Environmental scanning is an important component of strategic planning and provides the organisation with insightful information and trends for potential business opportunities. Effective tools for conducting an environmental scan are a PESTEL scan and a SWOT analysis.
PESTEL Scan
A PESTEL scan is a tool for assisting the HR practitioner to understand market trends. This will help set the direction for a people-related business plan. It sets the framework for reviewing a situation and can be used to review a strategy, market position or any other business initiative that you wish to assess and analyse.
PESTEL scans measure environmental factors within the following categories:
- Political
- Economic
- Socio-cultural
- Technological
- Legal
- Environmental
| Environmental Trigger | Definition | Examples |
| P = Political | These include political factors that impact the way business is permitted to operate within specific jurisdictions and imposed reporting requirements. |
Election dates and changing employment laws, regulation or policy Level of business regulation or deregulation Taxation changes Visa requirements for workers Trending political interest topics, e.g. marriage equality, international worker rights, child labour, vaccination |
| E = Economic | This includes the impact of economic stability or instability on the way the business operates. The economic climate may be growing, stagnating, or declining, which impacts profitability, shareholder returns, exchange rates and wage growth. |
Salary benchmarks and trends Unemployment rate or underemployment Available skills training for future workers and how it is funded (governments schemes, private investment) Employee commitment and retention behaviours e.g. banking leave, exit intention, risk tolerance |
| S = Socio-cultural | This includes the impact of a population’s demographic (age, population growth rate, sex or gender) and cultural behaviours and attitudes on the way a business can operate and make decisions. |
Attitudes toward working conditions, flexibility and benefits Population growth and age Health, education and mobility Cultural taboo or political interest topics |
| T = Technological | These can include triggers that affect production efficiency and can influence business decisions on outsourcing various non-strategic/non-cultural outputs. |
Research and development activity Automation Technology incentives Rate of technological change |
| E = Environmental | These can include factors related to the natural environment that may impact on the way that your organisation conducts its business activities. |
Natural disasters Climate change Weather patterns Environment regulation and protection requirement |
| L = Legal | The legislative regime that applies and has an impact on business activity. |
Employment laws Industrial relations legislation Fair trading legislation Anti-discrimination laws Intellectual property rights |
- Understand the market in which you operate and its implications
- Understand how environmental factors impact your workforce capability and ability to implement initiatives to meet workforce design goals
- Focus your business research
- Be seen by other business unit specialists as someone who is able to talk in business language
- Develop solutions that are relevant to helping the business understand its environment and deliver its outcomes
SWOT Analysis
It is a good idea to conduct a PESTEL scan before attempting a SWOT analysis. There is an overlap between the factors identified in the PESTEL scan and the SWOT analysis, however, these tools approach analysis from different perspectives:
- PESTEL scan: focused on analysis of the external environment at both micro and macro levels.
- SWOT analysis: is focused on the internal capabilities and potential of your organisation to respond and take advantage of the opportunities and threats presented by the external environment.
Organisations can complete a SWOT analysis of their own business as well as completing a SWOT analysis on their competitors. The best time to conduct a SWOT analysis is when a decision is being made on the business’s strategic direction.
The first step is to define the mission and goals, then define the external opportunities and threats. Finally, assess the internal strengths and weaknesses of the strategy against opportunities and threats from the environment.
| Internal Environment | ||
Strengths What does the organisation, department or other subject do well? What are its key capabilities and resources? What do others perceive as its strengths? | Weaknesses In which areas can the organisation, department or subject need improvement? Which capabilities or resources are lacking? What do others perceive as its weaknesses? | |
| External Environment | ||
Opportunities What is happening in the environment that the organisation, department or business unit can take advantage of? Are there any emerging trends or developments? How could strengths be used to take advantage of or create new opportunities? | Threats What is happening in the environment that could harm the organisation, department or business unitt? What is the competition doing that might cause harm? How could weaknesses be contributing to the harm caused by threats, or creating new threats? | |
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Updated February 2022