What is a PESTLE analysis and how do you create one?

What are the external factors that could affect your business, both now and in the future? Taking stock of these issues can inform your strategy and decision-making.

One of the most effective ways to identify potential threats to your business is to carry out a PESTLE analysis.

Read on to find out the PESTLE analysis meaning, how to do one, and why they’re important.

What is a PESTLE analysis?

The PESTLE analysis definition is an activity which helps you to understand the external challenges facing your business.

Why is PESTLE analysis important? Because these factors can influence your business strategy and impact future decisions such as expansion, recruitment, and product development.

A successful analysis will relate the potential impact of external factors to your business and the sector you operate in.

What does PESTLE stand for?

PESTLE is an acronym. Here’s an overview of what each letter stands for:

Political – the political stability of the country you’re operating in, considering things like tax changes, industry regulations, and trading rules
Economic – the impact of exchange rates and economic growth on your business, as well as things like the cost of living, consumer spending, and interest rates
Social – what are people’s attitudes to things like work/life balance, wellbeing, and remote working? How do buying habits such as sustainability affect your business?
Technology – looking at innovation in your sector, alongside global tech trends such as automation and the growth of social media. You’ll also need to consider cyber security and data storage
Legal – analysing shifts in the legal landscape, including employment and health and safety laws. How have laws like GDPR affected your business and what incoming law changes – like the introduction of a plastic packaging tax – might affect you?
Environmental – what impact does your business have on the environment? How do environmental issues affect your ability to source new products and manage supply chains? You can also consider Corporate Social Responsibility and the benefits of becoming a B-corp

What is PESTLE analysis used for?

A PESTLE analysis can be useful for businesses of all sizes, from companies just starting out to those looking for funding such as venture capital.

The purpose of PESTLE analysis is to inform you about what’s happening in the world around your business, and use that to plan for the future.

Here are some of the things you can use a PESTLE analysis to plan for:

marketing – analyse consumer spending and what’s popular with your audience to develop your marketing plan
product development – identify customer habits and environmental factors to help you decide what to launch and when
staff – decide when to take on new staff, while using research on the social landscape to assess what type of skills are available and people’s working habits
organisational development – if you’re looking to diversify or expand your business, use the information you gather to develop your org chart

How to do a PESTLE analysis

A PESTLE analysis is a research project, so it could be worth putting a team together to complete it, with one person responsible for bringing everything together.

You could give each person in the team an area to research, playing to their individual strengths such as legal matters or technology.

You’ll then need to gather the information on each area of PESTLE. Here are some of the key points to consider:

how will the information initially be presented – perhaps in slides or a long form document?
make sure the research focuses on both the present and future impact of PESTLE factors on your business
are there areas of PESTLE that are more relevant to your business, such as environmental factors if you import products?
make sure the team use reliable sources of information that are relevant to your business and sector

Once you’ve gathered all the research together, you’ll need to analyse the findings. These are the steps you’ll need to take:

Identify and prioritise the risks to your business
Work out how you can address these issues through preparation or prevention
Circulate your findings to key stakeholders and discuss them
Agree on actions and make sure they’re assigned to a team or individual to increase accountability
Review and update the PESTLE analysis regularly, accounting for any new risks or changes to existing ones

PESTLE analysis examples

A PESTLE analysis allows you to explore external factors influencing your business that are outside of your control.

By understanding what’s going on around your business, you can make strategic management decisions that can minimise risks and help your company to grow.

For example, a PESTLE analysis could help a clothing business to decide whether they should launch their services in a particular country. If the analysis finds that the country has low economic growth and an unstable political situation, it could be best to wait until conditions improve before entering that market.

If a catering business uses plastic coffee cups and its research shows that consumers want cups made from more sustainable materials, they can start planning for how to replace their existing cups and consider the factors that could influence the replacement.

Meanwhile, an accountancy firm may use a PESTLE analysis to prioritise the risk of cyber threats if they’ve seen an increase in ransomware attacks and fraudulent tax returns.

The CIPD has a free pestle analysis template that you can download for your business, as well as a completed analysis template to give you an idea of how yours should look.

What are the PESTLE analysis advantages and disadvantages?

A PESTLE analysis can be an effective exercise, but it won’t always give you the full picture. That’s why it’s important to complement a PESTLE analysis with a SWOT analysis and competitor analysis.

Advantages of PESTLE analysis

it encourages critical thinking within the business and focuses on preparing for the future
it’s a simple framework that’s easy to understand and implement
an understanding of wider external factors can lead to innovation
it helps to manage risks and gives businesses a greater chance of capitalising on new opportunities

Limitations of PESTLE analysis

assumptions and qualitative research can be difficult to analyse and plan for
it can take up a lot of time for employees who have other roles to focus on
it needs to be done regularly and won’t work on a one-off basis
external factors change quickly, so it can be difficult to present and analyse up to date information

Do you have any unanswered questions about creating a PESTLE analysis? Let us know in the comments below.

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How to do a PESTLE analysis for your business