Political; Economic; Social; Technological; Legislative; Environmental/Ethical
PESTLE Analysis | What is it…
PESTLE (Political, Economic, Social, Technological, Legislative, Environmental) analysis is an extension of PEST analysis with the additional elements of Legislative and Environmental added. PESTLE is particularly useful for assessing the external environment, as it covers factors outside of an organisation or a project. If these factors are significant enough then the project/organisation must react.
As PESTLE analysis is based on the external environment, it can compliment the Opportunities and Threats section of a SWOT or TOWS analysis.
PESTLE Analysis | The Elements
The Political element of PESTLE is concerned with decisions which are taken by governments and of course decisions of a government can be more widely felt than just the host organisations government. The recent GDPR data legislation implemented in the European Union (EU) has implications for all organisations that choose to interact within the European Union – not just the EU member states.
The political aspect is interesting as some of these factors may be certain i.e. they have happened, like say an increase in stamp duty on buying a house. Or they may be uncertain and businesses often respond negatively to uncertain environments as they don’t know how to react. A good example here would have been the Scottish Referendum in the UK or more recently the impact of BREXIT on the EU and UK operating environments.
The following are a set of areas to consider when reviewing the Political landscape for your organisation or project:
- Competition Policy – i.e. monopolies or impact on mergers and acquisitions
- Industry Regulation – i.e. those organisations assigned to control standards like OFCOM, OFWAT and OFGEM in the UK who regulate the Telecommunications, Water and Gas & Electricity industries
- Government Spending and Taxes – sometimes these can present opportunities to organisations such as growth zones or incentives to organisations through the lowering of taxes. Other times they can have a negative impact such as increase in sales tax
- Business Policy and Incentives – think of solar panel grants or the Green Bank as examples
- Wars and Conflicts – this could have the ability on where or how businesses are conducted
- Government Change – the changing of the guard or even an upcoming election can stall or change direction
- Corruption – though not an issue in all political environments, many organisations and even projects cross borders, therefore corruption could play a direct as well as an in-direct role
Consider PESTLE analysis as asking yourself six key questions:
- What Political elements are likely to affect the organisation/project?
- What Economic elements will/or are likely to affect the organisation/project? (some economic impacts will be known i.e. Seasonality; Impact of Forex swings)
- What Social elements are likely to affect the organisation/project?
- What Technological elements are likely to affect the organisation/project?
- What Legislative elements will/or are likely to affect the organisation/project? (some legislative impacts will be known i.e. Employment Law; Health and Safety)
- What Environmental elements are likely to affect the organisation/project?
Next up is Economic and as with many areas in PESTLE there is overlap. Using the previous example of Brexit that is a Political consideration, however it has significant impact on the economic landscape. The Economic element relates to the financial position for which your project/organisation is orientating within.
The following are a set of areas to consider when reviewing the Economic landscape:
- Interest Rates – have a significant impact on an organisations ability to access credit or the price of that credit
- Consumer Spending/Confidence
- Foreign Exchange (Forex) – depending on where your project/organisation is operating the direct costs or supply chain may be impacted by foreign exchange rate changes.
- Business Economic Cycle
- Organisational Financial Restrictions
- Local and International Economy / Trade
- Seasonality – this has the impact to effect output or information
Completing a PESTLE analysis as with many business improvement/strategic activities this is best done with collective inputs and within a workshop setting. Completing as an individual will provide only a single frame of reference for what is a very large external environment. However, it can be beneficial to do some pre-work and develop a list of considerations for each of the elements ahead of a session.
The Social element of PESTLE relates to attitudes, beliefs and cultural issues impacting society.
The following are a set of areas to consider when reviewing the Social landscape for your organisation or project:
- Demographic Change – i.e. an ageing population changes the demand or creates new demand for a set of products or services. An ageing population also has an impact on government finances (the amount of money they have available).
- Pressure Groups
- Changing Lifestyles
- Media Views (including Social Media)
To point out the obvious, set a clear scope for your PESTLE analysis before commencing. Not doing so is likely to waste a lot of time and energy and return a result which is unstructured and not useable for your organisation/project.
When considering the Technological element of PESTLE, the most obvious advance of recent times is the introduction of the internet. There are numerous activities which we do today online with our phones that were unthinkable just a decade or so ago. These can be somewhat difficult to predict. For example, the world PC market was predicted by IBM to be a demand of just 5PC’s! Nonetheless, this is a critical area as almost overnight new concepts and organisations can be built as well as destroyed by new technology.
The following are a set of areas to consider when reviewing the Technological landscape for your organisation or project:
- Disruptive Technology – currently Blockchain is a great example
- Mobile Technology – think Fin-tech (financial technology) and the APP only banks
- New Production Methods – consider robotics. Not just in the manufacturing sector as traditionally used but now also wholesale within the services industry.
- Big Data
- Research and Innovation
When considering the impact on your organisation/project capture the following by element:
- Analysis Factor – What is it?
- Potential Impact
- Estimated Time-frame (though PESTLE is on a macro level some impact may be in the very near term – Short/Medium/Long-term and Undefined are good categories to use)
- Type – is the element factor positive or negative to your organisation/project?
- Ranking – to aid prioritisation
The Legislative element of PESTLE relates to changes within the law. This is strongly linked to the political element and also the economic element.
The following are a set of areas to consider when reviewing the Legislative landscape for your organisation or project:
- Employment Law– i.e. the national minimum wage, workers rights and working time directives
- Health and Safety
- Environmental Legislation
- Commercial Law – i.e. copyright and patents
- Industry Specific Legislation – i.e. the tobacco industry whereby advertising is now banned in certain parts of the world
- Data Privacy Laws – i.e. the new General Data Protection Regulations (GDPR) or anti-snooping charters
The external environment is not stable, it is uncertain and can and does change rapidly. Therefore PESTLE analysis should be revisited and updated periodically.
The Environmental element of PESTLE relates to ecological and environmental issues. These will have an impact either on how the organisation/project operates – i.e.production or transportation methods or the demand for the products/services.
The following are a set of areas to consider when reviewing the Environmental/Ethical landscape for your organisation or project:
- Ethical Sourcing
- Pollution and Carbon Footprint
- Adverse Weather / Climate Change
PESTLE analysis can show the external threats to your organisation/project but also the potential opportunities that you may be able to exploit. PESTLE analysis should therefore be used to explore both factors.
What is the difference between PEST and PESTLE?
Why do we use PESTLE analysis?
In a project, this is essentially no different – the project is scanning the external landscape to be able to proactively respond.
How do you perform PESTLE analysis?
- Understand the PESTLE elements and the impacts on the organisation/project
- An expert knowledge of the organisation and operating environment is a must to perform this effectively
- Assess the elements (output of step 1)
- This includes gathering related data
- Analyse the impact (positive as well as negative)
- Provide a ranking
- Rate the impact of
- Plan and take action
- Include PESTLE responses in the business plan
- Conduct ‘what if’ scenario modelling
- Combine action with SWOT/TOWS analysis
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