Background on PESTEL analysis
· PESTEL analysis is a strategic tool used to analyse an organisation’s macro-environment. An organisation’s environment comprises of three layers, 1) Competitors; 2) Industry; and 3) Macro-environment.
· As an acronym for political, economic, social, technological, environmental factors, PESTEL assesses how these factors may impact on business strategy and future business performance.
· Understanding PESTEL factors is the key to writing a good PESTEL analysis.
Figure 1: The layers of an organisation’s business environment
· The macro-environment comprises the broad environmental factors that affect virtually all organisations. The PESTEL framework can be used to discuss how future trends in PESTEL factors can affect an organisation. PESTEL analysis gives raw information from which it is possible to identify key drivers of change. Key drivers of change are in turn used to construct scenarios of possible future outcomes.
· Key drivers for changes are factors in the environment that highly impact on the success or failure of business strategies. Scenarios consist of detailed and feasible views of how an organisation’s business environment might progress in future based on those key drivers of change which are highly uncertain.
Johnson G., Scholes K., & Whittington, R. (2008). Exploring Corporate Strategy: Text and Cases (8th ed.). Essex: Pearson Education.
Specific tips on how to write PESTEL analysis
1. Using an organisation’s latest annual report
· From the annual report, read the CEO’s opening remarks. Usually, an organisation’s CEO might mention factors that have affected the firm’s performance for the year of review. For instance, there might be increased government regulations which according to the PESTEL framework, falls under Political factors. Other factors will also usually be mentioned in other areas of the annual report. These factors can be used in research writing to discuss the business environment.
· Environmental factors can be obtained under the corporate government report section of the annual report. Some corporations have corporate reports written as separate reports. However, since an organisation is unlikely to paint itself in negative light, it is good to seek other sources for a more balanced view.
· Some economic factors that affect a business, for instance, fuel prices can be obtained from the CEO’s comments or notes in the financial analysis section of the annual report.
· Another source of factors can be found under an organisation’s Form 10-K report. This section mentions aspects concerned with the organisation’s business environment which can be used to write a PESTEL analysis.
Note: One cannot entirely rely on a company’s annual report and other sources should be sought in order to obtain more balanced factors.
2. Use of other sources
· To write PESTEL analysis, industry publications and surveys are useful for obtaining additional information. Search for relevant industry publications. For instance, in the airline industry, there is the industry monitor, IATA annual review, CAPA, ATW etc. These can be found in the internet. Other sources include national aviation authorities for instance, Indian Aviation Authority (IAA) etc.
· Journal publications on research may be useful; these can be found at Google scholar and better yet, from journal databases. It may be useful to know consumer perceptions on environmental issues and how these perceptions affect a company’s brand image. The search date needs to as recent as possible.
3. Use of online news sources
· Academic research writing usually demands the use of latest material which is reputable. In writing PESTEL analysis, online sources provide current news but should be from reputable sources. An example of reputable online newspapers and magazines include CNN, BusinessReview, TheGuardian, Forbes etc.
· During search, typing a phrase like “Toyota, Forbes, and environment” in Google search will yield a news article related to Toyota’s environmental issues published in Forbes magazine – information gathered can be used to write PESTEL factors concerned with Toyota’s environmental issues. Further, searching within the online newspaper’s search box may yield more specific news items for the organisation in question.
Examples of PESTLE analysis – writing PESTEL analysis for EasyJet
EasyJet’s PESTEL analysis covering the period of 2012 is shown in figure 2 below:
Figure 2: EasyJet’s PESTLE Analysis