Grab your Mortar – PESTLE Analysis Explained

One thing I keep reiterating in every article (perhaps to your annoyance), is that organizations today are operating within a whole new kind of business environment.

I know, I know, this isn’t news. However, it is something that needs to be drilled in, digested, or otherwise absorbed into every business mind because everything you think you know about running an organization is shifting in its place.

Moreover, the business environment we are currently in is, in itself, changing faster than ever before. Not only does that make it crucial to thoroughly analyze the new environment, but also to deeply scrutinize the implications of its fast-paced changes. Only then can you control and modify the ways in which your business reacts to them.

This, in simple words, is the essence of a business marketing strategy.

Whether you work in a small company, or a large multinational corporation, or run your own business, you stand nowhere without a firm understanding of business analysis techniques.

It is these techniques that will ultimately contribute to your key strategic decision-making processes.

With their results and findings, you can navigate the seas of our ever-changing, incredibly saturated, mind-bogglingly globalized business environment.

One such technique, which is an oldie but a goodie, is the PESTLE Analysis.

PESTLE is one of the five most frequently applied business analysis tools of business environmental analysis.

With the PESTLE analysis, you can identify and understand a myriad of external macro-environmental factors that could – and will – impact your business operations.

The PESTLE analysis is a time-tested concept of marketing principles. Companies apply the PESTLE analysis to their external business environment, particularly when they are planning to launch a new product, service, or business project.

The PESTLE analysis is also crucial if you plan on selling into a new country.

What does Pestle Analysis stand for?

Each letter of PESTLE represents a unique angle on the external environment.

Historically, the model used to be called PEST. It stood for Political, Economic, Social and Technological factors of the external environment.

Later, the letters L and E were added to represent the Legal and Environmental factors as well, thus completing the comprehensive analysis tool.

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No sort of strategic management decision can be made for launching a new product without a thorough PESTLE analysis.

Each of the outlined factors of the PESTLE analysis can have a profound effect on your business in terms of varying implications, including:

• Duration of impact – whether the impact will be short term or long term.
• Type of change – whether the change will be positive or negative.
• Rate of impact – whether the impact will increase, decrease, or remain unchanged.
• Importance – whether the impact of the factor is critically important, important, or unimportant. 

How is Pestle analysis used?

When performing market research, it is imperative that you understand the complete depth of each of the letters of PESTLE. This insight will help you formulate the questions you should be asking during the PESTLE analysis.

Political

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Political factors determine how much the government impacts the economy or any industry in particular. Even the imposition of a new tax or duty by the government could affect the entire revenue generating framework of your company.

When analyzing the influence of political factors, note the ongoing or potentially levied fiscal policies and trade tariffs of the current fiscal year. Ask questions like these:

• What trading policies might impact your business?
• Which political regulations are you required to follow – have they changed in recent years, or are they about to be subjected to change?

Economic

Economic factors include interest rates, inflation rates, economic growth patterns, and foreign exchange rates, etc. The economy’s performance directly affects your business and unfortunately, can leave long-term resonating effects.

If your national economy experiences a rise in inflation, for instance, of course, it will impact how your company prices its products or services. Secondly, the purchasing power of your consumers will diminish, and the demand/supply models of the economy will also be subjected to change.

When scrutinizing economic macro-environmental factors, ask these questions:

• Is the current economy promising, stable, or unstable for your industry?
• How does globalization impact your market share?
• How are your service/product offerings affected by economic on-goings?

Social

Social factors analyze the market from a sociological viewpoint to identify and address elements such as socio-demographics, population analytics, and cultural/religious trends.

Basically, social factors are determined by the people. Consider all the ways in which your consumers, target market, and customer purchasing habits impact your company’s profits and sales.

Identify your target market in great specificity:

• Are current consumer opinions impacting the sales of your product or service?
• What changes is the population demographics undergoing, and does it affect your business in any way?

Technological

This angle refers to innovations in technology which will impact industry operations. Automation, research, and development of products and services depend on technological advances.

So technological awareness is a strong influential factor in every market and for every industry. Ponder the following:

• What emerging technologies hold implications for my company or relevant industry?
• Which technologies are becoming redundant, whose decline is a threat to my company?
• Do I depend on 3rd parties for tech support and solutions?
• Is my organization using technology to stay ahead of the competition?

Legal

The legal impacts on business have both external and internal aspects to it. Your business and overall business environment may be affected by certain laws of certain countries where you are operating.

When performing legal analysis of the macro-environment, take into consideration:

• health and safety standards
• consumer protection laws
• labor laws
• licensing regulations
• And any legal policies which could directly or indirectly influence your business, your market, or your industry.

Environmental

The environmental factors in this section of the analysis refer to the natural environment surrounding the regions of your business operations. This aspect of the PESTLE analysis is critically important for a number of industries (such as farming, agriculture, tourism, etc.), but may not be as important for other industries.

Considerations to make during this part of the analysis will be directed to:

• the climate of the region
• the geographical location
• changes in the global climate
• environmental shifts
• sustainability
• waste management
• And ensuring green practices

Final Thoughts

Be sure to create your own questions when you perform the PESTLE analysis for your business. After all, your own business operations, strategies, and approach will reflect in your analysis and shape your plans for the present and future developments.