PESTLE in its expanded form denotes P for Political, E for Economic, S for
Socio-Cultural, T for Technological, L for Legal and E for Environmental.
This is a form of analysis
or tool that is generally used by organizations in order to identify external
factors within their working environment or industry e.g. Construction Industry,
that may affect their survival or profitability in the long run.
PESTLE
is an important component of strategic
management and therefore it can also be defined as a strategic planning
technique that provides a useful framework for analyzing environmental
pressures that may arise on a team or an organization.
Purpose of PESTLE
The purpose of the PESTLE
analysis is to identify issues that:
a.
Are outside the
control of an organization;
b.
Have some level
of impact on an organization.
Importance of PESTLE
PESTLE analysis ensures that
a manager is able to attain a wider field for analysis of every possible factor
within an environment or industry that may affect his organization directly and
indirectly thus, providing him with answers to possible questions which may
arise.
PESTLE analysis makes it easy to identify as many external factors as
possible therefore by making use of it a manager is able to get a clearer and
wider picture of the jungle his organization is in. When formulating effective
strategic plans a manager is not bound only to information derived from PESTLE
analysis, he needs information from SWOT analysis too.
SWOT stands for strengths, weaknesses, opportunities and threats. It
focuses on both internal factors and external factors that may affect an
organization, PESTLE analysis on the other hand goes in depth in identifying the
impacts that may arise from external factors (macro environment).
When does a manager needs
to conduct a PESTLE analysis?
PESTLE analysis may be conducted by a manager when his organization:
· 1.Wants to launch a new product or service e.g. If
company X, producing family cars decides
to start manufacturing sport cars, the manager needs to study all external
aspects (macro environment) surrounding his organization in order to see if the
new car models will be well received in the market and how much will they
profit from them;
· 2.Wants to sell their products or services in a new
region or country, e.g. let’s suppose there is a bakery named Mona’s bakery in
Maputo, if Mona’s bakery starts making success in Maputo, the manager may
decide to open a branch of the bakery in Matola, before the manager moves forth
with that idea he may conduct a PESTLE analysis in order to know if the new
branch in Matola will be able to be successful and profitable like the main
bakery in Maputo;
· 3. Wants to venture into a new route in the market (Diversification), e.g. again using
Mona’s bakery example, let’s suppose the main branch in Maputo sells only baked
products, to increase the bakery’s revenue the manager may decide to start
selling refreshments too, the manager
needs again to conduct the PESTLE analysis in order to know all the external
aspects of the market that may affect the sales of the refreshments ;
· 4.Needs new effective
strategic plans. Like a soccer
player, a manager needs to know in detail the his field and the game’s rules in
order to score, that means he needs to know every aspect of the environment his
organization is in order to make a strategic plan that is realistic and
effective and that will ensure the survival and profitability of his
organization in the industry in the long run.
What does each
denotation of PESTLE focuses on?
1.
Political factors
These factors determine the extent to
which a government may influence the economy or a certain industry. For example
if the government imposes new taxation policies, a manager needs to know how
will that affects his organization.
2.
Economical
factors
These factors are determinants of an
economy’s performance that directly impacts an organization. For example if an
economy is expected to fall into a period of recession then that will mean that
a manager should expect a decrease in total revenue earned by his/her
organization during that period.
3.
Socio-Cultural
factors
These factors may include all changes
in the socio-cultural environment that may affect an organization. For example,
cultural trends, demographics, change in consumer tastes and preferences, etc.
4.
Technological
factors
These
factors pertain to innovations in technology that may affect the operations of
the industry and the market favorably or unfavorably. For example if new
innovative machinery is created, a
manager should know how will that affect his organization?
5.
Legal
factors
These factors are comprised of laws
and regulations that may affect an organization positively or negatively. For
example, consumer laws, safety standards, labor laws etc.
6.
Environmental factors
These factors include all those that
influence or are determined by the surrounding environment of an organization. This
aspect of the PESTLE is crucial for certain industries such as tourism,
farming, agriculture etc.
PESTLE analysis
process
Before a manager conducts a PESTLE analysis he should have in mind that
the importance of each factors to be found may vary for different industries
therefore he ought to rate each factor in order for him to know which ones his
organization should worry about the most.
When conducting PESTLE analysis a manager needs:
- To brainstorm and list all key issues under each factor of PESTLE that are outside the organization’s control.
- He should broadly identify all the implications each issue will have.
- Rate the relative importance to the organization of each issue.
- Rate the likelihood of each issue occurring in the long run.
- Briefly consider implications that each issue may attract to the organization if they were likely to occur.
6
A manager when conducting the PESTLE analysis should have I mind that it
does not provide solutions, it only lets the manager know how these issues
under each factor of PESTLE may affect them.
Before PESTLE was known as PEST but additional factors were added to it,
Legal and Environmental factors, after those increments it eventually became
known by as PESTLE. There are several other variations of PESTLE with some
using more factors and some using fewer than six considered by PESTLE. These
variations are:
ETPS – economic, technological,
political, and social;
STEP- strategic trend
evaluation process;
STEEPLE- social,
technological, economical, ethical, political, legal and environmental;
PESTLIED - political,
economical, social, technological, legal, international, environmental and
demographic;
STEEPLED-social,
technological, economical, environmental, political, legal, educational, and
demographic
PESTLE analysis is a really necessary tool a manager should make use
when he wants to come up with strategic plans. It is more effective when it is
combined with SWOT analysis because they are complementary and therefore
provide the full picture of the environment an organization operates in. PESTLE
has many other variations but they all focus on the macro environmental aspect
of an industry an organization is operating in. PESTLE does not provide
solutions, it only answers the “what?” and
“how?” questions a manager may have
regarding the environment his organization operates in.
References
- PESTLE analysis, eBook, retrieved on 11 March 2014, from www.go-ebooks.com
- PESTEL analysis, eBook, retrieved on 11 March @014, from www.go-ebooks.com
- PESTLE analysis, retrieved on 12 March 2014, from www.pestleanalysis.com
- DAVID, F. R., Strategic Management, Melbourne: Merrill
- COLE, G. A., Management: Theory and Practice
- FME, PESTLE analysis: Strategic skills, eBook, retrieved on 13 March 2014, from www.free-management-ebooks.com,
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