Using PESTEL Analysis in Strategic Planning For Non-Profits

Dec 18, 2010
Tracey Lloyd

PESTEL Analysis can assist strategic planning - Ulrik

PESTEL is a method of analysing the impact a variety of factors may have on potential profitability of an organisation or industry.

A macro environmental analysis technique, PESTEL analyses the impact that political, economic, socio-cultural, technological, environmental and legal factors may have on an industry’s profitability potential (Johnson, Scholes & Whittington, 2005). Within each major PESTEL heading, there are a variety of sub-factors to be considered. PESTEL analysis can be used by non-profit organizations as part of the strategic planning process. It can also be used in conjunction with other management tools such as Porter’s Five Forces Analysis and market segmentation and marketing and management capabilities analysis.

PESTEL has been designed to review and analyse the impacts on profitability however it can be used by non-profit organizations to identify areas where funding or operations may be threatened. Analysing the macro-environment of the non-profit organization is important to ensure that the organization can meet future challenges.

The Impact of Political Factors on Non Profit Organizations

When considering the impact that political factors may have on future industry profitability, government stability, taxation policies, foreign trade regulations and social welfare policies may all contribute to an industry’s profit potential (Johnson, Scholes & Whittington, 2005).

For non-profit organizations that provide community development services in developing countries, government stability may be a key issue to the ongoing provision of future services. Taxation policies may have either a positive or negative impact on the likelihood of donors continuing to donate and on the organization obtaining new donors.

Economic Factors May Impact on Need for Services or Donations

Business cycles, GNP trends, interest rates, money supply, cost of living and inflation, unemployment trends and disposable income levels are all relevant considerations when reviewing the economic factors likely to impact on non-profit organizations (Johnson, Scholes & Whittington, 2005). For example, a decrease in disposable income may result in decreased donations and memberships of non-profit organizations.

Increasing costs of doing business, such as increased rental payments, bank fees and utility bills, may result in non-profit organizations having to tighten budgets in other areas. As well as tightening the budget, increased business costs in the wider economy may mean that companies are less likely to participate in corporate philanthropy. For human service and welfare organizations, increasing unemployment rates may result in an increased need for assistance and the organization may need to investigate increased funding which may be difficult to obtain.

The impacts of economic factors on non-profit organizations will differ dependent on the services provided by the organization however generally a tightening economy with lowered disposable income and higher unemployment will exert a significant negative impact on a non-profit organization, decreasing the availability of income and potentially increasing the number of people seeking assistance from the organization.

Socio-cultural Factors Can Affect a Non-Profit Organization

Population demographics, social mobility, lifestyle changes, attitudes towards work and leisure, consumerism and levels of education are all sociocultural factors that may affect the macro environment the non-profit organization operates within (Johnson, Scholes & Whittington, 2005). Consumer spending habits also influence whether an industry will be profitable (Johnson, Scholes & Whittington, 2005).

Again, the impact of socio-economic factors will differ in each non-profit organization; for example an aged care service provider can, in Australia, anticipate an increase in the number of consumers over the next few years as the Australian population ages. Growth in interest in new sports may mean that traditional sports such as tennis, soccer, cricket and rugby may find it difficult to attract new players and members to the clubs.

Technology and Non-Profit Organizations

Technological factors include government spending on research, the focus on technological effort, new discoveries, speed of transfer and rates of obsolescence (Johnson, Scholes & Whittington, 2005). For non-profit organizations this may mean that new methods of reaching donors, volunteers and supporters may need to be found such as using social media including Twitter and Facebook.

In order to use new forms of technology, hardware may need to be updated at significant costs and training may need to be provided to staff. When investigating the impact of technology on a non-profit organization, a review of the current technology items owned by the organization and their expected replacement dates should be included.

Environmental Impacts and Non-Profit Organizations

Environmental protection laws, together with waste disposal and energy consumption, are at the heart of the factors to be considered when reviewing the environmental sub-type in a PESTEL framework (Johnson, Scholes & Whittington, 2005). For non-profit organizations, an environmental audit can be easily undertaken in-house, which may highlight areas where performance can be improved and costs decreased.

For example, if an organization provides care services to people in their own homes, it may be prudent to investigate the costs of transferring a fleet of cars to hybrid cars such as the Toyota Prius. While the fleet transfer costs may be significant, the potential for savings in carbon taxes (if applicable) and fuel may ameliorate the costs of transfer over a short to mid term period.

Legal Framework Can Impact Profitability

The legal framework in which an industry operates can impact on its profitability through competition laws, employment laws, health and safety requirements and product safety (Johnson, Scholes & Whittington, 2005). In Australia, the proposed model occupational health and safety laws (due to become mandatory by 2011) may require non-profit organizations to make changes to occupational health and safety practices (Safework Australia, n.d.).

The PESTEL analysis model was designed to identify the profitability of an organization or industry however it can be used by non-profit organizations to assist the strategic planning process. PESTEL reviews the political, economic, socio-cultural, technological, environmental and legal factors that may affect a non-profit organization in the future. As with any form of future focused analysis, a level of educated guessing is required however using the PESTEL analysis model enables a non-profit organization to consider what the future might hold and how it might meet the challenges faced.