The importance of External Factors
Each time you develop a Business Strategy, you must analyze your “environment”.
You must know the scenario where all the action will take place before the show begins.
Although this kind of analysis might seem “sterile”, it allows you to learn things you didn’t take into account:
- New opportunities.
- New approaches.
And the PESTEL analysis is one of the most useful tools you can find to develop this study.
What is a PESTEL Analysis?
A PESTEL Analysis is a Tool that helps you define the environment in which a project will be developed.
As its name indicates (it is an acronym) this analysis studies the following fields:
Next, we’ll explain these factors, why they are so important, and when you should develop this analysis.
* Remember: you have a Template in the “Strategy Templates” section with a ready-to-use PESTEL Excel sheet.
In this section, you should study the main political trends in the market you are targeting.
You cannot imagine all the problems you may have if you ignore this.
- Protectionist policies that restrict foreign products.
- Nationalist movements that could lead to a greater demand for “national products”.
- If you had a “nationally manufactured” product, you could highlight it.
In this section, you should study the main economic measures or trends in the market you are targeting.
- Imagine you are about to start a car-sharing company, but the government begins to establish measures in favor of Taxi by restricting car-sharing companies.
- Imagine you intend to import certain products from China, but the market in which you are located increases import taxes.
- Maybe you should think about buying in another country.
In this section, you should study the main social trends in the market you are targeting.
- Imagine that you are developing a new Toy. You should keep in mind that today, many parents in western countries prefer neutral colors instead of the classic “Pink for girls and Blue for Boys” distinction.
In this section, you should study the technological trends in the market you are targeting.
This is Very important for technological projects:
- Always do a deep research on new trends and technologies.
Olivetti and Netflix PESTEL examples
Probably you don’t know what Olivetti is, but in the past, Olivetti was like Apple nowadays.
- When personal computers did not yet exist, they almost had a monopoly on typewriters.
But, what happened?
They didn’t care about the technological irruption of Personal Computers, or at least, they didn’t care enough at the right time.
So nowadays, they have practically disappeared.
You also can read about what happened to Kodak, Nokia…
Or Blockbuster: the video-rental business that refused to buy Netflix many years ago thinking it was a waste of money.
Now Blockbuster does not exist, and Netflix is a 16 billion dollars company.
More important than ever.
In this section you should study what are the main environmental problems and concerns in the market you are targeting.
- Sometimes, if you give your project an environmental orientation, you can raise public funds.
It is usually the last thing everybody thinks about, and probably the most important of all.
You must be completely sure about all the legal problems you may have in the market you are targeting.
- If you fail in the other sections you would have wasted your time and money, but if you fail in important legal matters, you can lose much more.
When and why you should develop a PESTEL analysis
At least once a year.
Times change rapidly and Today, even more:
- Worldwide commercial wars.
- Technological innovations.
- Economic-political instability.
These three factors are absolutely decisive for any business and, as you may have appreciated in the news, it seems that they will not go less.
That is why today, it is more important than ever to carefully study all the external factors that may ruin your business, and one of the best ways to do so is by developing a appropriate PESTEL analysis.
Approaching Millennials with a PESTEL analysis
How can a PESTEL analysis and the Millennial generation be related?
Yes. It sounds strange, but you would never imagine the amount companies we have analyzed that had “engagement” problems with their young clients:
- They are not “loyal” to brands.
- They suddenly want “another thing”.
- They see something in a country they visited and now they want it right now.
Millennials are characterized by their impulsive and unpredictable consumption habits.
- Today, they see something on Instagram, and tomorrow, they need it; no matter if it comes from Japan, USA or Germany.
- The “Livestrong” band.
- The “Power Balance”.
- “Fidget Spinners”.
- “Supreme” brand clothing.
- etc, etc.
This is another reason why you should worry about studying current social trends, environmental concerns, political trends… because they change rapidly.
A good General always checks the field where the battle will take place, so you should do it too.
The basic external factors that you should always check for each Business project you develop, are those studied in the PESTEL analysis:
If you prefer another approach instead of the PESTEL analysis, there is no problem, but be sure to check the factors just mentioned.