What is PESTLE analysis?
PESTLE analysis is a comprehensive look and analysis of the business environment and industry surrounding a business. It is a way to study the key external factors that influence an organization and its decision-making for the future.
The word PESTLE is an acronym for:
- Political
- Economic
- Social
- Technology
- Environment
- Legal
These categories can be used as a strategic framework to evaluate what type of environment surrounds a business and how this might affect them in the future.
What PESTLE analysis can be used for
The following are ways in which your organization can use PESTLE analysis
- Strategic business planning– planning for things such as branding and growth
- Workforce planning– identifying disruptive changes that can happen
- Marketing planning– how to get the audience to listen to the message
- Product development– will there be a need for this product in the future?
- Organizational change– knowing when your organization might need to change
- People strategies– make sure that certain factors (e.g. Values) are not overlooked
These different future planning tasks are important for all companies to participate in and can be made easier with PESTLE analysis.
Explaining PESTLE analysis
To have a better understanding of how PESTLE analysis works, let’s look at each individual category.
Political
This part of the PESTLE analysis takes a look at how the government influences the economy or the industry that your organization is a part of. It looks into things such as tax policies, fiscal policies and trade tariffs that could have an influence on your company.
An example of how the political environment surrounding your business can affect future growth opportunities is a change in governing parties. If there is a change, for example, from a Liberal government to a Conservative government, then there could be a lot of changes in tax policies that could affect your company. In general, a Liberal government will have higher taxes for businesses.
This would mean that for at least four years there would be a likelihood of your organization having to pay higher taxes which would affect your overall budget. In a PESTLE analysis, you would have to take this into account in order to come up with accurate predictions.
Another way of gauging future political influences on business is whether the ruling party is a majority or a minority government. If the ruling party has a majority (meaning they have more members of parliament than all the other parties combined) then they will have an easier time changing policies that could affect your company.
These two factors can play a huge role in making decisions for your company and is why a PESTLE analysis can be so useful.
Economic
The economic part of a PESTLE analysis shows how the economy affects or impacts your business or the industry that you are in. It looks at things such as inflation, interest rates, economic growth patterns and international exchange rates.
An example of how the economy can affect your business is by looking at interest rates. When interest rates are high, it means that it will cost more to have a loan which many use to help run their businesses.
The higher the interest rate the higher the loan payments your company will have to make and the less profit you might be able to have. The PESTLE analysis will help you figure out how to manage your money so that your business can survive even in rough economic times.
Social
The social environment in a PESTLE analysis will help companies take into account the types of social trends customers and clients will be following. It takes into account cultural trends, demographics of the population the business is in and buying trends.
A good example of how the social environment can affect a business is the more recent idea of companies representing social causes. It has become increasingly important for businesses to align themselves with good values in order to gain clients or customers. In recent years, more and more retail businesses have decided to give part of their proceeds to charity, which has made those brands more popular.
Companies that have aligned themselves with virtuous actions have done very well and those who have not may be finding themselves struggling. This is even seen in talent recruitment as people want to work for companies that have values similar to theirs. It can be easier to have high retention rates if your employees know that you support social movements, and this connection is the type of thing that PESTLE analysis looks at.
Related: Corporate Social Responsibility and Its Importance
Technology
How your business is able to adapt to new technology has a huge influence on how well you will do in the future. Businesses have to be adaptable to the ever-changing technology in order to survive, and those who cannot, do not.
The PESTLE analysis will look at the ways in which innovations will affect the operations of your business and the marketplace. An example of this can be seen in the marketing industry which has had to change how they approach their work. Marketing successfully now relies on social media and content creation, which just a few years ago was not on anyone’s radar.
With the rise of social media being an important marketing tool, companies have had to adapt to this new technology and will have to continue to be open to anything new that might come along.
This type of technological trend is something that a PESTLE analysis could help companies see and then plan for so that they do not get left behind.
Legal
How laws affect how you do business is the legal part of a PESTLE analysis. This would include consumer laws, safety standards and labour laws.
Labour laws and safety standards can have a huge effect on how you do business and your budget. For example, with large cities in Canada getting more unaffordable, provinces have had to raise the minimum wage in the last few years. Having the minimum wage going up every few years means that your budgets have to be altered and there has to be a plan as to how to handle further raises.
Safety standards are also an area that is often changing and organizations have to make sure that their facilities are considered safe for all to use.
By using a PESTLE analysis, your organization would be able to come up with a plan that would account for these legal changes along with keeping the economy in mind.
Environmental
The environmental surroundings of a business can influence how you do business. This part of the PESTLE analysis will look at things such as climate, geographic location and weather.
One major way this has impacted how organizations do business is when it combines with the legal and political side with climate change actions. For example, Canada has banned single-use plastics, which has had a huge effect on retailers. Companies have to change how what type of material they use for packaging which can mean a large shift in manufacturing.
These types of changes are what a PESTLE analysis takes into account and why companies should be using it when planning for the future.
When it comes to planning for the future, PESTLE analysis can help companies look at everything that might influence how they do business and how they can do better. This type of analysis is important as it gives you a much broader view of the entire business environment. By understanding PESTLE analysis, your business can be successful at planning for a bright future.
