A PESTLE analysis is a framework to analyze the key factors (Political, Economic, Sociological, Technological, Legal, and Environmental) influencing an organization from the outside. It offers people professionals insight into the external factors impacting their organization. The analysis is flexible, so organizations can use it in a range of different scenarios. People professionals and senior managers can use the results to guide strategic decision-making.
This factsheet explores the six elements of PESTLE and outlines what PESTLE analysis is used for, focusing on the scenarios where it’s most valuable. It also provides a PESTLE analysis example (of the retail sector) as well as a ready-to-use PESTLE analysis template. The factsheet concludes by providing some PESTLE analysis tips and looking at the advantages and disadvantages of a PESTLE analysis
What is A PESTLE analysis ? .
It is an audit of six external influences on an organisation:
Political: Tax policy; environmental regulations; trade restrictions and reform; tariffs; political stability
Economic: Economic growth/decline; interest, exchange, inflation and wage rates; minimum wage; working hours; unemployment (local and national); credit availability; the cost of living
Sociological: Cultural norms and expectations; health consciousness; population growth rates; age distribution; career attitudes; health and safety
Technological: New technologies are continually emerging (for example, in the fields of robotics and artificial intelligence), and the rate of change itself is increasing. How will this affect the organization’s products or services?
Legal: Changes to legislation impacting employment, access to materials, quotas, resources, imports/exports, and taxation
Environmental: Global warming and the increased need to switch to sustainable resources; ethical sourcing (both locally and nationally), including supply chain intelligence. Pandemics and other emergencies.
By analyzing those factors, organizations can gain insight into the external influences which may impact their strategy and business decisions. It allows HR and senior managers to assess any risks specific to their industry and organization, and use that knowledge to inform their decisions.
The term PESTLE has been used regularly in the last decade or so and its true history is difficult to establish. Various other similar acronyms have been used, including ETPS, STEP, PEST, and STEEPLE (where the extra E stands for Ethical).
PESTLE is a popular topic in HR, learning and development, organization development, and marketing courses in the UK as it underpins the importance of considering the impact of external forces on a range of plans for change.
How to do PESTLE analysis ?
Carrying out a PESTLE analysis should start with thinking through and planning the process.
This means following these steps:
Identify the scope of the research. It should cover present and possible future scenarios, and apply to areas of the world in which the business operates.
Decide how the information will be collected and by whom . Data gathered is often richer in content when more than one person collects it.
Identify appropriate sources of information. These could be stakeholders looking for people professionals to address specific issues or current policies that require updating.
Gather the information – it’s useful to use a template as the basis for recording the information. Please see our practical, ready-to-use template below.
Analyse the findings.
Identify which of these factors listed above are most important or could cause issues.
Identify the business specific options to address the issues, as demonstrated in the example template.
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 which trends to monitor on an ongoing basis.
To be effective, a PESTLE analysis needs to be done on a regular or ongoing basis. Organizations that regularly and systematically conduct such analyses often spot trends before others, thus providing competitive advantage
PESTLE analysis tips
Some useful tips for carrying out a PESTLE analysis:
Collaborate – an analysis that involves multiple perspectives will deliver a better outcome.
Use expertise and resources that are already available within the organisation.
Use PESTLE analysis together with other techniques, such as SWOT analysis, Porter’s Five Forces, competitor analysis, or scenario planning.
Incorporate the analysis into an ongoing process for monitoring changes in the business environment.
Try not to get bogged down collecting vast amounts of detailed information without analysing and understanding your findings appropriately.
Don’t jump to conclusions about the future based on the past or present
What is a pestle analysis used for ?
A PESTLE analysis is often used as a broad fact-finding activity. It helps an organisation establish the external factors that could impact decisions made inside the organisation.
An organization on its own cannot affect these factors – nor can these factors directly affect the profitability of an organization. By understanding these external factors, it’s possible to maximize opportunities and minimize threats to the organization. Conducting a strategic analysis means scanning the external environment to detect and understand broad, long-term trends.
A PESTLE analysis is an appropriate framework and activity to use in a range of business planning situations. These can encompass:
Strategic business planning
A PESTLE analysis report is a useful document to have available when starting a business planning process. It provides the senior management team with contextual information about the direction in which the business is going, brand positioning, growth targets, and any risks (such as another pandemic) which might bring a decline in productivity. It can also help determine the validity of existing products and services and define new product development.
Workforce planning is a business process that aligns business and people strategies. A PESTLE analysis can help to identify disruptive changes to business models that may have a profound impact on the future employment landscape. Organisations are facing huge changes in their workforce from increased skills gaps, the creation of job roles that did not exist 10 years ago, and job reductions or displacement. This pace of change will only increase.
As with business planning, a PESTLE analysis provides the essential element of ‘climate’ in the situation analysis phase of the marketing planning process. It can help prioritize business activities to accomplish specific marketing objectives within a set timeframe.
By offering insights on what’s happening externally to an organisation, a PESTLE analysis can help you decide whether to enter or leave a route to market, determine whether your product or service still fulfils a need in the marketplace, or when to launch a new product.
A PESTLE analysis can be a powerful activity for understanding the context for change, and the potential areas of focus to make change successful. for example, skills shortages and current workforce capabilities.
Advantages and Disadvantages of business analysis
It’s a simple framework.
facilitates an understanding of the wider business environment.
encourages the development of external and strategic thinking.
can enable an organization to anticipate future business threats and take action to avoid or minimize their impact.
can enable an organisation to spot business opportunities and exploit them fully.
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 analysis’.
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 on a regular basis.