How to create a PESTLE analysis

The PESTLE analysis is a great tool to use as a starting point in developing business strategies and plans. It allows you to look at the market through a number of different perspectives and assess the changes that are likely to impact in the next 3-5 years, and whether we need to react to them.

In this article we look at how to create a PESTLE analysis that will help us find the things we need to take account of in the strategy.

What does PESTLE stand for?

PESTLE analysis takes its name from the first letter if the 6 different external factors we need to explore

• Political
• Economic
• Social
• Technological
• Legal
• Environmental

We discussed PESTLE analysis in episode 34 of The Next 100 Days Podcast. You can listen in here.

Let’s explore each aspect of PESTLE analysis looking at each letter in turn

1. Political:
Changes in government policy can have a big impact on business. All it takes is an election and a change in government, and things can be very different. We need to look at the extent that government may influence the economy or our business sector, impose new policies or make changes to the tax regime.

2 Economic:

Changes in the economy will directly impact a company and could have have resonating long-term effects.  A rise in the inflation rate would affect the way a business might price their products and services. Adding to that, it would affect the purchasing power of a consumer and change demand/supply models for that economy.

3. Social:

Social change can have a major impact. Needs of customers will change over time. Employee expectations for pay, benefits, and working conditions will usually increase over time.

4. Technological:

These factors pertain to innovations in technology that may affect the operations of the industry and the market favourably or unfavourably. This refers to

5. Legal:

The legislation that the business is governed by will often change,  there may be legal restrictions on how a company can operate in certain markets, employment laws will often change, health and safety restrictions may be revised.

6. Environmental:

The impact of the business on the environment has become a very important in recent years and this is likely to continue. This can be especially relevant in particular industry groups, examples of these include:

• transport
• tourism,
• farming,
• horticulture

The process to create a PESTLE analysis

A) brainstorm a list for the 6 elements of the PESTLE

Typically you would consider a number of factors including those illustrated below. The list isn’t comprehensive, and will vary from industry to industry and according to markets you are operating in.

 

B) Review the list, and the impact each might have on your business

We need to consider

• The probability of the change happening
• The impact of each item on the business,

for now a simple high medium or low will do.

This gives you a prioritised list and shows you what you need to focus on. Working with the top priority items first, Does the change open up an opportunity? Or does it present a threat?
consider the timescale that the change might take effect. Within that timescale, what things will you need to do to take account of the change.

An excel template is a good way to capture the information you are generating. If you complete the form below I’ll send you a working copy of the template I usually use when I’m working directly with a client to develop a business strategy.

Sometimes it might be appropriate to use PESTELO instead of PESTLE. This adds a seventh aspect to the analysis, Organisation, and I’ve added a new post to cover this extra aspect.

In the next article I’ll cover the SWOT analysis that we will use to assess the more immediate challenges facing your business