A PESTLE analysis is a tool to analyze the macro-environmental factors that may impact on an organization’s performance. This tool is especially useful when starting a new business or entering a foreign market. It is often used in collaboration with other analytical business tools such as the SWOT analysis and Porter’s Five Forces (see our previous tools on these) to create an understanding of a situation and the related internal and external factors. PESTLE is an acronym for Political, Economic, Social, Technological, Legal and Environmental factors. Clearly the impact of the factors will vary by and country and this framework can be adjusted as appropriate.
Political factors relate to how the government intervenes in the economy and include tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Governments also have significant impact on the health, education, and infrastructure of a nation.
Economic factors include economic growth, exchange rates, inflation rate, and interest rates. These factors greatly affect how businesses operate and make decisions.
Social factors include the cultural aspects and health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. These trends can affect the demand for a company's products and how that company operates.
Technological factors include aspects like R&D activity, technology incentives and the rate of technological change. These can affect barriers to entry and influence outsourcing decisions.
Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.
Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may impact industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets or diminishing existing ones.
This analysis helps a team to understand the organization’s market and business position better, plan strategy, and conduct market research in new and existing markets. Some benefits of working through the framework include:
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