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What Is PESTLE Analysis?
PESTLE stands for Political, Economic, Sociological, Technological, Legal and Environmental. Historically the model was PEST; however Legal and Environmental were added on more recently as their importance grew. The model describes the environmental influences on any organization and can be used to aid strategic decision making. If you can understand what is going on in your environment, both internally and externally, you will be able react and implement change more quickly, effectively providing a competitive edge.
PESTLE analysis provides useful data for understanding the ‘big picture’ of the environment in which an organization is operating. Specifically this analysis is a useful tool for understanding and identifying risks as part of a risk assessment process. It is particularly important when assessing market risks (the need for a product or service) and assessing growth or decline, and as such the position and direction for any business or organization.
Identifying Drivers of Change
PESTLE forces are sometimes called the ‘drivers of change’ of any organization as they are the forces that exist that cause the requirement for change in an organization. Failing to identify drivers of change can be disastrous for an organization. For example a key Legal driver of change could be a change in legislation; if this has a great effect on an organization but they fail to react early enough they could well be left behind by competitors. PESTLE analysis is a key tool in identifying these drivers of change.
How and Why Is It Used?
Organizations exist within the micro (the environment around your organization where you have limited influence and impact) and macro (the wider economy and markets where you have no control and can only react) economic environments.
A PESTLE analysis assists an organization to see where it sits in these environments and identify threats and opportunities and to minimize and maximize their impact on the organization. The analysis can help you identify long terms trends and help you make informed decisions about the future and can be particularly useful when entering a new market, country or environment allowing you to quickly change and adapt to the external forces.
Using the analysis to identify the drivers of change to your organization is only the first step. The next step is to analyze their potential impact on your organization and really think through what they mean. The assumptions should be continually tested and updated against the real life experiences within the environment.
Examples of Key Drivers
Here are some examples of key drivers for PESTLE analysis.
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The list below is just a starting point. The analysis should be run in the context of your own organization or business. For example if you are a small private company the behaviors and intentions of WalMart may well impact on you. If you are WalMart the changes to planning laws may affect how and where you can build stores in the future.
- Government stability.
- Freedom of speech, corruption, party in control
- Regulation trends.
- Tax policy, and trade controls.
- Government policy
- Likely changes to the political environment .
- Stage of business cycle.
- Current and projected economic growth
- International trends
- Job growth
- Inflation and interest rates.
- Unemployment and labor supply.
- Levels of disposable income across economy and income distribution.
- Likely changes to the economic environment.
- Population growth and demographics.
- Health, education and social mobility of the population
- Consumer attitudes
- Advertising and media
- National and regional culture
- Lifestyle choices and attitudes to these.
- Levels of health and education
- Major events
- Socio-cultural changes.
- Impact of new technologies.
- Inventions and innovations
- The internet and how it affects working and business
- Licensing and patents
- Research funding and Development.
- Home legislation
- International legislation
- Employment law
- New laws
- Regulatory bodies
- Environmental regulation
- Industry-specific regulations
- Consumer protection
- International environmental issues
- National environmental issues
- Local environmental issues
- Environmental regulations
- Organizational culture
- Staff morale and attitudes
If you have any comments or further drivers for a PESTLE analysis, please leave a comment.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
josephat on November 08, 2016:
thanks its good work