PESTLE Analysis; A Framework to Assess External Factors

 PESTLE Analysis; A Framework to Assess External Factors

 

PESTLE stands for Political, Economic, Social, Technological, Legal and Environmental factors of the external environment.

No sort of strategic management decision can be made for launching a new product or service without a thorough PESTLE analysis.

All the factors of the PESTLE analysis can have a vital effect on your business in terms of varying implications, including:

• Duration of impact – whether the impact will be short term or long term.
• Type of change – whether the change will be positive or negative.
• Rate of impact – whether the impact will increase, decrease, or remain unchanged.
• Importance – whether the impact of the factor is critically important, important, or unimportant. 

This is a popular tool for identifying external factors which are responsible to affect your organization’s strategy and development.

The PESTLE Analysis provides us with a framework that enables us to investigate our external environment by asking some questions.

What are the key political factors?

What are the key Economic factors?

What are the key Social factors?

What are the key Technological factors?

What are the key Legal factors?

What are the key Environmental factors?

Keep in mind that PESTLE Analysis is used to assess external factors while SWOT Analysis is used to assess both external and internal factors of any business or an organization.

Use of PESTLE Analysis:

How is Pestle Analysis used?

When performing market research, it is important to understand the complete depth of each of the letters/factors of PESTLE. This will help you formulate the questions you should be asking during the PESTLE analysis.

1.       Political Factors:

Political factors determine how much the government impacts the economy or any industry in particular. Therefore, it is necessary to keep information of changing policies of government.

These changes include:

·         Employment laws

·         Consumer protection laws

·         Environmental regulations

·         Taxation regulations

·         Trade restrictions or reforms

·         Health and safety requirements

 

2.       Economic Factors:

Economic factors include interest rates, inflation rates, economic growth patterns, and foreign exchange rates, etc. The economy’s performance directly affects your business and unfortunately, can leave long-term resonating effects.

1.       Social Factors:

Social factors analyze the market from a sociological viewpoint to identify and address elements such as socio-demographics, population analytics, and cultural/religious trends.

Basically, social factors are determined by the people. Consider all the ways in which your consumers, target market, and customer purchasing habits impact your company’s profits and sales.

·         Age distribution

·         Population growth rate

·         Employment levels

·         Income statistics

·         Education and career trends

·         Religious beliefs

·         Cultural and social conventions

 

2.       Technological Factors:

This angle refers to innovations in technology which will impact industry operations. Automation, research, and development of products and services depend on technological advances.

So technological awareness is a strong influential factor in every market and for every industry. Ponder the following:

• What emerging technologies hold implications for my company or relevant industry?
• Which technologies are becoming redundant, whose decline is a threat to my company?
• Do I depend on 3rd parties for tech support and solutions?
• Is my organization using technology to stay ahead of the competition?

Following are the technological factors.

·         Automation

·         Improved quality of parts and end products

·         Significant cost saving

·         Use of outsourcing to control cost

 

3.       Legal Factors:

The legal impacts on business have both external and internal aspects to it. Your business and overall business environment may be affected by certain laws of certain countries where you are operating.

When performing legal analysis of the macro-environment, take into consideration:

• health and safety standards
• consumer protection laws
• labor laws
• licensing regulations
• And any legal policies which could directly or indirectly influence your business, your market, or your industry.

4.       Environmental Factors:

The environmental factors in this section of the analysis refer to the natural environment surrounding the regions of your business operations. This aspect of the PESTLE analysis is critically important for a number of industries (such as farming, agriculture, tourism, etc.), but may not be as important for other industries.

Considerations to make during this part of the analysis will be directed to:

• the climate of the region
• the geographical location
• changes in the global climate
• environmental shifts
• sustainability
• waste management
• And ensuring green practices

Worksheet for PESTLE Analysis:

	Factor	Opportunity	Threat
Political
Economic
Socio-Cultural
Technological

 

 

Advantages of PESTLE Analysis:

• 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.

 

 Conclusion

Be sure to create your own questions when you perform the PESTLE analysis for your business. After all, your own business operations, strategies, and approach will reflect in your analysis and shape your plans for the present and future developments.