Making decisions in business can be tricky. Make a good decision and everyone’s thrilled. Make the wrong decision and everything falls apart. That’s why so many businesses use frameworks (like the SWOT analysis) to help them consider all the important factors that could affect their business.
These frameworks (templates, even) can guide you through the process to make sure that you don’t forget anything important, but they also keep you from focusing on the wrong pieces of information.
PESTLE analysis is one of the stronger frameworks you can use when you’re making decisions about whether to expand into certain regions, add new features to an existing product, or just plot out the trajectory of your business for the next year or so. It helps keep you on track and avoid costly (or embarrassing) mistakes.
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What is PESTLE analysis?
A PESTLE analysis is a method of examining the factors that influence and impact your business. It’s often used as a way to balance outside factors against the goals within your company. When you do a PESTLE analysis, you’re looking at Political, Economic, Social, Technological, Legal, and Environmental factors and you’re considering how they’re going to affect your business.
PESTLE analysis can also be referred to as PEST analysis, if you don’t need to consider legal or environmental factors with your decision, although these should always be taken into consideration.
6 PESTLE analysis factors
Unlike other types of analysis that you can use in business, PESTLE takes a pretty holistic look at all the external factors that could potentially impact your business. It’s not just a matter of figuring out what the strengths and weaknesses are, like with a
What political factors, if any, could potentially impact your business if you make this decision? This could be things like needing to ensure that your licensing is in order, to making sure that you’re not breaking any international embargoes. The political factor is a big one for businesses looking to make the move to the international stage (or who are looking to expand into a new country).
2. Economic factors
What are the dollars and cents of this decision? When you’re considering external economic factors, you need to look at everything related to finances (like the economic growth of a region). What is the cost, how much are you going to pay employees or contractors to make this happen, is business licensing a factor, what about marketing costs, what exchange rates are you dealing with? A decision needs to make sense financially before it makes sense for your business.
3. Social factors
Considering the social impact of your decision helps you gain a better understanding of the demographics involved, what’s important to them, what’s the population growth for the country or region, and how likely they are to want what your business is offering. Social factors tend to be a big part of the marketing efforts that come with new products or expansions, so the deeper the dive you do into social factors, the more impactful your marketing can be.
4. Technological factors
Among the things you need to consider with the technological factors are details like, does this area have the underlying infrastructure you need to operate. As great as your product may be, if you’re looking to move to an area that either can’t implement because of limitations (like the internet not being robust enough, or they’re slow to move to new technologies) you may not be making the best decision as a startup.
5. Legal factors
Quite possibly the most important factor to consider is legal. This includes everything from regulations and compliance to taxes and (again) business licenses. It might be that the legal requirements are so extensive, that they end up being considered as part of the economic factors, as you add up the costs.
6. Environmental factors
Finally, there are environmental factors, like climate change. This is an area of increasing concern for a lot of businesses as they look for ways to reduce their impact on the environment. It might be that you don’t have an impact locally, like if you’re a software company without a product, but the more you factor these considerations into your business, the better.
The importance of PESTLE analysis
As mentioned above, a PESTLE analysis helps you consider everything that could potentially have an impact on your business. It’s designed to give you a clear view of where your business is at and what could affect the decisions you’re considering (remembering that this could be anything from a new product to entering a new market).
Inspires strategic planning and thinking
The more information you have, the better prepared you are to think long-term about your business. Because it’s a look at everything, PESTLE provides a solid foundation for
When you’re fully aware of the impact of your decision, it becomes easier to organize your workforce to make those decisions a reality. You know that you need to get Team A working on business licenses, for example, and that Team B should focus on putting together a marketing plan that aligns with what you uncovered while exploring social factors. It can also help drive
Of course, when you have a lot of knowledge, you make better, more informed decisions in your business. This puts you in a position to reduce the number of poor decisions you make, although it doesn’t eliminate the possibility of things going wrong. For example, if interest rates prove to be too high during an economic analysis, now may not be the time for a business loan.
, fewer things make it easier than knowing as much as possible about your users. Some of the benefits here include being able to build the appropriate compliance into your product or taking into account localization from the start. You can even gain a stronger understanding of what features are important.
Advantages and disadvantages of PESTLE analysis
Like all things, there are upsides and downsides to PESTLE. If you haven’t already started experimenting with it, here are some things you should consider about a PESTLE analysis.
Advantages of PESTLE analysis
It is simple
Simplicity is always a good thing (to a point). The good thing about PESTLE is that it really tells you in the name what factors you need to consider. This helps you cut out the hardest part of the research, which is often not knowing where to start.
It encourages strategic thinking
As mentioned above, the amount of information you gather can help you focus your strategic efforts on specific areas based on the research. You know what’s important to your users (or customers), what economic factors you need to consider, and it helps you prep things on the legal end, so that you’re not making decisions that end up coming with a surprising amount of bureaucratic back and forth to get everything squared away.
It helps predict future risks
PESTLE doesn’t provide you with a crystal ball, but you do end up gathering enough information to make informed guesses about what could happen down the road. This is especially true of the political and economic data that you collect. The more info you have, the better prepared you can be.
It helps spot opportunities
Similar to above, when you spend a lot of time pulling together information, you can discover underserved areas in a market. Maybe there isn’t a product that does what you do, maybe there is one, but people hate it, maybe the one that exists leaves out one critical aspect of the process. Whatever it is, PESTLE can help you identify potential opportunities for your business.
Disadvantages of PESTLE analysis
It can be oversimplified
On the other side of how simple PESTLE makes the analysis, is that it can sometimes oversimplify things. This typically happens when you only grab a superficial amount of information and think you’ve captured the whole picture because you’ve covered all the points in the acronym. The truth is, you still need to dig deep for each piece. PESTLE just tells you where to start.
It can be unfounded
If you don’t capture good data, you could be making decisions that aren’t great. PESTLE can encourage you to make assumptions based on the data that you’ve gathered, without taking the time to ensure the data is accurate. You have to make sure that you’re using good information that keeps you from making wild assumptions or drifting into conspiracy theories.
It can cause “paralysis by analysis”
Finally, you have to be wary of gathering so much information you simply can’t make a decision. Paralysis by analysis is what happens when you have so much information, that you can’t possibly make a decision because everything looks good. You’ll likely have to go through a few PESTLE analyses before you learn the difference between too much information and not enough.
How to perform PESTLE analysis in 9 steps
Now that you know some of the benefits (and the downsides) to PESTLE, let’s explore what it takes to put together a solid analysis.
1. Identify research scope
Start by defining the scope of the whole thing. If you set it too narrow, you’re going to miss a ton of important data, so be sure to set a scope that includes where you are today, where you hope to be in the future, and especially where you hope to be operating in, say, 5 to 10 years.
2. Assign roles
Each person on your team is going to have strengths, so be sure to put people in charge of areas where they’re most comfortable. For example, put your marketing person in charge of gathering social data. When you assign roles based on the strengths of your team, you increase the chance of getting hyper-relevant information.
3. Define methods to collect information
Another good way to ensure that you end up with good data, along with assigning the appropriate people, is to determine what kind of data you’re going to collect and how you’re going to collect it. Interviews are always a good way to gather social information, for example. Interviews can also help with legal factors, assuming you’re willing to pay a lawyer for some of their time (likely a worthwhile investment). The main reason to define your approach is to ensure that you’re getting the same kind of data for all aspects of the analysis.
4. Analyze findings and brainstorm ideas
Once you’ve gathered up all the data you need, it’s time to look at everything, figure out what it’s telling you, and come up with ideas. You’re looking for patterns that emerge, ideas that you hadn’t previously considered, and other interesting ideas that may appear in the data. From there, you come up with ideas that help you implement based on the data.
5. Group all ideas and factors
As mentioned above, you’re looking for patterns in everything. One way to help you make sense of it all is to group together ideas and factors to help see the weight they carry (if something keeps coming up, for example, it’s probably very important). This also helps set up the next step.
6. Rate factors based on the level of impact
Once you’ve groped everything together, rate each factor in terms of importance. You’ll be able to tell which factors are important because they’re the ones that showed up the most in your research. However, sometimes an important factor is only mentioned a few times, so be sure to also pay attention to details that are mentioned a few times, but clearly have a lot of importance (like language).
7. Share findings with relevant stakeholders
Once you’ve made sense of everything you’ve collected, share it will those who are invested in the process.
8. Determine actions
After sharing with stakeholders, decide what you’re going to do based on the meetings you’ve had and the data you’ve collected.
The always important final step is to keep doing the work. It isn’t a bad idea to do a PESTLE a handful of times a year to make sure that you’re still on track.
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page, you will see a board of different factors that are broken fown by Political, Economic, Social, Technological, Legal, and Environmental. These factors are what help with arriving at a better decision making process for your company. This analysis can be used for refining old projects and initiatives, as well as new ones.
page, you can add new people to your team, identify their roles, and generate new teams to make your organization effective and efficient in planning.
PESTLE analysis examples to draw inspiration from
The best way to truly understand how a PESTLE analysis works and what the final product looks like is to study them. We’ve provided a handful of examples below from well-known brands that should provide the basis you need. We’ll link to the full analysis, but will call out some aspects to give you an idea of what to expect.
Tesco is a UK-based retailer that focuses on food products, but has expanded its offerings into everything from insurance to hardware. From an economic standpoint, 30% of their business comes from the UK, which means they have to pay close attention to government policies in the UK and the economy there. Among the factors impacting Britain at the moment are their separation from the European Union and the COVID-19 pandemic. You can read the full breakdown
is quite… robust. The political factors that affect Apple are quite interesting, though. Because they manufacture most of their products in China, Apple is particularly sensitive to anything that happens there, like political unrest. Not only that, but the strong connection to China can strain Apple’s relationship with other countries, like the US.
It’s hard to think about coffee, without thinking about Starbucks. The coffee giant has been around since 1971 and, in that time, they’ve changed the way North Americans (and the rest of the world) think about coffee. Since Starbucks relies on a crop (coffee beans) for the bulk of its business, environmental factors can have a huge impact on their business. It wouldn’t take much (like a bad drought in a growing region) for their business to start struggling or require a massive pivot. Read the full breakdown
that influence Amazon, but, over the last few years we’ve seen the social aspect of it play out in real-time. Thanks to the quarantines and restrictions that came with the COVID-19 pandemic that kept people inside, more folks ordered online from Amazon. The result was that profits nearly
Nike is probably the most recognizable running shoe brand in the world, thanks in part to their iconic swoosh logo. Nike has a long history of outsourcing their manufacturing to Asia, which means that they’re at the mercy of political factors in the areas they operate, as well as social pressure that comes with looking for cheap labor. You can see the full breakdown
Nestle is a global food manufacturing company, known for its cookies, chocolate milk mix, and beverages. One of the biggest factors Nestle faces is the social and environmental pressure that comes with their bottled water products. You can read all about it (and the other factors)
Yes, you can even run a PESTLE analysis for a country (although in this case, the example is PEST analysis, which as mentioned, is very similar). The big obvious factor with China is politics. The Chinese government has a long history of being heavily involved in all aspects of society, which has led to controversy, trade restrictions, and sanctions over the years. Check out the full breakdown
The PESTLE analysis was created by Francis Aguilar in the late 1960s.
What does PESTLE analysis stand for?
It’s an acronym that stands for: Political, Environmental, Social, Technological, Environmental, Legal.
What is PESTLE analysis used for?
PESTLE analysis gives you a way to examine the outside factors that can potentially influence your business. Along with helping you make more informed decisions, it gives you the information and understanding that you need to:
Do strategic business planning
Organize your workforce
Create a marketing strategy
Build or grow products
Drive organizational change
Who benefits from the PESTLE analysis?
Everyone benefits from a PESTLE analysis. When you’re looking at everything that could potentially affect your business you come up with a little something for everyone on your team and in your business.
When should you perform the PESTLE analysis?
As often as you can. The outside factors that impact your business are always changing, so it helps to be constantly updating your analysis. You don’t have to do a complete run-through of PESTLE every month, but scheduling something once a quarter or any time you’re thinking about a new direction, product, or market, is a good idea. The 2020 COVID-19 pandemic is a good example of how things can shift very suddenly.
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