What is PESTLE analysis?
The objective of the PESTLE analysis is to gain visibility on the environment overall as well within the industry, in other words to gain macro visibility. The acronym stands for Political, Economic, Social, Technological, Legal and Environmental factors. PESTLE analyses are often used to help in decision making inside the organisation by analysing the external macro conditions. Understanding the impact of outside factors and how they may influence the business is essential to plan better, adapt to the competitive landscape and plan growth.
The 6 PESTLE factors
As mentioned, PESTLE stands for Political, Economic, Social, Technological, Legal and Environmental. In the section below, we will go into more detail on each factor and provide examples of elements that may be part of them.
P stands for Political
Governments play a role in shaping businesses, although indirect. Taxes, VAT, hourly work restrictions and even stability of the government in place are all ways in which governments will influence business activity; either positively or negatively depending on the industry impacted and the policies implemented.
E stands for Economic
Economy can be referenced in two ways. The overall economy can be assessed in the analysis, with for example periods of recession. The industry-specific economy in which your business operates also needs to be looked into. The health of that economy might differ from the overall national or even worldwide economy. More importantly, looking into the industry specifically will give more granular insight on the impacts it might have on your business. Inflation, interest rates, unemployment rates and general growth are all examples of economic factors. For more information on taxes, check our full section dedicated to this topic on our website.
S stands for Social
Social factors are not to be ignored. They can have a significant impact on businesses. Within social factors we include demographic elements such as population size and its diversity. Cultural trends and consumer trends are also part of the S of PESTLE. In the past, world wars had an impact on the workforce, with female workers being heavily employed. Today, the use of social media may have an impact on business marketing and sales strategies.
T stands for Technological
Technology evolves at a fast pace. It impacts product improvements and service delivery. In the industry sector, automations can be put in place, leading to more efficient production. Technological advancements also impact the way a business operates. The use of videoconferencing has had a tremendous impact on businesses in the last few years. This impact was accelerated by the COVID-19 pandemic, with a lot of workers moving to remote working, where possible. Today, technology is embraced at a faster rate than it was in the past. It gives the competitive edge to businesses that are able to stay on top of innovations and technology.
L stands for Legal
Employment laws are an example of legal factors that will have a direct impact on how a business operates and its performance. Health and safety regulations, antitrust laws and many others also fit in that category. Data protection and intellectual property laws have been particularly daunting for the legal element, leading businesses to implement the appropriate internal policies and staff training. This training and these policies assert the business’ will to comply with both legal regulations and customer demand in terms of privacy and data protection. However, they are time consuming and take staff away from their core responsibilities. Legal factors are to be accounted for when business planning. Check our article on the top 6 policies for your business.
E stands for Environmental
By environmental, we do not solely mean the current and ongoing drive for sustainability, but also the physical conditions in which a business operates. Natural disasters, pollution levels and overall weather patterns are examples of environmental impacts. They may drive a business to relocate or have an impact on productivity. In addition, the drive for more sustainability and net zero targets are grafting themselves to this factor, adding more weight to the impact of the environmental factor.
Steps and tips on how to do a PESTLE analysis
When creating a PESTLE analysis, it is easy to lose focus and step away from the end goal. Following some core steps will help you stay on track and deliver a best-in-class PESTLE analysis.
Key steps for PESTLE analysis
- Define scope: The first thing to do when creating a PESTLE analysis is to clearly define the scope of the research. Looking ahead is often recommended but so is looking into the present situation.
- Data collection process: Identify what data should be collected, by whom and to what level of granularity.
- Analyse the data: Analyse the data collected while ensuring that no opinion comes in. The data should speak for itself, and the assessment should not be biased. When analysing the findings, levels of importance can be assigned to each point. These will have an impact on the potential risks and opportunities for the organisation.
- Prepare the talk track: The talk track is the story telling. The data collected serves as a proof point for the message. The talk track answers the “so what” of the analysis.
- Decide actions to be taken: The PESTLE output should be discussed by stakeholders and decision makers. These discussions should lead to a priority list and a set of actions.
- Draw the delivery plan: The delivery plan is a detailed action plan of all the tasks that will need to be undertaken, by whom and under what timeframe in order to address the risks identified in the PESTLE analysis. This plan should be implemented with a project lead and defined stakeholders.
A PESTLE analysis should be created on a regular basis to ensure that the business stays ahead of its competitors and adapts to its environment and market conditions. In addition to the steps above, below are some tips for your PESTLE analysis.
Top tips for PESTLE analysis
- Collaboration is key: Collaboration and open dialogue allow for better brainstorming and ensure that nothing is forgotten in the analysis.
- Market expertise: Market expertise will allow for better output. Make sure you get the right stakeholders around the table to enable accuracy and granularity in the assessment.
- Do not forget the “so what”: When identifying the different factors, make sure you make the data talk. Figures should lead to an impact on the business with different levels of risk or opportunity.
- Mitigate the results: No one can read the future. The PESTLE analysis aims at identifying potential risks or opportunities for the business, but results should always be mitigated as unpredictable events may occur.
Why use the PESTLE analysis?
The objective of a PESTLE analysis is to gain visibility on the external environment and to identify trends within the industry. The results will support business planning and strategic decision making. Below are some examples of actions that may follow a PESTLE analysis:
Marketing planning and product development
A PESTLE analysis can help determine if a product answers the customer’s needs. The analysis may drive businesses to let go of some of their solutions or to implement some new ones. Beyond the product itself, the analysis will give some guidance on how the product should be marketed or promoted to the audience. It has a direct impact on marketing planning.
People planning
People management is not a straightforward activity. People strategy needs to be aligned to the wider company’s strategy. In addition, a PESTLE analysis may find ways to automate processes and production which may result in an impact on the workforce. It will influence recruitment or restructuring.
Strategic planning
By identifying external factors, a PESTLE analysis provides businesses with information on their industry and how it plans to evolve. This information may influence the direction of the business, thus have an impact on the brand, growth targets, products and services and innovations. Check our article on how to grow your business for more details on this topic.
A PESTLE analysis is an important tool for businesses. No matter the initial reason for conducting the analysis, the team working on it should stay focussed and keep an open mind to ensure that the results are a true reflection of the external factors. A PESTLE analysis conducted on a regular basis ensures the business stays on the competitive edge and leads to success.
