Introduction to PESTLE Analysis

All organizations need to identify external factors within their environment that could have an impact on their operations. Many of these will be things that the organization has no control over, but the implications of which need to be understood.

A popular tool for identifying these external factors is the PESTLE Analysis, which can be used to help you consider Political, Economic, Social, Technological, Legal, and Environmental issues.

PESTLE analysis

This process of identification should involve a variety of different disciplines across your organization so that a full picture of these external factors can be built up. These factors can then be fully researched and analyzed.

As organizations become more globalized, expanding their existing borders, the PESTLE technique ensures that they thoroughly question each of these factors and consider their impact.

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 implications. 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?

How you categorize each issue raised is not important when using the PESTLE technique because the aim of this tool is simply to identify as many factors as possible. For example, whether you classify an impending government regulation as a Political or Legal issue is not important. The only thing that matters is that it is identified as potentially having an impact on your organization.

The PESTLE tool is a powerful technique for analyzing your environment but it should represent just one component of a comprehensive strategic analysis process.

The PESTLE factors, combined with external micro-environmental factors and internal drivers, can be classified as opportunities and threats in a SWOT Analysis. If the PESTLE analysis identifies factors that require internal changes to your organization, then these will need to be investigated further using tools like the Boston Matrix.

Using a PESTLE analysis

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.

The ranking of each of these factors within the six categories may vary because different organizations have different priorities. For example, organizations that sell to consumers tend to be more affected by social factors, whereas a global defense contractor would tend to be more affected by political factors.

Additionally, factors that are more likely to change in the future or are more relevant to a given company will carry greater importance. A company that has borrowed heavily, for instance, would need to focus more on the economic factors.

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

PESTLE analysis variations

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 Environmental
  • PESTLIED - Political, Economic, Social, Technological, Legal, International, Environmental, and Demographic
  • STEEPLED - Social, Technological, Economic, Environmental, Political, Legal, Educational, and Demographic

Key Points

  • A PESTLE Analysis can be used to consider political, economic, social, technological, legal, and environmental issues that may affect your organization.
  • It is often used when launching a new product or service, exploring a new route to market, or selling into a new country or region.
  • There are many different versions of this analysis tool, although the underlying method is the same in all cases.
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You may also be interested in: Introduction to PESTLE Analysis, PESTLE Factors, Political Factors, Economic Factors, Social Factors, Technological Factors, Legal Factors, Environmental Factors and Advantages and Disadvantages.

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