PESTLE Analysis

PESTLE Analysis is an analytical tool for strategic business planning.

PESTLE is a strategic framework for understanding external influences on a business.

There are many macro-environment factors that effect strategic planning: New laws, tax changes,
trade barriers, demographic change.
Macro-environment factors includes all the factors that influence an organization, but are out of
its direct control.
Macro-environment factors tend to have a long term impact.

PESTLE stands for "Political, Economic, Social, Technological, Legal and Environmental" and
is used for business and strategic planning, marketing planning, organizational change, business
and product development and research reports.
By understanding these external environments, organizations can maximize the opportunities and
minimize the threats to the organization.

The PESTLE Analysis provides you with a framework that enables you to investigate your
external environment by asking questions for each factor and discussing the likely impli-
cations. These are the types of questions you would ask:
 What are the key political factors?

What are the important economic factors?

What cultural aspects are most important?

What technological innovations are likely to occur?

What current and impending legislation may affect the industry?

What are the environmental considerations?

USE A PESTEL ANALYSIS WHEN :

As a manager, you are most likely to be involved in these sorts of discussions when your
organization is:

1. Planning to launch a new product or service

2. Exploring a new route to market
3. Selling into a new country or region
 It is also a useful technique to know if you are part of a strategic project team. In all of these
instances, there is a need to assess the potential impact of external factors on your organization,
from both an operational and a market perspective.

There are several common variations of the PESTLE Analysis, with some using more fac- tors
and some using fewer than the six considered by PESTLE.

The most common variations are shown in the diagram above. The important thing to note is
that these are all just variations of the one analysis tool; the underlying method is the same in
all cases.

ETPS—Economic, Technical, Political, and Social STEP—Strategic

Trend Evaluation Process

STEPE—Social, Technological, Economic, Political, and Ecological

PEST—Political, Economic, Social, and Technological

STEEPLE—Social, Technological, Economic, Ethical, Political, Legal, and En- vironmental

PESTLIED—Political, Economic, Social, Technological, Legal, International,

Environmental, and Demographic

STEEPLED—Social, Technological, Economic, Environmental, Political, Legal,

Educational, and Demographic.
PESTEL FACTORS
The purpose of the PESTLE Analysis is to identify issues that fit two key criteria:

1. They are outside the control of your organization

2. They will have some level of impact on it

All discussions must be carefully controlled to keep the focus on identifying issues rather than
trying to resolve them. You will need to consider the implications of any factors you identify as
well as the likelihood of them occurring, but you must avoid falling into the trap of debating
possible solutions or strategies.

The process you are likely to adopt when using the PESTLE technique is a relatively simple
one:

1. Brainstorm and list key issues that are outside the organization’s control.
 2. Broadly identify the implications of each issue.
3. Rate its relative importance to the organization (e.g. critical, extensive, impor-
tant, significant, moderate, or insignificant).
4. Rate the likelihood of it occurring (e.g. certainty, extremely likely, likely, potential,
remote possibility, or will not transpire).
5. Briefly consider the implications if the issue did occur.

Political Factors
Political factors relates to the pressures and opportunities brought by political institutions and to
what degree the government policies impact the business.

- Government policies
- Government term and change
- Trading policies
- Funding, grants and initiatives
- Lobbying and pressure groups
- Wars, terrorism and conflicts
- Elections and political trends
- Internal political issues
- Inter-country relationships
- Local commissioning processes
- Corruption
- Bureaucracy
Example: How political factors affect Nike

Studies show that Nike has earned high profits from the growth orientated policies of US
government. The policies maintained low-interest rates. Currency exchange stability and
internationally competitive tax arrangements were also maintained. The company has also
benefited from government initiatives in terms of transparency in the global value chain.

One example of this is in membership of the Clinton administration’s 1997 Apparel Industry
Partnership. Nike enjoyed changes in the political factors in many ways. However, political
pressures had a negative impact on Nike’s employment practices.

However, Nike is facing hard times in its outsourced manufacturers in other regions like
Indonesia, Thailand and Vietnam where there is an increase in political unrest.

Economic Factors
Economic factors relates to economic policies, economic structures and to what degree the
economy impacts the business.

- Local economy
- Taxation
- Inflation
- Interest
- Economy trends
- Seasonality issues
- Industry growth
- Import/export ratios
- International trade
- International exchange rates

Social Factors
Social factors relates to the cultural aspects, attitudes, beliefs, that will affect the demand for a
company's products and how the business operates.

- Demographics
- Media views of the industry
- Work ethic
- Brand, company, technology image
- Lifestyle trends
- Cultural Taboos
- Consumer attitudes and opinions
- Consumer buying patterns
- Ethical issues
- Consumer role models
- Major events and influences
- Buying access and trends
- Advertising and publicity

Technological Factors
Technological factors relates to the technological aspects, innovations, barriers and incentives,
and to what degree these impact the business.

- Emerging technologies
- Maturity of technology
- Technology legislation
- Research and Innovation
- Information and communications
- Competitor technology development
- Intellectual property issues

Legal Factors
Legal factors relates to the laws, regulation and legislation that will affect the way the business
operates.

- Current legislation
- Future legislation
- International legislation
- Regulatory bodies and processes
- Employment law
- Consumer protection
- Health and safety regulations
- Money laundering regulations
- Tax regulations
- Competitive regulations
- Industry-specific regulations

Environmental Factors
Environmental factors relates to the ecological and environmental aspects that will affect the
demand for a company's products and how that business operates.

- Environmental regulations
- Ecological regulations
- Reduction of carbon footprint
- Sustainability
- Impact of adverse weather

PESTLE Analysis is also known as ETPS, PESTEL, PESTLEE, PESTLIED, SLEPT, STEP,
STEPE, PEST-G, PEST-E and STEEPLE, and is used for business and strategic planning,
marketing planning, organizational change, business and product development and research
reports. By understanding these external environments, organizations can maximize the
opportunities and minimize the threats to the organization.

Why should a business conduct a PESTLE analysis?

PESTLE analysis is simple and inexpensive to conduct although it can be time consuming.
However, undertaken correctly, it can enable a business to gain an understanding of the wider
issues affecting a particular industry and provide the insights required to predict and maximise
areas of opportunity and minimise threat.

As such, PESTLE analysis is an invaluable tool for businesses looking at strategic planning for
the medium or long term, or those which are about to embark upon new projects.

Are there any downsides to PESTLE analysis?

The six factors which are analysed by PESTLE methodology are constantly changing and
therefore analysis should be periodically refreshed to ensure that a business can continue to
anticipate their impact. Care must be taken to conduct the correct degree of analysis; too little
may lead to an over-simplification or an under-estimation of potential business threats and
opportunities, whilst to much analysis may result in a surfeit of information from which it is too
difficult to extract meaningful insights.

For maximum benefit the results of PESTLE analysis, which examines external factors and
influences upon a business, should be considered in conjunction with internal factors which may
equally impact it such as cash flow, profitability, staff turnover, customer base and so on.
Summary
To maximize the benefit of the PESTLE Analysis it should be used on a regular basis within
an organization to enable the identification of any trends. The impact of a certain external
factor may have more severe consequences for a particular division or depart- ment and the
PESTLE technique can help clarify why change is needed and identify po- tential options. As
with all techniques there are advantages and disadvantages to using it to help plan
organizational strategy.

Advantages
● Provides a simple and easy-to-use framework for your analysis.

● Involves cross-functional skills and expertise.

● Helps to reduce the impact and effects of potential threats to your organization.
● Aids and encourages the development of strategic thinking within your organization.
● Provides a mechanism that enables your organization to identify and exploit new
opportunities.
● Enables you to assess implications of entering new markets both nationally and
globally.
Disadvantages
● Users can oversimplify the information that is used for making decisions.

● The process has to be conducted regularly to be effective and often organizations do

not make this investment.
● Users must not succumb to ‘paralysis by analysis’ where they gather too much
information and forget that the objective of this tool is the identification of issues so
that action can be taken.

● Organizations often restrict who is involved due to time and cost considerations. This
limits the technique’s effectiveness as a key perspective may be missing from the
discussions.

● Users’ access to quality external information is often restricted because of the cost and
time needed to collate it.