PESTLE Analysis

What is PESTLE Analysis?

A PESTLE analysis is an extension of the PEST model used for environmental scanning and includes the elements of Political, Economical, Social, Technological, Legal and Environmental factors that could have a direct or long lasting impact on the organization.

This method is used as part of a strategic planning or risk management process and provides an oversight to the team about what is current in their environment and what should be considered in light of these factors.

The output from a PESTLE analysis is often used as an input for other business management tools such as SWOT analysis, SOAR analysis, risk assessment, or a Business Model Canvas.

There are many variations of this framework, which examine different combinations of external factors, specific to particular industries. Examples include: PEST, STEEPLE, STEER and STEEP.

Key takeaways

• A PESTLE analysis scans six external factors — Political, Economic, Social, Technological, Legal, and Environmental — that could affect an organization.
• It extends the older PEST analysis by adding Legal and Environmental factors.
• Rate each factor for impact to see which forces to plan around first.
• Its output feeds a SWOT analysis, risk assessment, or Business Model Canvas — see the sample PESTLE analysis below.

Why do a PESTLE Analysis?

A PESTLE analysis helps a team to understand the organization’s market and business position better, plan strategically, and conduct market research in new and existing markets. The framework:

• Encourages strategic thinking and helps you evaluate how your strategy fits into the broader environment
• Provides an overview of the crucial external influences on the organization
• Allows leaders to make more decisive and knowledgeable decisions

PESTLE template

The PESTLE template has one area for each of the six external factors:

Political

Political or politically motivated factors that could affect the business.

Examples include:

Government policy, political stability or instability, bureaucracy, corruption, foreign trade policy, tax policy, trade restrictions, labor/environmental/copyright/consumer protection laws, competition regulation, funding grants & initiatives, etc.

Questions to ask:

• What government policies or political groups could be beneficial or detrimental to our success?
• Is the political environment stable or likely to change?

Economic

Overall economic forces that could affect what you’re trying to do.

Examples include:

Economic trends, growth rates, industry growth, seasonal factors, taxation, inflation, interest rates, international exchange rates, International trade, labor costs, consumer disposable income, unemployment rates, availability of credit, monetary policies, raw material costs, etc.

Questions to ask:

• What economic factors will impact on us moving forward?
• Does the current economic performance affect us?
• How does each economic factor impact our pricing, revenues, and costs?

Social

Social aspects, attitudes, and trends that influence your business and target market.

Examples include:

Attitudes and shared beliefs about a range of factors including health, work, leisure, money, customer service, imports, religion, cultural taboos, the environment; population growth and demographics, family size/structure, immigration/emigration, lifestyle trends, etc.

Questions to ask

• How do our consumer’s values and beliefs impact on their buying habits?
• How does human behavior or cultural trends play a role in our business?

Technological

Technology that can affect the way you make, distribute, and communicate your products and services.

Examples include:

Technology and communications infrastructure, consumer access to technology, emerging technologies, automation, legislation around technology, research and innovation, intellectual property regulation, competitor technology and development, technology incentives, etc.

Questions to ask:

• What innovations and technological advancements are available or on the horizon?
• How might they affect our operations?

Legal

Current and future legal and regulatory requirements impacting on the business.

Examples include:

Laws regarding consumer protection, labor, health & safety, antitrust, intellectual property, data protection, tax and discrimination; international and domestic trade regulations/restrictions, advertising standards, product labeling and safety standards, etc.

Questions to ask:

• What regulations and laws apply to our business?
• Do they help or hinder our business?
• Do we understand the laws across all our markets?

Environmental

Environmental forces impacting your businesses and/or customer’s geographical location, the surrounding environment, and natural resources used by your organization.

Examples include:

Weather, climate change, your carbon footprint, environmental regulations, pollution laws and targets, recycling and waste management policies, endangered species, support for renewable energy, etc.

Questions to ask:

• How does our physical environment affect us and vice versa?
• What are the effects of climate, weather or geographical location?
• Are we prepared for future environmental targets?

PESTLE analysis example

Here is a short sample PESTLE analysis for a coffee-shop chain planning to expand into a new country:

• Political – Import tariffs on coffee beans and local employment regulations affect cost and hiring.
• Economic – A weaker local currency and rising interest rates squeeze consumer spending on discretionary treats.
• Social – Growing demand for ethically sourced coffee and plant-based milk options.
• Technological – Mobile ordering and loyalty apps are now expected by customers.
• Legal – Food-safety standards, labeling laws, and data-protection rules for the loyalty app.
• Environmental – Pressure to cut single-use cups and meet packaging-waste targets.

Rating each factor for impact shows where to focus. Here, the social shift to sustainability and the technological expectation of mobile ordering stand out as the biggest factors to act on first.

How to do a PESTLE Analysis

While you can analyze the factors in the PESTLE template against the current status, you should also consider how potential changes might impact on your future.

Different industries may place more significance on one or more of the areas. For example, there is likely to be a very different emphasis for businesses involved in tourism, compared with those in the health, information technology, mining, banking, and defense industries.

The framework is most useful when you get input from participants with a range of different perspectives. Getting everyone together at the same time may be difficult in large or geographically dispersed teams. Video conferencing, online documents, and collaborative brainstorming tools such as GroupMap can solve many of these difficulties.

Who is involved in a PESTLE Analysis?

A PESTLE analysis is useful in all industries at the strategic, departmental, and project level to assess current and future markets. Use it as a key input for planning, marketing, organizational change, business and product development, project management, and research reports.

Generally speaking, PESTLE’s are conducted as part of the organizations strategic planning process and is used to help shape the future direction. Senior Managers, C-Level executive, Leaders, major stakeholders, partners, consultants and even major clients all make the invite list when it comes to a PESTLE analysis.

Related templates

• PEST analysis
• SWOT analysis
• SOAR analysis
• Risk assessment
• Business Model Canvas

Tips for facilitating an effective PESTLE Analysis

• Carefully select participants to provide expert knowledge but also a fresh perspective.
• A PESTLE analysis is not just about listing down political, economic, social and technological factors that you simply know or have heard of. It is also important to validate them with suitable information and rate its impact on your organization.
• Rating the impact of each factor lets you identify the most important issues.
• For complex organizations and where they are servicing multiple locations, there may need to be a PESTLE analysis for each environment.
• Use quantitative data where possible to focus on the crux of the issue.
• Provide adequate time in the session to rank and prioritize ideas.
• You can also have people vote or color code factors that are temporary, long term or should be monitored over time.
• Try to keep factors relatively high level and avoid getting bogged down in analysis paralysis.

References

• Aguilar, Francis. 1967. “Scanning the Business Environment.” *New York: The Macmillan Company. p239.

• Chartered Management Institute – Carrying out a PEST Analysis Checklist

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