What is PESTLE Analysis?

An Important
Business Analysis Tool
What is PESTLE Analysis? PESTLE analysis, which is sometimes referred to
as PEST analysis, is a concept in marketing principles. Moreover, this concept
is used as a tool by companies to track the environment they’re operating in
or are planning to launch a new project/product/service, etc. So, let’s find out
what these letters stand for first.

PESTLE is a mnemonic which in its expanded form denotes P for Political, E

for Economic, S for Social, T for Technological, L for Legal, and E for
Environmental. It gives a bird’s eye view of the whole environment from
many different angles that one wants to check and keep a track of while
contemplating a certain idea/plan.

The PESTEL framework has undergone certain alterations, as gurus of Marketing

have added certain things like an E for Ethics to instill the element of demographics
while utilizing the framework while researching the market.

Asking the Right Questions

There are certain questions that one needs to ask while conducting this
analysis, which gives them an idea of what things to keep in mind. They are:

 What is the political situation of the country and how can it affect the
industry?
 What are the prevalent economic factors?
 How much importance does culture have in the market and what are its
determinants?
 What technological innovations are likely to pop up and affect the
market structure?
 Are there any current legislations that regulate the industry or can there
be any change in the legislations for the industry?
 What are the environmental concerns for the industry?

All the aspects of this technique are crucial for any industry a business might
be in. More than just understanding the market, this framework represents
one of the vertebras of the backbone of strategic management that not only
defines what a company should do but also accounts for an organization’s
goals and the strategies stringed to them.
It may be so, that the importance of each of the factors may be different to
different kinds of industries, but it is imperative to any strategy a company
wants to develop that they conduct the PESTLE analysis as it forms a much
more comprehensive version of the SWOT analysis.

It is very critical for one to understand the complete depth of each of the
letters of the PESTLE.

Political factors in PESTLE Analysis

These factors determine the extent to which a government may influence

the economy or a certain industry. For example, a government may impose a
new tax or duty due to which entire revenue generating structures of
organizations might change. Political factors include tax policies, Fiscal
policy, trade tariffs, etc. that a government may levy around the fiscal year
and it may affect the business environment (economic environment) to a
great extent.

Economic factors in PESTLE Analysis

These factors are determinants of an economy’s performance that directly

impacts a company and have resonating long term effects. For example, a
rise in the inflation rate of any economy would affect the way companies
price their products and services. Adding to that, it would affect the
purchasing power of a consumer and change demand/supply models for that
economy. Economic factors include inflation rate, interest rates, foreign
exchange rates, economic growth patterns, etc. It also accounts for the FDI
(foreign direct investment) depending on certain specific industries who’re
undergoing this analysis.

Social factors in PESTLE Analysis

These factors scrutinize the social environment of the market, and gauge
determinants like cultural trends, demographics, population analytics, etc.
An example of this can be buying trends for Western countries like the US
where there is high demand during the Holiday season.

Technological factors in PESTLE Analysis

These factors pertain to innovations in technology that may affect the

operations of the industry and the market favorably or unfavorably. This
refers to automation, research and development, and the amount of
technological awareness that a market possesses.

Legal factors in PESTLE Analysis

These factors have both external and internal sides. There are certain laws
that affect the business environment in a certain country while there are
certain policies that companies maintain for themselves. Legal analysis takes
into account both of these angles and then charts out the strategies in light
of these legislations. For example, consumer laws, safety standards, labor
laws, etc.

Environmental factors in PESTLE Analysis

These factors include all those that influence or are determined by the
surrounding environment. This aspect of the PESTLE is crucial for certain
industries particularly for example tourism, farming, agriculture, etc. Factors
of a business environmental analysis include but are not limited to climate,
weather, geographical location, global changes in climate, environmental
offsets, etc.

There are many templates available for companies to conduct PESTLE

analysis. Many organizations have provided information regarding their
PESTLE analysis as case studies available on the Internet.

What is PESTLE analysis briefly explain?

What is PESTLE? A PESTLE analysis is a tool used to gain a macro picture of an
industry environment. PESTLE stands for Political, Economic, Social, Technological,
Legal and Environmental factors. It allows a company to form an impression of the
factors that might impact a new business or industry.

Who created PESTLE analysis?

Francis Aguilar
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.06-Oct-2021

Why is PESTLE analysis used?

A PESTLE analysis is often used as a broad fact-finding activity. It helps an
organization establish the external factors that could impact decisions made inside the
organization. By understanding the impact these external factors can have on an
organization, it becomes handy for organizations to plan better.

How to do a PESTLE Analysis?

Conducting a PESTLE Analysis involves some steps which we have

mentioned below:

 Identify the scope of the research. It should cover the

present and the future scenarios. It should apply to the areas
of the business world where the particular organization
operates.
 Form a good team and assign
responsibilities accordingly. Involving diverse people helps in
collecting content-rich data.
 Identify appropriate sources of information. These may
include people seeking professional help regarding an issue or
a change/update in current policy.
 Gather and assemble the information. Better create a
template as the basis for recording the information.
 Analyzing the collected information is a significant step.
  Create an order of the issues to be addressed. Try to
resolve the issue, that can create a big impact, at the earliest.
 Identify the business-specific options to address the
issues.
 Create a well-informing document for all the stakeholders
 Disseminate and discuss the findings with
stakeholders and decision-makers
 Decide on the actions to be taken and trends that need to
be monitored on an ongoing basis

What is a PESTLE Analysis used for?

A PESTLE analysis is often used as a broad fact-finding activity. It

helps an organization establish the external factors that could
impact decisions made inside the organization. By understanding
the impact these external factors can have on an organization, it
becomes handy for organizations to plan better. They can form
strategies to minimize the threats and maximize opportunities for
themselves.

A PESTLE analysis is an appropriate framework that fulfills these

purposes. Apart from that, it also helps organizations in a range of
business planning situations. These include:

1. Strategic business planning

A PESTLE analysis report is a useful document to have by your side
when starting a business planning process. It provides the senior
management team with loads of contextual information about the
company like the direction in which the business is heading, brand
positioning, growth targets, and the areas of concern that may lead
to a decline in growth and productivity.

2. Workforce Planning

Workforce planning is a business process that aligns business and

people strategies. A PESTLE analysis helps businesses to identify
disruptive changes to business models that may have a profound
impact on the future employment landscape. Organizations are
facing huge changes in their workforce from increased skills gaps,
the creation of job roles that did not exist 10 years ago like the IT
department, and job reductions or displacement.

3. Marketing Planning

As PESTLE analysis brings a lot of information on external factors, it

also brings crucial market insights. So, it can help prioritize business
activities to accomplish specific marketing objectives within a set
timeframe.
You can also sneak a peek at our blog on Marketing
Analytics tools.
4. Product development

As mentioned above, a PESTLE analysis also has crucial market

insights that tell about the response from customers about a
product or service. This helps businesses to decide on whether to
enter or leave a route, modify an existing product, and when and
what to launch as a new product.

5. Organizational Change

A PESTLE analysis is a powerful tool for understanding the context

for change, and focusing on the areas to make that change
successful. In this situation, PESTLE analysis works best with a
SWOT analysis. This helps an organization to identify the potential
opportunities and threats around labor changes, for example, skill
shortage and workforce capabilities.

Advantages and Disadvantages of a PESTLE Analysis

Everything has both aspects and so does a PESTLE Analysis. Let us

look at the advantages as well as the disadvantages of it.

Advantages
  It is a simple framework- easy to understand and conduct
 It facilitates a better and broader understanding of the
business environment.
 It encourages organizations to develop external and strategic
thinking
 The most talked advantage- it enables an organization to
anticipate future business threats and allows it to minimize or
nullify the impact
 It also allows organizations to spot an opportunity and to
capitalize on them

Disadvantages

 Some PESTLE analysis users oversimplify the amount of data

used for decisions – it’s easy to use insufficient data.
 It’s easy to get lost in the enormous amount of data. So, there
always remains a risk of capturing too much data and
undertaking too much data analytics that may lead to
‘paralysis by analysis’
 As a PESTLE analysis works on assumptions, there remains a
risk of being wrong
 Once in a while an attitude doesn’t work with PESTLE analysis.
So, it must be a regular practice.
 The pace of change makes it difficult to anticipate the
developments and this may affect the organization in future
Conclusion

It can be stated that PESTLE analysis is a great tool for businesses

that can be leveraged for several purposes. It brings information
about the possible impact of the six external factors on an
organization. This makes it easier for organizations to prepare for
any sort of problems caused by these PESTLE factors.

Why is PESTLE analysis important?

The Importance of PESTLE Analysis

PESTLE analysis gives the businessman a chance to view the

business prospects through the lens of the entire economy. It helps
comprehend the business position taking into account all the
macroeconomic forces.

What is PESTLE analysis in India?

PESTEL analysis of India scans the macro environment and indicates

growth opportunities for foreign companies and investors in India.
Businesses need to improve their strategies to suit and adapt to
external factors.