PESTLE analysis is a fundamental tool for business strategy and planning. It is a method of assessing your business' environment and its possible impact on the performance of your company.
PESTLE is an acronym which stands for six external factors affecting your business: political, economic, sociological, technological, legal and environmental. Each of these factors can have a profound effect on your business and varying implications, for example, in terms of:
- duration of impact - short term or long term
- type of change - positive, negative or unknown
- rate of impact - increasing, decreasing, unchanged or unknown
- importance - critical, important, unimportant or unknown
Example of PESTLE analysis
The following PESTLE analysis example will clarify how the six external factors work and what type of information you should include in your analysis. The example scenario we have given below involves overseas sale of a product.
|Possible factors||eg international trading tariffs, restrictions, visa requirements, price control, etc||eg current UK economic situation, currency inflation, interest rates, taxation level, etc||eg cultural norms, attitudes to product, consumer preferences, age and gender distribution, etc||eg emergence of innovative technologies affecting the production, marketing or sale of product, automation of processes, etc||eg legislative issues, such as consumer protection laws, health and safety laws, licensing regulations, etc;||eg sustainability, waste management rules and regulations, green practices etc|
|Business impact||eg - possible trade barriers to protect domestic suppliers||eg - strength of overseas economies versus UK may affect price/profitability||eg - will product be accepted overseas?||eg - can intellectual property rights be protected overseas?||eg - will the product comply or be allowed into the market?||eg - pollution implications of transportation|
|Time frame||unknown||6-12 months (possibly longer)||6-12 months||0-6 months||0-6 months||n/a|
|Type of impact||negative||unknown||unknown||negative||negative||possibly negative|
|Rate of impact||increasing||unknown - dependent on the economy, and other countries' economies||unknown||unchanged||unchanged||unknown|
Advantages of PESTLE analysis
By helping you to understand how external factors affect your businesses, PESTLE can help you:
- determine their long-term effect on the performance and activities of your business
- review any strategies you have in place
- work out a new direction, product or plan for your business
- identify solutions to problems
- gain strategic advantage on competitors
- evaluate the risks associated with markets you're interested in
PESTLE is an extended version of PEST analysis. It is often used in collaboration with other analytical business tools like the SWOT analysis and Porter's Five Forces to give a clear understanding of a situation and related internal and external factors.
Read about other types of strategic planning models.