PESTLE Analysis Guide

06/22/2020 | 1427

You may have heard entrepreneur stating that you need to look at big picture when it comes to business. It means that an individual must analyze all the factors in macro environment for understanding the factors influencing business. You can use Pestle analysis technique for scanning external environment. It is essential tool about which we will discuss in this article.

What is PESTLE analysis?

Pestle analysis is basically a one of the most essential framework which you can use for environmental scanning. The full form of acronym PESTLE is political, economic, social, technological, legal and environmental factors. Ever category of element has great significance in advance strategic management. It is very much essential for management in every organization to do Pestle analysis.  Significance of each category of elements will vary from one business to other.

The Pestle analysis assists an organization in determining the different factors influencing the well-being of business. Each and every factor in external business environment will affect each company in different ways.  It is a technique which management in firms generally uses for analyzing and recognizing the important variables which has influence on business. Different factors such as political, legal, environmental, economic, social and technological can create both opportunities bad threats for organizations. Pestle analysis emphasis on different issues in external environment which effect business. The main benefit of this technique is that it enables company to respond quickly and effectively to changes in external environment.

For example: Changes in the economic factors will highly influence banking and finance sector. It will also have effect on other industries. Advancement in technology will have great impact on IT industry.

Use of Pestle analysis  

Management in organization generally uses Pestle analysis for two purposes these are:

  • For developing better understanding about business environment  before launching new business or  en expanding business in new market.
  • To analyze an existing business environment in the hopes of exploring new opportunities ad addressing potential threats.’
  • You can also use Pestle analysis for formulating business, strategic and market plan.

How to implement Pestle analysis?

Below are steps for implementing Pestle analysis these are:

Step 1: At the initial step, you need to list all the factors through brainstorming. You in order to prepare the list can seek assistance from the business experts.

Step 2: At the next step, you need to address implications of each event which you have note in the analysis of project. It is very much essential for you to assess influence of different variables on business.

Step 3: This is a step where you need to classify the factors according to their importance or on critical basis.

Factors influencing business

There are number of variables in external environment which can influence business these are:

Political factors

These variables are mainly related to role of government in the economy. It includes analyzing the role of government in economy. Political factors includes taxation policies, tariffs etc. By performing political analysis you can develop understanding about how the government institutions are influencing the health and education in a nation.

Economic factors

The different factors which can influence business are interest rate, economic condition of market or nation, inflation, exchanges rates etc. Changes in these variables can have significant influence on profitability and growth of business.

Social factors

Few social factors are heath consciousness, age distribution, population growth rate, changes in trends etc. The changes in social factors have significant impact on the demand of specific product in the market.

Technological factors

It include rate of technological change is analyzed within an organization. This way, barriers to entry and other important outsourcing decisions are taken in the specific organizations

Legal factors

Such variables include changes in different laws such as related to disability, safety, discrimination, employment law etc.  Amendments in law have great effect on the way business operates.

Environmental factors

This analysis consists of various environmental aspects affecting an organization such as the weather and climate.

Advantages and disadvantages of Pestle analysis

Advantages 

  • It is simple and easy to implement technique,
  • Pestle analysis helps in developing understanding about business environment.
  • It promotes development of strategic thinking.
  • Pestle analysis enables companies to explore and capture business opportunities.

Disadvantages 

  • The tool allows users to over-simplify the data that is used. It is easily possible to miss important data.
  • Pestle analysis is effective hen users come from different perspectives and departments.
  • For performing Pestle analysis you need to have an access to data sources which could be time consuming and expensive.
  • There are high chances that assumptions which you are making may be wrong.

Tips on use of PESTLE analysis in Business World

Below are few tips for using pestle analysis in business:

Have a good Reason

You should have good reason for performing PESTLE analysis. There are number of situations where you can use such analysis technique. By identifying the reason for conducting  analysis, a person will be able to tailor their analysis to organization. They will be able to draw meaningful conclusion.

For example, a transnational business firm is highly concerned about maintaining existing business rather than finding new opportunities. In such case, management in an organization can perform pestle analysis with a more defensive mindset. They should focus on environmental issues.

Develop understanding about Organization

It is very much important for you to develop understanding about organization. By knowing the company you will be able to yield maximum benefit through Pestle analysis. You can apply rule of “less is more” To  your  analysis. You besides of concentrating on all the variables, you should mainly emphasizes on variable which is relevant to your business.

For example, if a company is selling the products or services business to business then management in an organization need to emphasizes on socio-cultural variables such consumer spending.  If an organization is selling technical products then you need to concentrate mainly on technological aspects when performing Pestle analysis.

 Look at the future

Pestle analysis is mainly about making assumptions about future and identifying opportunities. If you always focus your analysis on the present state of matters, you can miss out on some of the most valuable insight.

Use other Tools

Along-with Pestle analysis, you can use other two tools these are Swot  and Porters five force.  Each of these tools takes a different approach to looking at ventures, organizations, and their surrounding business environments. By using Pestle analysis on conjunction with other tools such as Swat and porters five force you will able to reach balance conclusion.

Draw Simple conclusions

You should always draw simple conclusion especially in case when you intend to share results of Pestle analysis with other people. A person ca not expects that there co-workers will read ten to twenty pages reports. It is very much essential for you to condense the most crucial findings from  analysis into a single sheet of paper.

How to improve PESTLE analysis

There are basically two ways through which you can improve Pestle analysis these are:

  • Do prediction about future. For instance, you can expect the changes in norms over the next few years.
  • Utilization of data represents change. For example, the rate of population growth.

At the time of using both the approaches you need to be extra careful. It is very much important for you to make sensible assumptions. At the time of making assumption you need to consider major trends.

Sample PESTLE analysis Template

You can use this sample template

Political factors
  • Bureaucracy
  • Freedom of press
  • Tariffs
  • Political condition in nation
  • Level of Corruption
  • Trade control
Economic factors
  • Changes in exchange rate
  • Increase in tax rate
  • Inflation
  • Labor costs
  •  Amendment in Monetary policies
  • Financial condition of market

 

Socio cultural factors
  • Education
  • Lifestyle
  •  Trends
  • Religion and beliefs
  • Population growth rate
Technological factors
  • Basic infrastructure level
  • Advancement in technology
  • Communication infrastructure
Legal factors
  • Antitrust laws
  • Business law
  • Consumer protection
  • Data protection
  • Copyright patents.
Environmental factors
  • Weather
  •  Recycling
  •  Climate

 

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