What is PESTLE Analysis?

What is PESTLE Analysis?

PESTLE analysis is one of the most commonly used tools in business analysis. It is intended to analyze the business environment by looking at various factors that may affect the organization, its operations, or its products and services. PESTLE stands for Political, Economic, Social, Technological, Legal, and Environmental. It can be considered as similar to the analysis of external factors under SWOT analysis, but it is utilized for a more comprehensive, in-depth, and organized survey by looking at the six distinct dimensions. PESTLE analysis can also be performed for a variety of other reasons, such as when a company seeks to launch its products or services in a new market, roll out a marketing campaign, or establish operations in a foreign country. In order to know how to conduct PESTLE analysis, it is important to be familiar with the scope of each dimension.

Political

Political factors refer to the extent to which a government and its actions can affect the businessor the industry. Governments often assume the responsibility of regulating or overseeing industries, and thus policies can affect an organization in various ways. For instance, policies on taxation, tariffs, labor, and trade restrictions can impact an organization’s performance. But more than just its policies, a government’s character and stability also have an effect on a company. For example, massive corruption, political instability, and a weak government may not be conducive for business operations. When analyzing political factors, some questions that you may ask are:

• What is the current political situation? Is it stable or is it unstable?
• Does the government uphold the rule of law? Is there corruption?
• Are there any possible dramatic shifts in the government in the foreseeable future?
• What is the government’s attitude towards foreign businesses and investors?
• Are there current or pending laws that will significantly affect the industry?

Economic

Economic factors refer to the features of the economic performance of a country that impact an organization. In general, excellent economic performance may mean good prospects for a company, whereas economic downturns may be detrimental to an organization. Some factors to consider are economic growth rate, exchange rates, interest rates, rate of inflation, unemployment rates, and the economic profile of the population including disposable incomes. For example, the purchasing power of consumers will certainly have an effect on the profitability of a company. Some questions to ask when analyzing economic factors are:

• Is the economy stable or unstable? Is it growing or shrinking?
• Are exchange rates constant or are there considerable fluctuations?
• What is the country’s employment rate? How do wages compare to other places?
• What is the level of disposable income?
• How is the economic performance in the past years?

Social

Social factors refer to the demographic characteristics as well as cultural beliefs and practices of the population. For instance, demographics include age distribution, income distribution, health profile, and population growth rate. Meanwhile, cultural beliefs and practices include values, norms, customs, religion, and even lifestyle trends. Social factors can have a significant impact on businesses. For example, a young, educated, and skilled population can be advantageous for a company looking for a dynamic and talented workforce. Some questions to consider when analyzing social factors include:

• What is the growth rate and age distribution of the population?
• What is the population’s level of health and education?
• What are social beliefs and practices that can affect your business?
• How will the population’s lifestyle affect your products and services?
• What are your target market’s attitudes and perceptions toward your product and services?

Technological

Technological factors are changes and innovations in technology that may impact your business. Technology undergoes constant transformation, and such shifts may be advantageous or detrimental to your organization. These factors include research and development, emergence of new technologies, and technological awareness of the market. When analyzing technological factors, consider the following questions:

• Are there new technologies that you can use to improve your operations?
• Are there new technologies that you can use to enhance communication with your market?
• Are there new methods for producing and delivering products and services?
• How can you better leverage research and development to gain advantages?
• What technologies are you using that are becoming obsolete?

Legal

While this dimension sometimes overlaps with the political dimension, legal factors focus more on laws and legislation affecting your business and industry. Some of the factors that fall under this dimension are safety standards, consumer rights, advertising standards, labor laws, and regulatory policies. For example, advertising standards can affect how you market your products and services. Some questions to consider when conducting legal analysis:

• What laws, legislation, or regulations apply to your organization?
• Are you complying with these laws and policies?
• Do these help or hinder your operations?
• Are there any pending laws or legislation that can significantly alter the way you conduct business?
• Do you have a good understanding of laws, legislation, or regulations if you are conducting business in a foreign market?

Environmental

The environmental dimension involves factors that relate to geography, climate, and natural resources. Environmental factors have become more crucial over the past few decades as businesses became more keenly aware of the impact operations and consumption has on the planet. In particular, the rise of climate change and the emergence of a more ecologically conscious society have driven businesses to integrate this dimension. For example, many companies today practice corporate social responsibility in response to consumers’ demands for social and environmental accountability.

• How does the geographical location affect your business?
• Are there climate conditions that can adversely impact your operations?
• Are there environmental laws that regulate you ecological footprint?
• Are your organization’s practices ethical and sustainable?
• What are your target market’s attitudes and perceptions towards ethical and sustainable production/consumption?

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