLE Analysis
assist an organization in be acquainted with opportunities offered by existing
conditions in the organizational environment. It can also be used for identifying current or possible
future challenges, allowing for effective planning of how to best manage these challenges. The
results of this analysis can facilitate changes or improvements in areas identified. Importance of
environment to identify opportunities and deal with threats It enables the organization understand the
organizational environment
It enables the organization use data in the strategic direction and formulate goals to help realize the
and forces, formulate actio
generates information for the organization to enable them plan and appraise their
operations for improved performance. The Areas Assessed by PEST Analysis2An general
assessment of the different areas that influence that affect of the an different stakeholders as well as
the organization itself, can facilitate more effective strategic planning. The planning can be
undermined to maximize the organization’s ability to capitalize on conditions as they exist, and
to be forewarned of and better prepared for imminent changes, allowing the organization to stay ahead of

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competitors. The political aspect of PEST Analysis focuses on the areas in which government policy
and/or changes in legislation affect the economy, the specific industry, and the organization in question.
Areas of policy that may particularly affect an organization include tax and employment laws. The
general political climate of a nation or region, as well as international relations, can also greatly influence
the organization. The tool allows the assessing of the current environment and potential changes. It helps
ingathering, analyzing, and using the information to improve organizational performance.
Political environment: PESTLE analysis is used to examine how organizations are affectedly the
political environment. For instance the analysis can generate results on the political

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https://www.investopedia.com/terms/p/pest-analysis.asp
https://corporatefinanceinstitute.com/resources/knowledge/strategy/pest-analysis/