What is a PESTLE Analysis?

When considering what a PESTLE analysis is, it can be helpful to first understand what is meant by an analysis. An analysis is a detailed examination of a particular thing. It helps to gain a greater understanding about something and learn about its essential features, its good and bad points, and how these apply to you.

There are many tools that can help you to conduct an analysis; one of which is a PESTLE. So, what is PESTLE? PESTLE is an acronym where each letter stands for a different category in which you complete your analysis under.

It was initially created as an environmental scanning tool for businesses, to help business owners see the bigger picture. This is because each letter stands for an external factor that can influence your business. Often when business owners have worked in their field for a long period of time, they can forget to acknowledge changes in the world around them.

The wider context that your business operates in plays a pivotal role in your business’s performance, but without you manually researching the market, external factors have the potential to cause harm to your business goals.

When you complete your analysis for each PESTLE category, you are left with a complete external view of all of the factors that have an impact on your organisation. We know you may be wondering, what does PESTLE stand for?

So, let’s find out below:

Political

P stands for political. It covers all of the political factors that can affect your business, including government policy that influences, causes changes or targets issues in business and society. As a business, this could be environmental policy, tax policy, trade policy, as well as upcoming elections, grants, initiatives and bureaucracy.

Economical

E stands for economical. It takes the economy into account and how it could impact your business. You can find out how the economy is performing from government agencies and the Bank of England. It includes inflation, unemployment, exchange rates, minimum wage and interest rates. The state of the economy has a huge impact on your business so it can be an integral factor in business decision-making.

Sociological

S stands for sociological factors, which are things that impact on society and social norms. They can be cultural factors and trends that influence people’s way of life. These alter societal expectations which change the behaviour of society, and as a result, how customers interact with your business. Factors such as population growth, health consciousness, career attitudes and health and safety can change social norms which can have a knock-on effect to your business.

Technological

T stands for technological. Technology is transforming society at a rapid rate which, in turn, forces businesses to innovate. As well as innovation, technological advancements impact other areas of the PESTLE (such as economic factors). Some technological factors to consider in relation to business are automation, software development and technology incentives.

Legal

L stands for legal. Legal factors are legislative changes that could cause you to alter your procedures to meet new legal requirements. This could include tax, employment, licensing, import and export laws. There can be some overlap between legal factors and political factors, because legislation changes also result in policymakers forming new policies. However, legal factors always dictate what a business can or cannot do by law, so must always be adhered to.

Environmental 

E stands for environmental factors. These are becoming an increasingly influential area in business, due to sociological trends of greener living, and increased pressure to reduce the rate of global warming. There is greater awareness about living more sustainably, and businesses have a large part to play in doing so.

Environmental factors for businesses include global warming, carbon footprint, supply chains and manufacturing. The Corporate Social Responsibility initiative aims to influence and support businesses to make positive changes in response to the environmental issues of the modern world.

When each category is considered, you can create a full picture of the external factors that can influence your business. It can be used in any business industry because all businesses have an external context of operation. However, different sectors may place greater weight on different categories due to the differing nature of businesses, but all sectors can benefit from using the tool to inform key business decisions.

How to do a PESTLE analysis

Completing a PESTLE analysis requires thinking and research to gather your information. However, it is important to balance information gathering with conducting the actual analysis. Analysis of the external environment must be done manually, so once you have captured your information, you must analyse it manually to identify your next actions. Otherwise, you will not be able to apply the research you have gathered to your business.

We have shared a series of steps that outline how to do a PESTLE analysis below:

1. Define your business industry or market in which you will complete your research in.
2. Gather a group of internal employees who can contribute to your PESTLE analysis. Having multiple people to contribute to your information gathering often leads to richer data being captured. You can generate some initial ideas using a range of techniques including brainstorming or creating a PESTLE table.
3. Identify different sources of information and begin your information gathering for each PESTLE category. You can consider the following questions for each category (but there are many more to consider depending on your business function):
   a. Political
   Consider domestic and international policy (if applicable to your business).
   Is the political environment stable?
   What funding or grants are available to our business?
   b. Economical
   How is the disposable income of our customers changing?
   Are our production costs in line with product demand and profit?
   What economic factors improve or reduce our business prospects?
   c. Sociological
   How do customer behaviour and attitudes affect buying habits?
   Are the attitudes of our stakeholders changing?
   What is the age distribution of our customers?
   d. Technological
   What new software is available to help our business?
   Does the new technology threaten the skill set of our employees?
   How is automation being used in our market?
   e. Legal
   What laws and regulations are changing in the near future?
   What laws and regulations apply to our business?
   Are our policies and procedures compliant with the law?
   f. Environmental
   How is the physical environment changing?
   How are our customers responding to change?
   Are there any better materials we could use in production?
4. Determine whether you would like external stakeholders to contribute to your information gathering. If so, ask them to provide information on selected categories. You could ask your customers, suppliers, distributors, business consultants or academics. A study by Deloitte found that 87% of UK businesses included external workers when considering internal business planning.
5. Collate and analyse your findings. You can do this by evaluating each one in terms of likelihood and imminence of impacting your business.
6. Categorise your analysis findings into business strengths and weaknesses and prioritise each of these to help you determine what to action first.
7. Create an action plan to maximise your strengths or mitigate against threats.
8. Create a summary report to share with your business and stakeholders.
9. Monitor your action plan on an ongoing basis and revisit your PESTLE at least once every six months to review changes to any external factors.

What is a PESTLE analysis used for?

In business, you complete a PESTLE analysis to inform your decision-making. It helps you to understand the market you’re in, and the steps to take to grow and reach your goals. A PESTLE focusses specifically on external factors that impact your business, so it helps you to maximise external strengths to get ahead of the competition. This is essential for strategising, particularly with older businesses who may have become stuck with innovation. It also helps you to mitigate against any potential risks or threats to your business.

The Chartered Management Institute recommend completing a PESTLE analysis as a critical element of crisis management. You can identify future challenges and take action before they arrive so that you can prepare for the challenges ahead. That way, your business can avoid jeopardy by having more time to react, which can be a valuable source of leverage over your competitors.

A PESTLE analysis can be used in a number of business scenarios including:

Strategy planning

When planning a new strategy, it is important to have something to guide you to your goal. The context that can be identified in your PESTLE information gathering and analysis plays a crucial role in leading your business in its new goal. Strategy planning is usually the task of the senior management team, but that doesn’t mean that contributions must be restricted to managers. Your wider team and employees are the ones that will help you reach your business goals and may hold valuable insight.

Marketing plans

A PESTLE is a common tool used in marketing strategy planning. This is because the nature of marketing is to interact with the world external to your business. It can help you to identify target markets, most successful marketing channels, best timing of messages, and conversion goals.

Product development

Similar to creating marketing plans, a PESTLE is a key tool to help you during product development. You can gather information that can help you to identify market insights, gaps in the market, and evaluate existing products to determine next actions.

Workforce planning

Human resources departments use workforce planning to identify the correct employee levels and skills, in line with their strategic aims. This could include rectifying skills gaps, resolving staffing levels, reducing staff turnover and increasing productivity. A PESTLE analysis for workforce planning helps to mitigate against business disruption or changes to business models that could have a large impact on the employment landscape.

Who created a PESTLE analysis? 

The PESTLE analysis was invented over 50 years ago by Francis Aguilar, who was an American scholar whose expertise was in strategic planning. In the late 1960s, Aguilar published a book titled Scanning the Business Environment in which the now known PESTLE tool was first identified. It was included in Aguilar’s book to support fact finding and decision-making for businesses (which it is still used for today).

However, initially it was not known as a PESTLE analysis, it was called a PEST. The tool has had several names over the years using slightly different acronyms, including:

• PEST – This stands for Political, Economic, Sociological, Technological. This was the initial acronym that was found in Aguilar’s book.
• STEP – This is the PEST acronym, but displayed in a different order.
• STEEPLE – This is an addition to the PESTLE, including an extra E which stands for Ethical.
• SLEPT – This is a reduction to the PESTLE, removing the Environmental category.
• STEPE – This is a reduction to the PESTLE, removing the Legal category.
• PESTLIED – This is an addition to the PESTLE, including International and Demographic.
• LoNGPESTLE – This is an extended version of the PESTLE. The LoNG acronym at the beginning stands for Local, National and Global. This means that you complete the PESTLE at each of these levels (which is a popular way of analysing multiple businesses at once). So, you think about your PESTLE categories in relation to Local, National and Global contexts, which can be beneficial for larger businesses.

Whilst PESTLE is the most popular tool used in contemporary society, you can use any of the variations above that resonate with your business the most. Using any combination of the acronyms listed can help you to identify the strengths and weaknesses of your business, which can even be transferred onto a SWOT analysis to assist your understanding of external opportunities and threats.

How to apply a PESTLE analysis

It is easier to apply a PESTLE analysis to your business when you complete a thorough analysis of your information gathering findings. Simply gathering the information for each category will not enable you to evaluate your business and create an action plan. Information gathering is only one step in the PESTLE process.

To gather meaningful business information, you must manually apply analysis to each finding in each category; which is why some people often criticise the tool. If not used properly, a PESTLE can cause confusion with an overwhelming amount of unanalysed information. Once you have gathered your information into the PESTLE categories.

You should consider the following questions for each finding to assist your analysis:

• How is the finding impacting your business currently?
• How could the finding impact your business in the future?
• Apply the “So What” principles to your finding. For example, there is a new e-commerce software available. Ask yourself, so what? What does his mean in relation to your business?
• What evidence do you have to back up your evaluation?

By asking yourself the right questions in relation to each of your findings you can apply a thorough analysis. This will help you to prioritise your results to support your action planning and ensure that you are not left with meaningless data.

How does a PESTLE analysis help a business to succeed?

A PESTLE can create a large amount of data which could seem overwhelming to decipher and analyse. Due to this we suggest keeping your PESTLE shorter so that you have a better chance of completing a thorough analysis which will be more meaningful to your business. A PESTLE analysis is a simple tool that helps businesses succeed because it allows business owners to gain an understanding of the wider market in which they are operating in. Widening your understanding to consider external factors instigates strategic thinking which, in turn, results in better strategising.

Having a greater understanding of your business in general, can help you to apply your PESTLE analysis.

That way you can apply your findings to the relevant areas of your business. Once you have completed your evaluation, you can monitor your progress and any changes to your sector. We recommend reviewing your PESTLE at least every six months (but this time frame could differ depending on the nature of your business).

The more you monitor your external environment, the more in control you will be of your business. Remember that although it is usually the owner or management team who are in charge of strategising, you can nominate other colleagues to monitor different areas of your PESTLE. They can alert you and the rest of the team of any changes so that you can stay ahead of the curve in your business sector.