What is PESTLE Analysis?
PESTLE analysis, also known as PESTEL analysis, is a strategic tool used to assess and analyze the external macro-environmental factors that can impact an organization or a business. The acronym stands for Political, Economic, Social, Technological, Legal, and Environmental factors.
Originally designed as a business environmental scan, the PEST or PESTLE analysis is an analysis of the external macro environment (big picture) in which a business operates. These are often factors that are beyond the control or influence of a business, however, are important to be aware of when doing product development, business, or strategy planning.
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History of PESTLE
The term ‘PESTLE’ has been used regularly in the last 10+ years and its true history is difficult to establish. From our research, the earliest known reference to tools and techniques for ‘Scanning the Business Environment’ appears to be by Francis J. Aguilar (1967) who discusses ‘ETPS’ – a mnemonic for the four sectors of his taxonomy of the environment: Economic, Technical, Political, and Social. Shortly after its publication, Arnold Brown for the Institute of Life Insurance (in the US) reorganized it as ‘STEP’ (Strategic Trend Evaluation Process) as a way to organize the results of his environmental scanning.
Thereafter, this ‘macro external environment analysis’, or ‘environmental scanning for change’, was modified yet again to become a so-called STEPE analysis (the Social, Technical, Economic, Political, and Ecological taxonomies). In the 1980s, several other authors including Fahey, Narayanan, Morrison, Renfro, Boucher, Mecca, and Porter included variations of the taxonomy classifications in a variety of orders: PEST, PESTLE, STEEPLE, etc. Why the slightly negative connotations of PEST have proven to be more popular than STEP is not known. There is no implied order or priority in any of the formats.
Some purists claim that STEP or PEST still contain headings that are appropriate for all situations, while others claim that the additional breakdown of some factors helps individuals and teams undertake an environmental scan.
Quite who and when added what elements to the mnemonic is a mystery, but what we do know is that the actual order and words contained are common to certain parts of the world and streams of academic study. The term PESTLE is particularly popular in HR and introductory marketing courses in the UK. Others favor PEST, STEP, or STEEPLE.
Pestle Analysis Tool
PESTLE analysis is a useful tool for understanding the “big picture” of the environment, in which you are operating, and the opportunities and threats that lie within it. By understanding the environment in which you operate (external to your company or department), you can take advantage of the opportunities and minimize the threats. Specifically, the PEST or PESTLE analysis is a useful tool for understanding risks associated with market growth or decline, and as such the position, potential, and direction of a business or organization.
The PESTLE analysis is often used as a generic ‘orientation’ tool, finding out where an organization or product is in the context of what is happening outside that will at some point affect what is happening inside an organization.
A PESTLE analysis is a business measurement tool, that looks at factors external to the organization. It is often used within a strategic SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats analysis).
PESTLE is an acronym for Political, Economic, Social, Technological, Legal, and Environmental factors, which are used to assess the market for a business or organizational unit strategic plan.
|Regulatory/legislative, policy, Trade practices, Macro and external environment||Economy, Tax, Market, Trade cycles, interest & exchange rates||Regulatory/legislative, policy, Trade practices, Macro, and external environment|
|Technology, innovation, lifecycle||IPR, local & international laws, competition||Ecology, environment, energy, waste|
The PESTLE analysis headings are a framework for reviewing a situation, and can also be used to review a strategy or position, the direction of a company, a marketing proposition, or an idea. There are many variants of this model including PEST analysis and STEEPLE analysis.
Completing a PESTLE analysis can be a simple or complex process. It all depends on how thorough you need to be. It is a good subject for workshop sessions, as undertaking this activity with only one perspective (i.e. only one person’s view) can be time-consuming and miss critical factors.
Use PESTLE analysis for business and strategic planning, marketing planning, business and product development, and research reports.
The PESTLE template below includes sample questions or prompts, whose answers can be inserted into the relevant section of the table. The questions are examples of discussion points, and should be altered depending on the subject of the analysis, and how you want to use it. Make up your own PESTLE questions and prompts to suit the issue being analyzed and the situation (i.e. the people doing the work and the expectations of them).
It is important to identify the subject of a PESTLE analysis (that is a clear goal or output requirement), because an analysis of this type is multi-faceted about a particular business unit or proposition – if you dilute the focus you will produce an unclear picture – so be clear about the situation and perspective that you use PESTLE to analyze.
A market is defined by what is addressing it, be it a product, company, organization, brand, business unit, proposition, idea, etc, so be clear about how you define the market being analyzed, particularly if you use PESTLE analysis in workshops, team exercises or as a delegated task. The PESTLE subject should be a clear definition of the market being addressed, which might be from any of the following standpoints:
- A company looking at its market
- A product looking at its market
- A brand about its market
- A local business unit or function in a business
- A strategic option, such as entering a new market or launching a new product
- A potential acquisition
- A potential partnership
- An investment opportunity
Be sure to describe the subject for the PESTLE analysis clearly so that people contributing to the analysis, and those seeing the finished PESTLE analysis, properly understand the purpose of the PESTLE assessment and its implications.
On to SWOT Analysis
To take the PESTLE analysis forward you can integrate the results into your SWOT.
The outputs from the BIR/ SWOT will provide you with your internal strengths and weaknesses.
Have a look at the HIGH impacts of the PESTLE. Some will be positive, others will be negative. List these on your SWOT analysis under OPPORTUNITIES and THREATS.
The PESTLE model is a useful environmental scan as part of a diagnostic process. The PESTLE analysis tool can be used in association with the Business Improvement Review (BIR) – a highly structured and holistic SWOT tool. The PESTLE models can help to identify the context in which a business operates and provide a context for change.
A PESTLE analysis can provide a valuable agenda upon which to use a Business Improvement Review (BIR) to help identify the strengths and weaknesses (SWOT) of an organization, as a part of an organizational change process.
PEST-G or PEST-E
There have been some changes to the way PEST is being used in 2009, with the addition of G for Green or E for Environment. Within the PESTLE version of course this is already catered for.
It has taken some time, but now those faithful to PEST rather than PESTLE are starting to change and add a new variant.