PESTLE Analysis

A PESTLE Analysis is a management framework and diagnostic tool.  The analysis's outcome will help you understand factors external to your organization that can impact strategy and influence business decisions.

A PESTLE analysis studies the key external factors (Political, Economic, Sociological, Technological, Legal and Environmental) that influence an organization.

It can be used in various scenarios and can guide people professionals and senior managers in strategic decision-making.

PESTLE is an acronym for:

P = Political
E = Economic
S = Social
T = Technology
L = Legal
E = Environmental

The Six Elements of PESTLE Analysis in Details:

 

POLITICAL: When looking at Political factors you will need to take into account your country's government policies and political stability.  Other factors will include tax implications, industry regulations, global trade agreements, and restrictions. Political stability, government policies, and international relations.

For example, a change in trade tariffs could impact your supply chain costs.

Action Steps:

Evaluate the political stability in your market.
Understand the impact of government policies on your business.

 

Political Factors Includes: 

• Diplomatic relations between countries
• Political Continuity and Stability
• How governments function
• International/Foreign trade policies
• The possibility of political unrest
• The regularity of civil society

 

ECONOMIC: Economic factors will include exchange rates, economic growth or decline, globalization, inflation, interest rates and the cost of living, labour costs and consumer spending.

For instance, high inflation rates can lead to increased operational costs.

Action Steps:

Monitor economic indicators regularly.
Plan for economic downturns and upswings.

Economic Factors Includes:

• Inflation
• Unemployment rates
• Exchange rates
• Interest rates
• Economic growth rates
• Corporate tax rates

 

SOCIAL: Social factors look at trends such as lifestyle factors, cultural norms and expectations such as career attitudes and work-life balance.  It also concerns itself with consumer tastes and buying habits as well as population demographics. In short, Cultural norms, demographics, and social attitudes come under this category.

For example, a growing trend towards health consciousness could be an opportunity for a fitness-related business.

Action Steps:

Conduct market research to understand consumer behaviour.
Adapt your products or services to meet social trends.

Social Factors Includes:

• Education levels
• Demographics
• Social views
• Age distribution
• Disposable income
• Cultural stability

 

 

TECHNOLOGY: Technology has grown exponentially. Technological advancements can either be an opportunity or a threat. How is your business responding to technological innovation in your products and services?  Other technological advancements will impact on data storage, disruptive technologies such as smartphones, social networking, automation robotics and the increasing shift towards AI artificial intelligence?

For example, the rise of e-commerce has been a boon for retail but a bane for traditional stores.

Action Steps:

Stay updated on technological trends.
Invest in technology that enhances operational efficiency.

Technological Factors Includes: 

• Internet connectivity
• Unambiguous technologies, like automation
• Growth in your industry
• Intellectual property
• The rate of technological change
• Research and development lifecycles

 

LEGAL: Shifts in the Legal landscape are constantly changing. Employment labour law and employment tribunal decisions impact working practices continuously. It is also important to keep up to date with all changes in legislation and of course Health and safety regulations. So, Regulations such as labour laws, copyright laws, and health and safety standards are crucial.

For example, GDPR compliance is mandatory for businesses operating in the EU.

Action Steps:

Consult legal experts to ensure compliance.
Keep an eye on upcoming legal reforms.

Legal Factors Includes:

• Health and safety regulations
• Government policies
• Import/export laws
• Tax policies
• Anti-trust regulations
• Competitive regulations

 

 

ENVIRONMENTAL: Sustainability and environmental impact are increasingly important. Does your business have a direct impact on the environment? Political sanctions now govern carbon emissions and a move towards sustainable resources such as wind turbines and recycling. This area also covers CSR corporate social responsibility and ethical sourcing of goods and services which in turn has a direct impact on procurement and your business's supply chain management.

For example, a shift towards sustainable materials can attract a new customer base.

Action Steps:

Implement sustainable practices.
Monitor environmental regulations.

Environmental Factors Includes:

• Natural disasters
• Climate change
• Weather patterns
• Resource availability
• Consumer health

 

What is a PESTLE analysis used for?

By auditing the external environment, a PESTLE analysis can detect and understand broad, long-term trends. This can support a range of business planning situations, such as:

Strategic business planning

A PESTLE analysis provides contextual information about the business direction, its brand positioning, growth targets, and risks (such as another pandemic) to productivity. It can help determine the validity of existing products and services and define new product development.

Workforce planning

A PESTLE analysis can help to identify disruptive changes to business models that may profoundly affect the future employment landscape. It can identify skills gaps, new job roles, job reductions or displacements.

Marketing planning

A PESTLE analysis provides the ‘climate’ element in the situation analysis phase of the marketing planning process. It can help prioritise business activities to accomplish specific marketing objectives within a set timeframe.

Product development

By monitoring external activity, a PESTLE analysis can help inform whether to enter or leave a route to market, determine if a product or service still fulfils a need in the marketplace, or when to launch a new product.

Organizational change

A PESTLE analysis helps understand the context for change and is most effective when used in association with a SWOT analysis to understand opportunities and threats around labour changes, such as skills shortages or current workforce capabilities. 

People strategies, reports and projects

A PESTLE analysis can be used as a framework to look outside the organization to hypothesize what may happen in future and what should be further explored. It can ensure that some basic factors are not overlooked or ignored when aligning people strategies to the broader organization strategy.

Advantages and disadvantages of a PESTLE analysis

Advantages:

• It’s a simple framework.
•  It facilitates an understanding of the wider business environment. 
•  It encourages the development of external and strategic thinking. 
•  It can enable an organization to anticipate future business threats and take action to avoid or minimize their impact.
•  It can enable an organization to spot business opportunities and exploit them fully.

Disadvantages:

•          Some PESTLE analysis users oversimplify the amount of data used for decisions – it’s easy to use insufficient data.
•          The risk of capturing too much data may lead to ‘paralysis by analyses. 
•          The data used may be based on assumptions that later prove to be unfounded. 
•          The pace of change makes it increasingly difficult to anticipate developments that may affect an organization in the future.
•          To be effective, the process needs to be repeated regularly.

How to do a PESTLE analysis

Follow these steps:

•          Identify the scope of the research. It should cover present and possible future scenarios, and apply to the industry and areas of the world in which the business operates. 
•          Decide how the information will be collected and by whom. Identify more than one person to gather data to bring diverse evidence and perspectives.
•          Identify appropriate sources of information. You may find areas of PESTLE are a bigger focus to your industry than others but exploring information for all of them will give you a bigger view of the external environment.
•          Gather the information – you can use the template below. 
•          Analyze the findings. 
•          Mark each item in terms of importance concerning potential risk to the organization. 
•          Identify the business options to address the issues.
•          Write a discussion document for all stakeholders. 
•          Disseminate and discuss the findings with stakeholders and decision-makers. 
•          Decide what actions need to be taken, and trends to be monitored. 

To be effective, a PESTLE analysis needs to be done regularly. Doing so can help organizations to spot trends early, and provide a competitive advantage.

PESTLE analysis tips

Some useful tips for carrying out a PESTLE analysis:

•          Collaborate - multiple perspectives can identify more risk.
•          Use expertise and resources within the organization.
•          Use PESTLE analysis alongside other techniques, such as SWOT analysis, Porter's Five Forces, competitor analysis, or scenario planning. 
•          Incorporate a PESTLE analysis into an ongoing process for monitoring changes in the business environment.
•          Avoid collecting vast amounts of detailed information without analyzing and understanding your findings appropriately.
•          Don’t jump to conclusions about the future based on the past or present.

 

PESTLE Analysis Example:

Starbucks

Starbucks is an international coffee-chain brand known for its savoury and overpriced drinks. With over 35,000 stores in over 80 countries, here’s what a PESTLE analysis example of the brand might look like: 

Political

• Political activity and awareness in the countries
• Public and political sentiments regarding “Fair Trade” compliance and ethical sourcing practices
• The possibility of riots, wars, or conflicts in the locations that have a Starbucks shop
• Diplomatic ties and sanctions between the United States and the countries

Economic

• Economic booms or recessions in particular countries
• Exchange rate fluctuations impact supply chain processes
• The typical annual income of Starbucks customers
• Operating costs in various cities, states, and countries

Social 

• Consumer Preferences and Buying Habits about Coffee
• How Consumer behaviour changes in Response to economic conditions
• Age groups of customers who prefer Starbucks coffee
• Changing work patterns (remote vs location-based work mode)
• Uncertain preferences based on region, culture, and history

Technological

• The rise of usage of household coffee brewing machines
• Technological advancements in coffee farming and processing methods
• The rise of online marketing and interaction
• The rising use of international e-commerce

Legal

• Violation of the Starbucks logo, colour design, and other intellectual property rights
• Varying tax obligations for various regions
• Tariffs, trade regulations, and customs
• Specific workplace legislation compliance
• Health and safety laws in factories, stores, and other facilities

Environmental

• Effects of farming and processing, including water usage and carbon footprint
• The environmental impact of single-use products such as straws, paper and plastic cups, and so on
• Natural catastrophes and extreme weather in regions where Starbucks coffee is cultivated
  
  

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