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PESTLE Analysis

Scan, plan, manage, achieve!

PESTLE Analysis

Scan, plan, manage, achieve!

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 Ecological. These are often referred to by the acronym PESTLE (or similar variations on the theme, such as PEST or SLEPT).

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!

Situation Analysis

PESTLE Analysis

To gain a “big” picture view of the environment you need to analyse 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 opportunities 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 manner. 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. Think about how your organisation might be affected by:

Political influences such as:
  • government stability
  • government policy
  • government spending
  • education policies
Economic influences such as:
  • business/economic cycles
  • interest rates
  • inflation
  • unemployment
Socio-cultural influences such as:
  • changing demographics
  • attitudes to work and leisure
  • levels of education
  • health and lifestyle
  • social mobility
Technological influences such as:
  • new discoveries
  • spread of new technologies
  • research
  • rates of development
  • rates of obsolescence
Legal influences such as:
  • welfare legislation
  • employment law
  • health and safety
  • consumer protection
Ecological influences such as:
  • environmental protection laws
  • waste disposal
  • energy consumption
  • other resource consumption
  • sustainability
  • climate change

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 organisation, 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 political or economic influences as these may affect market conditions. All organizations should be concerned about social and ecological 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 Setting process.

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.

Setting business or personal goals?

You can find our more about the benefits of goal setting in our e-guide: SMART Goals, SHARP Goals. The guide contains 30 pages and 5 tools to help you to set SMART goals, then take SHARP action to achieve them. It includes:

  • Business Industry EnvironmentHow do you define goal setting?
  • What features of goal setting are important, if we want to ensure they are more likely to be successfully achieved?
  • What kinds of goals are more likely to make us motivated to achieve them?
  • How do you set SMART goals?
  • Why do goals matter?
  • What kind of goals should you pursue to be happier in what you do?
  • How do you set team goals?
  • What strategies can you apply to overcome barriers to setting goals?
  • How do you develop SHARP plans of action that help you to achieve your goals?
  • What techniques can you use to get things done?
  • How do you set personal goals?
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