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PESTLE

> in practice

PESTLE analysis aims to identify and summarise environmental influences on an organisation or policy.

PEST analysis involves identifying the political, economic, socio-cultural and technological influences on an organisation - providing a way of auditing the environmental influences that have impacted on an organisation or policy in the past and how they might do so in future.

Increasingly when carrying out analysis of environmental or external influences, legal factors have been separated out from political factors (due to increasing legal influences outside national political systems, such as European and regional legislation). The increasing acknowledgement of the significance of environmental factors has also led to Environment becoming a further general category, hence 'PESTLE analysis' becoming an increasingly used and recognised term, replacing the traditional 'PEST analysis':

The following can be used as a checklist to consider and prompt analysis of the different influences. The model can then be used to inform and guide further analysis.

1. Which of the environmental factors are affecting the organisation?
2. Which of these are the most important at the present time? In the next few years?

Political

• Taxation policy
• Local government/devolved administrations

Economic

• Business cycles
• GNP trends
• Interest rates
• Inflation
• Unemployment
• Disposable income

Socio-cultural

• Population demographics
• Income distribution
• Social mobility
• Lifestyle changes
• Attitudes to work and leisure
• Consumerism
• Levels of education

Technological

• New discoveries
• ICT developments
• Speed of technology transfer
• Rates of obsolescence

Legal

• International/European Agreement/Law
• Employment Law
• Competition Law
• Health & Safety Law
• Regional legislation

Environmental

• Environmental impact
• Environmental legislation
• Energy consumption
• Waste disposal

The items in the list above are of limited value if they are merely seen as a listing of influences. It is therefore important that the implications of the factors are understood. It may be possible to identify a number of structural drivers of change, which are forces likely to affect the structure of an industry, sector or market. It will be the combined effect of some of these separate factors that will be important, rather than the factors separately. A good example can be found in the forces which are leading to increased globalisation of industries and markets.

It is particularly important that PEST(LE) is used to look at the future impact of external factors, which may be different from their past impact. Using scenarios may help with this.

PEST(LE) analysis may also help to examine the differential impact of external influences on organisations either historically or in terms of likely future impact. This approach builds on the identification of key trends and asks to what extent they will affect different organisations.

Strengths

• Straightforward, easy to grasp tool
• Broad categories, covering major environmental factors - can prioritise specifics for own policy area
• Can generate a lot of material about influences
• Can help to identify the long term drivers of change which can be built into scenarios

Weaknesses

• Will be of limited use unless the results are used to inform and guide analysis.
• Of limited use unless there is some analysis of the differential impact of the trends - need also to indicate which can combine to greater effect and which might cancel each other out.

References

Exploring Corporate Strategy-Gerry Johnson, Kevan Scholes)

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