What is a PESTLE analysis? Organisations don’t exist in a vacuum. They are intricately connected to an outside world with a constantly changing landscape. If you can analyse this landscape, and the features that impact on your organisation’s performance, then you can begin to make decisions and plans. Regardless of the uncertainties of the future.
A PESTLE analysis is a tool to help you do this. Each letter stands for an element of the organisation’s external operating environment. They stand for Political, Economic, Socio-cultural, Technological, Legal and Eco-environmental elements.
Most models and tools provide a structure to help you think about context. They are valuable to the extent that they help you structure your thoughts, but remember – they don’t replace the need for you to get the right people together to do that thinking!
To gain a “big” picture view of the environment you need to analyze both the external and the internal context. A PESTLE analysis will provide the external perspective, leading to an assessment of opportunities and threats. The internal perspective can be determined by a review of strengths and weaknesses.
The combination of an external focus with the internal perspective enables you to assess the opportunties and threats from outside the organization and the strengths and weaknesses from inside the organization. This is commonly referred to as a SWOT analysis (strengths, weaknesses, opportunities and threats). For more on SWOT see our article: SWOT analysis: combining internal and external views.
The Macro Environment – PESTLE Analysis
A PESTLE analysis is a useful tool to help you consider the potential impact of influences in the macro-environment. It allows you to identify possible key changes in the outside world, in a structured mannner. That external environment is broad and complex, so any tool to help you assess existing and future influences on your organization is worth using. Examples of these influences, and the way in which they can be categorized using a PESTLE analysis, are given below:
- government stability
- government policy
- government sp
- education policies
- business/economic cycles
- bunding mechanisms
- interest rates
- deal influences:mographics;
- attitudes to work and leisure;
- levels of education;
- health and lifestyle;
- social mobility.
- new discoveries
- spread of new technologies
- rates of development
- rates of obsolescence
- environmental protection laws
- waste disposal
- energy consumption
- other resource consumption
- welfare legislation
- employment law
- health and safety
- consumer protection
Using the PESTLE headings think about the following questions:
- What environmental factors are affecting your organization?
- What evidence and data do you have to support your assertions?
- What is the likely impact of the influences – in terms of opportunities and threats – on your organization
- Which of these are most important at the present time? In the next few years?
A list of PESTLE influences on its own is of limited value. Each must be considered but not in isolation. What’s important is that you understand what they all mean for your organization, and that you can identify the key drivers of structural change for your industry or sector.
For example: public services are more likely to be impacted by changes in government policy, public spending levels, a declining birth rate, and the need to manage a culturally diverse society.
Whereas a software company may be more immediately concerned with changes in the technical environment which lead to product innovation and obsolescence. Of course this shouldn’t be over-simplified. Software companies will also be affected by changes in politcal or economic influences as these may affect market conditions. All organizations should be concerned about social and eco-environmental influences as these relate to people and the physical world we inhabit.
Remember, a PESTLE analysis is only one of several management tools. For example it allows you to focus more specifically on the opportunities and threats part of a SWOT analysis.
Summary – Know Your Business
Developing an understanding of your environment is a crucial step towards developing your strategy, and providing the information and intelligence to inform your Business Goal Settingprocess.
Organizations don’t exist in a vacuum. The business industry environment is constantly changing and being aware of those changes is crucial. A PESTLE analysis is one of the best known tools to help assess that environment.
You can find out more about business planning by reading our series on the subject, starting with business goal setting.