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Monday, 3 April 2023

PESTEL and scanning

We are probably all familiar with SWOT analysis: that business acronym which stands for Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses are those which are internal to the organisation; opportunities and threats are outside the organisation’s control. And it is the 'outside' that we are looking at in this post: as the big wide world is often called the macro-environment (Young, 2020a).

The macro-environment is clustered into six  'standard' fields, so that we can consider the ramifications of change in those particular areas. I think the areas themselves are very useful, because these are all quite differing areas of impact for business: politics; economics; socio-cultural and demographic factors; technology; environmental issues; and legislation. We can get a brief overview of what each of these mean here (Young, 2020b).

What macro-environmental factors are for is for business scanning:

"Scanning is the activity of acquiring information"; "with a critical part [being] scanning for information about events and relationships in a company's outside environment, the knowledge of which would assist top management in its task of charting the company's future course of action" (Aguilar, 1967, p. 1).

If we don't have some type of frame or lens through which to consider change - as it is hurtling towards us - how we might miss some key opportunities or threats. How many school text book companies will not only be considering how technology can reduce cost, but also how few children are being born in the West? How many academic publishers will not be considering the legal changes in Sweden and Germany around tax-payer funded research and the cost of academic journals, while also considering the growing 'alternative facts' movement and distrust of science? We ignore any of these factors at our peril.

But what I find really interesting is that the PESTEL model is the work of one man: Francis Aguilar. And what is even more interesting, is that Aguilar wrote this seminal piece of work for his PhD in 1966. He got a very well-deserved prize for it (Aguilar, 1967). However, I am sure that if we asked almost anyone who talks the macro-environment, uses or quotes the factors, no one would have any idea that four of this little cluster of areas/lenses was down to the skull-sweat of one person. These four that was originally called "the external environment": economic, technology, political and social factors (Aguilar, 1967, p. 11). 

Of course, Aguilar didn't just come up with four areas. He also meticulously created a circuit diagram for scanning the environment, with a feedback loop:


This is quite clever: following through on any decision reminds us of particular steps which we may not have taken, decisions we have not yet made, considerations we have not yet faced. Most of us will know what these are once we have gone through this a few times, but for training, this is a lovely piece of work.

I think we can all find this useful. 


Sam

References:

Aguilar, F. J. (1967). Scanning the business environment. Macmillan Company, Inc.

Young, S. (2020a). How to undertake SWOT analysis. http://www.samyoung.co.nz/2020/07/how-to-undertake-swot-analysis.html

Young, S. (2020b). Macro-environmental scanning or PESTEL. http://www.samyoung.co.nz/2020/07/macro-environmental-scanning-or-pestel.html

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