The strategic environmental analysis helps understand how the organization can be affected by internal and external factors, which are then used to develop strategies to mitigate or eliminate their impact on the company's operations.
The PEST framework is used to analyze external forces affecting the organization.
Four external forces include in the PEST analysis are:
1. Political Factors – The political environment that an organization operates within includes laws, regulations, policies, and other government actions that affect the organization. These may include taxes, tariffs, subsidies, trade agreements, banking regulations, labour laws, environmental regulations, etc.
2. Economic Factors– The economic environment that an organization operates in includes changes in consumer demand for its products and services, inflation rates, interest rates, exchange rates, unemployment rates, and tax rates.
3. Social Factors– Social factors include the public opinion of the organization, the reputation of the industry it operates in, and labour strikes.
4. Technological Factors – Technological change affects organizations through innovations, improved efficiency, and reduced costs.
In addition to these four factors, the PESTEL analysis also includes Environmental and Legal Factors.
5. Environmental Factors - The environmental factors include natural disasters, such as floods, earthquakes, droughts, storms, tsunamis, etc.
6. Legal Factors - Laws and legal frameworks governing the activities of an organization. They include intellectual property rights, employment contracts, competition law, privacy legislation, data protection, etc.
The PEST and the PESTEL analyses only focus on the external factors that influence the organization. It does not take into account the internal factors that may affect the organization. Internal factors include the culture of the organization, the management style, the quality of employees, the organizational structure, etc.