PESTEL analysis: using external factors for HR strategy

Every HR strategy must be closely aligned with the organisation's objectives and the strategic positioning of the operating units. It is not an end in itself. It is an important lever for achieving business objectives.

Analysing the corporate strategy is therefore the first step when an HR strategy is developed. The company's vision, mission and objectives need to be understood. It must also be clarified which market requirements exist, which challenges and opportunities are emerging and which competencies will be needed in future.

Against this background, the outward view becomes meaningful. PESTEL analysis complements the view of the company's own strategy with the influences from the environment to which the company and its HR management must adapt.

In a dynamic business world, one of the greatest challenges for HR management is to realistically assess future developments and their effects on the company and its employees. This is where PESTEL analysis comes in. It makes the most important external factors visible and creates a basis for strategic decisions grounded in sound data.

The name stands for six dimensions that are analysed one after the other: politics, economics, society, technology, environment and legislation. These correspond to political, economic, socio-cultural, technological, environmental and legal factors.

P stands for politics, that is, political factors. These include legislation, tax laws and tax guidelines, the stability of the government, and subsidies and funding.

E stands for economics, the economic factors. These cover economic growth, employment and unemployment, the business cycle, inflation, the tax system, and income and purchasing power.

S stands for society, the socio-cultural factors. These include demographic development, cultural trends, values and norms, mobility, education, health, income distribution and lifestyle.

T stands for technology, the technological factors. This means technical standards, research and development, automation, digitalisation, artificial intelligence and new processes, for example in production.

The second E stands for environment, the environmental factors. These include climate change, environmental protection regulations, sustainability and the availability of natural resources.

L stands for legislation, the legal factors. These cover employment law, competition law, tax law and licensing requirements.

This comprehensive analysis of external factors helps the HR department to respond proactively to changes in the environment and adapt the HR strategy accordingly. What matters is that the HR department responds to challenges and at the same time recognises and seizes new opportunities.

The results of the PESTEL analysis influence a wide range of HR processes. These include recruiting, employee development, employee retention and the general working environment. Systematically capturing external influences makes it possible to better adapt activities and processes in HR and to secure the company's competitiveness in the long term.

Two examples illustrate this. Changes in legislation or in the employment law framework, that is, in factor L, can mean that the incentive system or working-time arrangements have to be changed. Digitalisation, that is, factor T, can bring new qualification requirements that have to be covered through targeted employee development.

On the basis of the PESTEL results and the corporate strategy, concrete areas of action for the HR strategy can be derived. Four examples show what this can look like.

The first area of action concerns culture and values. It must be clarified which culture and which values are to be promoted in the company. One practical example is increasing the workforce's innovative strength through targeted further training and flat hierarchies.

The second area of action is employer attractiveness. This is about how it can be increased and how an authentic employer brand can be developed. One practical example is the development of a modern incentive system combined with the further development of the benefits model.

The third area of action is competencies. The guiding question is which competencies, and therefore which employees, the company will need in the next five to ten years. One practical example is building competencies in process knowledge and digitalisation.

The fourth area of action is employee retention. The focus is on how staff turnover can be reduced and retention increased. One practical example is creating further career and development opportunities to secure employees' long-term loyalty.

The starting point is the corporate strategy. Added to this are the internal and external factors identified. Together they produce a future-oriented and actionable HR strategy.

For the approach, this means: first analyse the corporate strategy, then go through the six dimensions of the PESTEL analysis, then determine the areas of action relevant to your own organisation and derive targeted measures for operational HR from them. transformis supports organisations in these steps.