The external environment

The environment an organisation competes in has two distinct layers, and analysing only one of them means planning with half the picture. The macro environment is the set of broad forces — politics, economics, society, technology, ecology, law — that affect every industry and that no single company controls. The industry environment is the competitive structure of the specific market you operate in: who the rivals are, where the power sits, what threatens your position.

PESTEL answers: what forces are shaping the world we compete in? The Five Forces answer: what is the competitive structure of our specific industry? Neither replaces the other, and this step works through both — first the world, then the battlefield.

PESTEL maps the macro environment across six categories of external influence. For each, the discipline is knowing what to monitor.

Political decisions reset the rules of the game directly. When the Zambian government adjusted mining royalty rates in 2019 — raising them for open-cast mines to 9% at copper prices above USD 7,500 per tonne — First Quantum and the other mining houses had to rebuild their investment cases overnight. No amount of internal efficiency offsets a policy change that moves the cost line by that much.

Economic conditions set the baseline pressure on everything else. Between 2015 and 2023 the kwacha depreciated from roughly K8 per USD to over K25, and any company holding dollar-denominated debt or importing inputs absorbed that as a direct cost increase. With inflation peaking above 22% in 2021, pricing, sourcing and financing had to be revised constantly — not because of anything those companies did, but because of macro conditions none of them could control.

Social and technological factors often move together. Zambia's population is young — over 60% under 25 — and urbanising fast, a profile that drives demand for mobile-first products. Mobile money penetration has outpaced formal banking: MTN Mobile Money and Airtel Money together serve more Zambians by transaction volume than all the commercial banks combined. A company that built its distribution around physical branches in 2015 and failed to track that shift was positioned for the wrong market by 2022.

Notice what the examples share: in each case the force was visible in advance to anyone scanning for it. The royalty change was debated publicly; the depreciation trend ran for years; the demographic data was published. PESTEL's value is not prediction — it is making sure the organisation is actually looking.

PESTEL tells you about the world; the Five Forces tell you about the battlefield. The framework maps the competitive structure of an industry — where the power sits, what threatens margins, and whether the industry is structurally attractive or structurally hard to profit in.

The combined strength of the five forces determines how much of the value created in an industry its firms can actually capture as profit. Where the forces are collectively strong — intense rivalry, easy entry, powerful buyers and suppliers, credible substitutes — even well-run companies struggle to earn above-average returns. That is the framework's sharpest lesson: profitability is partly a property of the industry's structure, not only of the firm's execution.

Zambian banking shows how rivalry and entry interact. Rivalry among the established banks — Zanaco, Standard Chartered, Absa, FNB, Stanbic — is intense: they compete for the same urban salaried customers with largely similar products, and switching costs are low. Entry looks protected — the Bank of Zambia requires K104 million in minimum paid-up capital for a commercial banking licence. But Airtel and MTN did not enter as banks. They entered as mobile money operators under a different regulatory category, with their subscriber bases as instant distribution. The framework only reveals that threat if you ask the right question: who can serve the same customer need by a different route?

Supplier power at its most extreme looks like Zambeef and ZESCO. The cold chain that keeps Zambeef's processing and distribution running depends on grid electricity with no alternative supplier to negotiate with. When load-shedding comes, Zambeef runs generators at cost or absorbs spoilage — supplier power as a structural constraint the strategy simply has to carry. Buyer power runs the other way at different scales: an individual buying Zambeef products at Shoprite has almost none, while First Quantum sells concentrate to a handful of international smelters and traders — sophisticated buyers with alternatives, negotiating hard on price and off-take terms.

Substitutes are the most misread force. Mobile money is not a bank competitor; it is a substitute for the core function banking once monopolised — storing and transferring value. Rivalry is between companies in the same industry, Zanaco against Absa. Substitution arrives from a different category serving the same underlying need, and it is often more dangerous precisely because it comes from outside the frame you are watching.

The two frameworks meet in exactly that example. A PESTEL scan that flags rapid mobile adoption and a young, mobile-first population is describing the same shift the Five Forces capture as a rising substitute threat and a new category of entrant. Together they give the full external picture. What they cannot tell you is whether your organisation can respond to what they find — that depends on what is inside, which is where the next step goes.