PESTLE – In this series of articles, we are looking closely at strategic management and some of the useful tools or frameworks that organisations use to help implement and manage their business strategies.
One of the best known of these tools is PESTLE. Now, it can be easily confused as a strategic method in its own right. Whilst it isn’t a method, but rather a useful tool, it does serve an important purpose when it’s adopted as part of a strategic methodology such as the Intrafocus Strategic Planning Process (SPP).
So let’s turn our attention to PESTLE and see how it can add value to the strategic management process.
What is PESTLE?
Let’s start with the basics. PESTLE is a tool that is used to support strategic analysis. This phase of strategic management involves carrying out assessment and research into various factors that affect the organisation and the direction that it will take. A series of well-established tools are available to help structure this research, and PESTLE is one of the best known.
The mnemonic stands for: Political, Economic, Socio-Cultural, Technological, Legal and Environmental. As you can see, it is a way of thinking about all of the ‘big picture’ factors that affect business environments. Organisations can use the tool to identify big trends or changes which are happening in any of these areas, which may have an impact on their business – whether positive and negative.
An example in action
For example, legislative changes around immigration could negatively affect hiring in the hospitality industry post-Brexit. Hotels and restaurants have traditionally relied upon hiring large numbers of European seasonal workers in entry-level roles at peak times. A positive impact could be the introduction of a new technology which makes it easier for businesses to serve customers online.
How is PESTLE used?
There will usually be three steps to follow.
- The organisation will work through each mnemonic to pinpoint changes and trends at a high level
- They will then identify which of these changes represents a threat or an opportunity
- Taking each in turn, the company will build mitigating steps into its strategy to either take advantage of opportunities or to counteract threats.
Using PESTLE within a company
Let’s look at ‘P’ – or Political environment as a timely example! The business’s decision-makers will analyse the political environment that surrounds the company. Typical questions that might be asked include:
- What impact has Brexit had on the business, and what do we know about possible legislative changes and impacts?
- Is the government currently stable or is an election on the agenda?
- Is business like to become more or less regulated under the current government?
- Will large planned public projects such as HS2 have an impact on our business in the future?
Examples under other PESTLE categories
In the ‘Economic environment,’ we might ask if the economy was growing or exchanging and what interest rates were doing. We might look at disposable incomes within our target audience and employment rates.
Under ‘Socio-Cultural’, we might look at changing demographics, particularly with regards to employment patterns, attitude shifts, patterns of lifestyles, age profiles, generational changes and trends, lifestyle trends and so forth. For example, a business might assess Generation Z as consumers and millennials, the switch to flexible working and side-gigs and the wellness industry.
For Technological, businesses might look at new and emerging technologies within their industry, what their competitors were doing in regards to tech deployment, which research bodies might offer opportunities, what customers were expecting in the field of tech and whether digital innovation was driving a change in customer expectations.
Under Legal, the business might look at recent and expected changes to the law, new regulatory bodies, changing laws around consumer rights and so forth.
The environmental environment is the final, and very current, area to consider. Organisations might consider changing customer and stakeholder values, pollution and waste management, clean energy and low-carbon business trends and changing regulations.
Outputs from PESTLE
Once a list of big-picture factors has been created following the steps above, they will need to be categorised as either opportunities or threats. This list can then be factored into the strategic process so that relevant objectives can be created to either take advantage of the opportunity and profit from it or to mitigate/minimise or completely avoid potential problems!
In conclusion
PESTLE is a simple and intuitive strategy tool that helps business leaders to organise their thinking and to ensure that all influencing factors within the broader competitive environment are considered fully and appropriately as part of the strategic process. It’s quick to use, easy to understand and by its very nature, it creates a clear set of outputs which then aid objective setting.
Find out more
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