A PESTLE analysis is a very useful tool to analyse the key factors (Political, Economic, Sociological, Technological, Legal and Environmental) influencing a manufacturing organisation from the outside. It offers great insight into the external factors impacting their business. The analysis is relatively simple and flexible, so organisations can use it in a range of different scenarios. Managers and business improvement teams can use the results to guide strategic decision-making and also for developing new products. (example diversification).
A PESTLE analysis is a review of six external influences on an organisation:
Political: Tax policies; Grants, environmental regulations; trade restrictions and reform; tariffs; political stability, Brexit, Government policies, Local government policies, etc
Economic: World tariffs, Economic growth/decline; interest, exchange, inflation and wage rates; minimum wage; working hours; unemployment (local and national); credit availability; cost of living, cost of borrowing, etc
Sociological: fashion changes, Cultural changes; health issues; population growth rates; age distribution; career attitudes; health and safety, etc
Technological: New technologies are continually emerging (for example, in the fields of robotics and artificial intelligence), and the rate of change itself is increasing. How will this affect the organisation’s products or services? New materials, new processes, etc
Legal: Changes to legislation impacting employment, international law, access to materials, quotas, resources, imports/exports, and taxation, UK, Local and International law changes, etc
Environmental: Climate change and the increased need to switch to sustainable resources; ethical sourcing (both locally and nationally, including supply chain intelligence), cleaning up the environment, (oceans, forests, air quality, etc).
Companies should analyse all these factors in order to gain insight into the external influences which may impact their strategy and business plans. Senior management need to assess any risks specific to their industry and organisation, and use that knowledge to inform their decisions and make policy changes.
The term PESTLE has been used regularly in the last decade or so and its true history is difficult to establish. Various other similar acronyms have been used, including ETPS, STEP, PEST, and STEEPLE (where the extra E stands for Ethical).
How to start
PESTLE analysis should start with thinking through and planning the process. This could take many steps. A senior team should be established composing all departments (multi-functional).
- Identify the scope of the research. It should cover present and possible future scenarios, and apply to areas of the industry in which the business operates.
- Decide how the information will be collected and by whom. Data gathered is often more rich in content when more than one person contributes to collecting it.
- Identify appropriate sources of information. These could be stakeholders looking for people professionals to address specific issues or current policies that require updating.
- Gather the information – it’s useful to use a template as the basis for recording the information.
- Brainstorm ideas.
- Analyse the findings.
- Identify which of these factors listed above are most important or could cause issues.
- Identify the business specific options to address the issues, as demonstrated in the example template.
- Write a discussion document for all the people involved.
- Disseminate and discuss the findings with all decision makers.
- Decide what actions need to be taken, and which trends to monitor on an ongoing basis. Develop an ACTION PLAN.
PESTLE analysis should be done on a regular or ongoing basis. Organisations that regularly and systematically conduct such analyses often spot trends before others, thus providing competitive advantage.
Some applications of PESTLE:
Workforce plans is a process that aligns business and people strategies. A PESTLE analysis can help to identify disruptive changes to business models that may have a profound impact on the future employment landscape. Organisations are facing huge changes in their workforce from increased skills gaps, the creation of job roles that did not exist 10 years ago, and job reductions or displacement. This pace of change will only increase.
As with business planning, a PESTLE analysis provides the essential element of ‘climate’ in the situation analysis phase of the marketing planning process. It can help prioritise business activities to accomplish specific marketing objectives within a set timeframe. For example Huge changes in how to market products using Social media have emerged in the last few years.
By offering insights on what’s happening externally to an organisation, a PESTLE analysis can help you decide whether to enter or leave a route to market, determine whether your product or service still fulfils a need in the marketplace, or when to launch a new product. The idea generating phase using for example Brainstorming techniques could assist in coming up with new product ideas.
A PESTLE analysis can be a powerful activity for understanding the context for, and the potential areas of focus to make change successful. In this situation, PESTLE is most effective when used in association with SWOT analysis to provide information about potential opportunities and threats around labour changes; for example, skills shortages and current workforce capabilities.
A PESTLE analysis can also be used as a framework for looking outside the organisation to hypothesise what may or may not happen in future.
- It’s a simple framework tool.
- It helps with encouraging teamwork amongst the participants
- It facilitates an understanding of the wider business environment and the competition.
- It encourages the development of strategic thinking – linking it to business plans.
- It can enable an organisation to anticipate future business threats and take action to avoid or minimise their impact. (Link to SWOT analysis).
- It can enable an organisation to spot business opportunities and exploit them fully.
- Some PESTLE analysis users oversimplify the amount of data used for decisions – it’s easy to use insufficient data. Teams must collect full data before starting to analyse.
- The risk of capturing too much data may lead to ‘paralysis by analysis’.
- The data used may be based on assumptions that later prove to be unfounded.
- The pace of change makes it increasingly difficult to anticipate developments that may affect an organisation in the future.
- To be effective, the process needs to be repeated on a regular basis, and this can be time consuming for some organisations.
PRIMO BUSINESS SOLUTIONS – PESTLE WORKSHOPS
Primo Business Solutions will be running online and classroom based practical workshops with the ECMS. The workshops will provide guidance and templates to make each session very hands on and related to each organisation. Workshops will concentrate on coming up with new product ideas to meet the changing environment (PESTLE).
The workshops will ideally be running throughout the upcoming 3 months. So please contact ECMS by email firstname.lastname@example.org if you’re interested in attending.