How to analyse an organisation’s environment using the PESTEL model

The PESTEL analysis is usually done before setting up a project or in organisations to assess to which extent external factors may benefit or harm an organisation’s strategy or initiative. With this resource we explain what this model is about and how it can be used.

What is the PESTEL model?

The PESTEL analysis is an environmental assessment tool that helps identifying the opportunities and threats in an organisation. This tool usually precedes the creation of a SWOT analysis and is especially useful for strategic, marketing or financial plans. The goal is to understand the factors that shape the general framework of an organisation as explained in this Strategic Plan for Social Action Nonprofits.

A PESTEL analysis looks at five environmental factors, one for each letter: Political, Economic, Socio-cultural, Technological, Environmental and Legal. Originally, this model was known as the PEST analysis, but with growingly complex environments, the legal and environmental dimensions.

Why is this important?

Organisations work in a changing environment that affects their behaviour. A strategy’s success will depend more or less on external factors that an organisation cannot control.

All organisations are conditioned by the environment and, at the same time, these organisations have an influence on the environments, as the role of entities is to change the status quo they disagree with. To transform the environment, they need to have clarity on the current rules of the game and the system’s foundations, meaning they need to know what enemy they are fighting.

This is why it is recommendable to carry out a PESTEL analysis before starting any non-profit organisation or large project. This technique will give us clues as to the degree of success a strategy may have.

What should be included under each factor?

The Henley Business School, in the United Kingdom, defines the factors in the following way:

• Political factors (P): Here one needs to look into the political situation surrounding an organisation. If it is in Barcelona, for instance, one should look at the political situation in Spain, in Catalonia and in Barcelona, and what are the main policies in the field of labour, taxation or trade, for example.
• Economic factors (E): This includes a country’s economic growth, GDP, grants and public subsidies, Budget…
• Social factors (S): This focuses on cultural aspects, changes in consumption patterns, collaboration dynamics or fundraising. This should also include information on population growth or the level of education.
• Technological factors (T): including aspects such as research or investment in R&D, the pace of technological changes or job automation.
• Environmental factors (E): This section should look for specific regulations on the environment, the geographic area of an organisation, as well as social awareness on sustainability and trends that may affect an organisation.
• Legal factors (L): Last but not least, this section should list the main legislation that affect an organisation’s activity.