PESTLE analysis framework gives a macro view of the environment in which the business operates. Managers can then assess the risks that a business is facing and make decisions accordingly. The output of this analysis can serve as an input for the SWOT Analysis. All the factors identified by the PESTLE analysis can be a categorized as Threats or Opportunities in SWOT analysis. Conducting PESTLE analysis can help in identifying more Opportunities and Threats which help in making better decisions.
The PESTLE Factors:
Political Factors: Stability of the political environment and the attitudes of political parties or movements are the major issues to be considered in Political Factors because these factors influence the tax policies or regulations governing the trade agreements with the government etc. These factors mainly deal with attitude and approaches of Political elements.
Economic Factors: These represent the wider economic scenario which may involve growth rates, inflation, and level of employment, cost of raw materials etc.
Socio-Cultural Factors: These factors indicate the type of the society that the organization operates. This may include the demographics, wealth distribution, living conditions and life style.
Technological Factors: This refers to the rate of innovation and developments, changes in information technology, manufacturing techniques and logistics. It is important for the organizations to keep up with these changes else they will eventually lose out to the competitors who adapt these changes.
Legal Factors: The Legal factors are inevitably intertwined with the political factors such as national employment laws, consumer protection, international trade regulations etc. which would affect the prospects of the business.
Environmental Factors: This includes the issues such as rate of depletion of natural resources, recycling measures and waste disposal.
Limitations of PESTLE Analysis
- The external factors considered in this analysis are dynamic, they change at a very fast pace sometimes even in a day itself, thus its tricky to predict how these factors may affect the business. Some uncertainty remains even after the detailed PESTLE analysis.
- The usual output of the PESTLE analysis is the simple list of factors that affect the business. Unless the factors are examined critically with regard to the level of the impact the findings of the analysis doesn’t add much value.
- Getting the huge amounts of data from the reliable sources makes the analysis not only time consuming but also costly. Also frequently updating the data is a problem.
- The lack of easily updated information leads to making assumptions while doing the analysis. The decisions based on analysis made on unfounded assumptions would lead to disastrous results.
- Also PESTLE analysis requires lot of information to be collected. When there is a lot of information the manager who is doing the analysis may lose sight of the critical factors which gives rise to ambiguity in prioritizing the affecting factors which in turn can put the whole analysis on the wrong track.
Alternatives to PESTLE Analysis.
There are not many alternatives to PESTLE analysis, but one framework that is getting popular these days is DEEPLIST which was coined by Paul N Finlay in 2000. This frame work has been adopted by CIMA in its course content. The DEEPLIST stands for Demographics, Economic, Environmental, Political, Legal, Information, Social and Technological. This framework not entirely different from PESTLE but only has addition of Informational and Demographics aspect impacting the business. The informational aspect is concerned with the questions like what data the business has, how is the business going to use it, how will it be protected, etc.
Other variants of the PESTLE include PEST, STEP, STEEPLE, STEEPLED, STEER, etc. which contain a range of the macro-environmental factors and are used by strategists as applicable.