The benefit of PESTEL analysis: Increasing firm success

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The PESTEL framework (sometimes shortened to just the PEST analysis) is one of the most famous strategy frameworks for analyzing changes in your company’s broad environment. This article examines why this framework is so useful and the importance of understanding trends in a firm’s broad environment for managers. 

Systematically examine all parts of the broad environment

Part of the value of the PESTEL framework is that it helps you systematically examine all parts of your firm’s broad environment. It is easy to forget parts of your environment – potentially focusing overly on customer or technology changes. Applying the PESTEL framework helps ensure that you consider each of the Political, Economic, Social, Technological, Ecological, and Legal factors.

Understand changes in your environment

The real value of the PESTEL framework is that it allows you to identify changes in the environment – potentially before they have directly started to impact your company. Potentially you are able to identify new technologies that will have an impact on your firm, or social trends that are worth taking into account with your strategy.

Gradual changes are often missed by organizations. Unless you specifically consider the broad environment, it is possible that you will miss changes that are occurring over the course of many years. 

Capitalize on opportunities

Identifying trends that are occurring in your environment makes you well placed to capitalize on the opportunities. Identifying trends in advance of your competitors may allow you to take advantage of opportunities in advance of them being able to recognize them – potentially giving you a first-mover advantage if you are able to capitalize on the opportunities before your competitors have identified them. 

Reduce your exposure to threats

Being aware of changes in your environment may also allow you to sense possible threats that can impact your business. The greater awareness that you have of changes in your environment, the better placed that you will be to conduct contingency planning to mitigate the possibility of the trend -potentially giving you a window to implement changes before they impact your firm.