This article explores the difference between the PEST and the PESTEL framework – what that additional “EL” is referring to and why it gets added to the framework.
PEST: Political, Economic, Social, and Technological
When considering environmental factors that can influence firms, the original framework was the PEST framework. This included political, economic, social, and technological factors that could influence firms. Four key areas that can change and significantly influence the environment that companies operated in.
In addition to each of the four original PEST factors being important, the acronym in many ways captures the original intent – factors of the firm’s broad environment that can be a ‘pest’ for firms – changing environments that may impact the firm’s strategy. While there are opportunities to capitalize on changing environmental factors, these are certainly components that companies need to monitor to ensure that a changing environment does not negatively impact the company.
PESTEL: PEST + Ecological and Legal
The PESTEL framework adds an additional two components, not in the original PEST framework – ecological (or environmental) and legal:
Ecological / environmental
The first new component added is ecological – the natural environment. Global warming and natural disasters can both have a disruptive impact on organizations. Similarly, while the PESTEL framework significantly predates Covid, a global pandemic can likewise significantly impact organizations and their success.
The addition of the ecological component thus is intended to help ensure that firms do not lose sight of the natural environment that they are operating within, and the impact that it can have on their business.
The other component added in the PESTEL framework is Legal. This sometimes causes confusion – how is legal different from political? While there are clear connections between the legal component of the PESTEL framework and the political – many political decisions are enacted in laws – there are also some additional parts. One way of thinking of the difference is to make the distinction between what the laws and regulators are (political) and how the laws and regulations are implemented (legal).
Often regulators have large discretion in what companies they will prosecute and the penalty associated with various wrongdoings. The uncertainty for firms is not in the political arena per se, but rather the legal of how the enacted laws will be implemented.
Final thoughts: Drawing attention to the external environment that the firm operates in
Regardless of whether you are using the PEST or the PESTEL framework, the key takeaway of both approaches is the same – it is important to be aware of changes in the external environment, and to take them into account in the firm’s strategy. The buckets of factors are really there to draw attention to some key dimensions that may impact firms.