Why Companies Need PESTEL Analysis

Do you know why strategic planning is so important? If 30 years ago companies only had to release high quality products at competitive prices, now the situation is so much different. Tough competition makes business owners and top management adopt very important decisions and solve problems even before they actually occurred. Sounds weird right? How can one solve a problem that does not exist and the moment? Easy! This is where strategic planning helps. Strategic planning is about forecasting problems and offering multiple solutions to these problems.

In other words the company is ready for difficulties even before they come. In such a way it can easily solve problems and gain competitive advantage in the market, which is an ultimate goal of every commercial organization or business. However, strategic planning requires very deep analysis that covers all factors influencing company performance, including those which are not dependent on the company itself. We know that business is an inseparable part of our society, and thus it is run according to certain rules and regulations. There are a number of factors that directly and indirectly influence company performance. These factors lie in different prospects. PESTEL analysis undertakes to evaluate company position according to such factors. PESTEL stands for political, economic, social, technological, environmental and legal factors. As you can see these factors cover most important environments every business is operating in. Having performed PESTEL analysis the company top managers and owners will have the most complete information on what needs to be improved to be ready to implement company strategy. Let's give a short overview of each factor stage in its importance for particular business spheres.

Political. Although many top managers do not admit the fact that economy is closely related to politics, the reality shows that political decisions directly influence economic situation, business climate and market conditions in the country. Indeed, the controversial statement made by prominent politician can turn things upside down. This may have negative consequences for major businesses. For this reason big companies maintain own departments for political analysis that make forecasts and predictions in terms of political situation both in the national and international community.

Economic. This factor requires no explanation. Such indicators as gross domestic product, national debts amount, trade balance, inflation rate, customer purchasing power and others have a great influence on company well being, cents if customers are unwilling to buy or custom of purchasing power is too low there is no sense in entering markets with expensive products.

Social. Every company should remember that it releases products for customers or part of the society. Moreover, every company is part of the society and thus it should take into account all social problems, issues and trends.

Technological. This factor requires no explanation as well. The future of business is in development of technologies. This is an axiom to be accepted by everyone.

Environmental. This factor mostly concerns production enterprises, however all industries have to consider their impact on the environment.

Legal. All businesses operate within frameworks of certain legislation's, both national and international. It is important that all business operations comply with legislative norms.