PESTLE Analysis to Study the Macro Environment
PESTLE Analysis is a management tool developed to help a company examine the external factors impacting a business. For ease these factors are split into six categories. It takes its name from the first letters of these categories, they are; Political, Economic, Social, Technology, Legal and Environmental.
There are slight variations on the model. The underlying theory and method of analysis is the same for each.
- PEST – Political, Economic, Social, and Technological
- ETPS – Economic, Technical, Political, and Social
- STEP – Strategic Trend Evaluation Process
- STEPE – Social, Technological, Economic, Political, and Ecological
- STEEPLE – Social, Technological, Economic, Ethical, Political, Legal, and Environmental
- PESTLIED – Political, Economic, Social, Technological, Legal, International, Environmental, and Demographic
- STEEPLED – Social, Technological, Economic, Environmental, Political, Legal, Educational, and Demographic
Before developing a strategy entrepreneurs and CEOs must be aware of the nature, impact and interaction of the general external factors on their business. A systematic PESTLE Analysis helps to gain this awareness quickly.
It is a relatively straightforward model to understand and use in a corporate workshop as well as support evidence for a business or product launch plan. The research you do here will be used to populate the Opportunities and Threats on a SWOT Analysis.
The PESTLE Factors
The different factors in PESTLE Analysis vary in significance depending on the type of business that’s being analysed. Social settings being perhaps more important in a business if they deal directly with consumers, whereas political factors tend to impact the government supply chain at a higher rate.
That being said, all need to be considered to gain a complete view of the external environment impacting a firm.
Political. Includes all political aspects that may have an impact on a business. These can include government policy that influences, causes change, or addresses concerns in business and society. Also consider environmental policy, tax policy, trade policy, forthcoming elections, grants, projects, and bureaucracy as a company.
Economical. Think about the state of the economy and how it may affect your business. Top line economic performance can be found at Government agencies (for instance the Bank of England) and can provide information on the wider economy’s performance. Inflation, unemployment, exchange rates, minimum wage, and interest rates could all be considered. The status of the economy and economic policy (especially when they change) has a significant impact on any organisation.
Social. Social and cultural elements and trends can have an impact on people’s lifestyles. These shift cultural expectations, altering society’s behaviour and, as a result, how customers interact with your company. Social norms can be influenced by factors such as population growth, health consciousness, career attitudes, and health and safety, all of which can have an impact on your business.
Technology. This has been rapidly reshaping society and has had a huge impact on all industries. Many aspects of businesses have had to innovate in response. Technological improvements have an impact on several aspects of the PESTLE, in addition to innovation (such as economic factors). Automation, software development, and technology incentives are some technological issues to consider in the context of business.
Legal. Legislative changes may force you to adapt your procedures to comply with new legal obligations. This could include rules governing taxation, employment, licencing, and import and export. Because legislation changes can result in policymakers adopting new policies, there may be some overlap between legal and political variables. Legal criteria, on the other hand, always determine what a business may and cannot do by law, and must be followed at all times.
Environmental. This is becoming an increasingly relevant topic in business. There is a growing awareness of the importance of living more sustainably and companies (obviously) play an important role in this either directly or through consumer pressure. Environmental factors for businesses include global warming, carbon footprint, supply chains and manufacturing.
Running a PESTLE Analysis Workshop
Here’s the process I use when completing a PESTLE Analysis Workshop.
Prepare. In advance gather as much information as you can. Don’t cut corners here or use someone else’s research. If you have 10 minutes to cut down a tree, spend 8 of them sharpening your axe. Make sure everyone attending the workshop knows why they’re there, how to use any associated software and what it is you’ll be doing.
Warm up. Get the creative juices flowing. Avoid the dreaded ‘can you all just say a few words about yourself’ by running an icebreaker. This is a fun game or activity used to introduce people to each other so that they feel more relaxed together.
Brainstorm. Work through each factor systematically. Make sure everyone has a voice. Focus on quantity, the more ideas the better. Negativity has no place in a brainstorming session, treat all ideas with merit. Encourage every idea to be expressed, no matter how bizarre. Build on ideas to combine concepts to create new solutions.
Categorise the PESTLE Factors. With the brainstorm complete, the PESTLE factors can be put into each category. Decide the implications of the external factors – rank and rate them. Assess their impact over time (short, medium and long-term), impact by type (positive or negative affects), and impact by dynamics; i.e. the significance/importance of the implication increasing, decreasing, or remaining unchanged.
Sort and prioritise. Pay attention to what is essential or important and put other things on hold. Important to be able to notice where the team’s time can be best invested to achieve the highest impact on the corporate goals.
Action. Actions must be easily understood and have an owner who is responsible for their compilation by a specific time. In other words, [TASK OWNER] will complete [SPECIFIC TASK] by [DEADLINE]. SMART goals will help here. Please remember, without actions all of this is pointless.
Examples Questions for PESTLE
Grouped by each factor these questions will help you to really get under the skin when carrying out your PESTLE Analysis.
- What impact do trade policies have on your business? Now? In 3 years?
- What impact do trade policies have on your customer’s business?
- What rules must you obey, and how have they changed over the previous five, ten, or twenty years?
- What, if any, environmental issues (e.g., environmentally friendly resources/products, natural disasters, etc.) should be addressed?
- What is the impact of globalisation on your business/market share?
- Is the economy growing or shrinking? What will cause it to grow or shrink? How will this affect you?
- What taxes are there, and how does this (if at all) effect your service offerings?
- Is your industry’s economy steady, unstable, or growing?
- What is the demographic of your target market?
- What are the main market segments who buy your products/services and how will this change over the next 5 years?
- How are consumer perceptions of your product or service changing?
- Is the population demographic increasing or decreasing, and if so, how does this affect your business?
- Have you kept track of the ways and when your customers buy your products?
- What technology is absolutely necessary for your daily operations?
- What new technologies are available that could help with product development and decision-making?
- Do you rely on third-party tech help or solutions in any way?
- Is technology helping you keep ahead of the competition, and if so, how?
- What is there on the horizon?
- Which laws are impacting you directly?
- Do you know of any laws which will be introduced soon that might impact you? How do you find out?
- Are any laws impacting your customer’s buying habits? What are the compliance issues at your customer?
- Are there any environmental restrictions which impact your business’ operations?
- Are you aware of how the environmental laws will change for your business? And for your customers?
- How could you become a greener company?
- What are your key sustainability measures? And how do you measure them?
- Are your competitors perceived as being ‘green’?
Where to use PESTLE Analysis
PESTLE is an easy to understand model which helps consolidate the external environment. It can be used in lots of settings. This could be as an appendix in a larger report or as a central piece to validate a particular assumption.
I’ve listed a few here.
PESTLE in Key Account Management
In the world of Account Management and Key Account Management the customer’s world needs to be understood. Using PESTLE in this context will help you to see the world through the eyes of the customer. You’ll start to gain an understanding of what their external macro-environment is like. Identify the customer’s future threats and opportunities, sometimes before they do. Use this information to position yourself early in a place where you can show the customer how you can add value to their business.
PESTLE in Project Planning
Any project does not exist in a vacuum, it is always dependent on external factors. Project Managers can use PESTLE as a template to take into account external influences that may impact a project’s performance. Use it in conjunction with a risk matrix and this can help you appreciate what can happen, will happen (and how to mitigate).
PESTLE in Marketing
A marketing plan will detail who the target market is, how best to reach them, at what price point the product or service should be sold, and how the company will measure its efforts. Part of all of this is an understanding and resulting analysis of the external environment.
PESTLE in Human Resources
Organisational change and human resource planning can benefit from a look at the wider environment. When developing policies and strategies in this area it’s worth considering what is likely to happen in the next 5 years which will have a direct and indirect impact on your human capital policies.