What is a PESTLE analysis?

PESTLE analysis is a strategic tool used for analysing an organisations external environment. The tool aims to understand political, economic, social, technological, legal and environmental factors that impact upon an organisation strategy. Political refers to laws and regulations that have an impact upon an organisation. For example, in the UK, the ongoing issue of Brexit has created uncertainty for organisations making it challenging to make long term strategic plans. Economic refers to the economic environment the organisation operates within. For instance, the Bank of England regulates British interest rates. Any changes to interest rates could impact the organisation. Case in point, if the interest rates increase it would increase the cost of borrowing money. Social relates to social trends that can impact the organisation.

This can be seen in the increased awareness of the importance of healthy eating and exercise. This has meant that organisations have had to adapt their product offering in order to address this trend, such as reducing food sugar and fat content. Technology refers to technological developments that can impact upon an organisation. This can be seen with the advent of artificial intelligence or AI. Although some organisations may benefit from AI others may also find that it makes their product or service redundant. This element of PESTLE can evolve at a rapid rate, so it is therefore important that the organisation review it regularly. Legal refers to legislative factors affecting the organisation.

To illustrate this point food companies in the UK, have to abide by food hygiene standards. Any changes to these regulations could impact on the organisation. Environmental refers to ecological factors that can impact the organisation. In recent years, there has been an increased awareness of the damage plastic waste can have on the environment. As a result, organisations have reduced the amount of plastic packaging they use and in some cases, organisations have banned the use of plastic straws. Although this tool may appear simple it is important that you analyse the implications the factors identified have on the organisation. Without this it would simply become a list of external factors.

When analysing the implications of external factors, you can then divide these into opportunities or threats. This will enable you to develop a better understanding of the organisation’s external environment and how to best operate within it.