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PESTLE analysis, short for Political, Economic, Social, Technological, Legal and Environmental, is essentially a tool used by companies to regularly assess the environment they’re operating in to identify factors that could impact their operations. As the name suggests, this approach analyses external factors from the point of view of politics, economics, and environment and so on. It is, simply put, a strategic framework for understanding external influences on a business. There are many macro-environment factors that affect strategic planning such as new laws, tax changes, trade barriers and demographic change.
By understanding these external environments, organizations can maximize the opportunities and minimize the threats posed to them. Political factors relate to the pressures and opportunities brought by political institutions and to what degree the government policies impact the business. These factors include government policies, trading policies, corruption, lobbying, and elections and political trends among others. Economic factors relating to economic policies, economic structures, and to what extent the economy impacts the firm include inflation, interest, industry growth, import/export ratios and international trade.
Social factors relate to the cultural aspects, attitudes, beliefs, that will affect the demand for a company’s products and how the business operates. These factors include demographics, consumer attitudes and opinions, consumer buying patterns, and advertising and publicity. Technological factors relating to the technological aspects, innovations, barriers and incentives, and to what degree these impact the business include emerging technologies, technology legislation, and research and innovation to name a few. Legal factors including employment law, consumer protection and regulatory bodies and processes relate to the laws, regulation and legislation that will affect the way the business operates. Environmental factors such as environmental and ecological regulations and sustainability relate to the ecological and environmental aspects that will affect the demand for a company’s products and how that business operates.
The main advantages of using PESTLE analysis include cost effectiveness, alertness development and exploiting opportunities. The only cost of PESTLE analysis is time. While additional programs can help organize input and feedback, PESTLE can be completed through a simple document or pen and paper. The amount of research necessary, how much time, and how often a firm must do PESTLE analysis is optional. This tool can also be narrowed down and used for specific products, marketing plans, and customer relationships. Particularly, when used in new developments within the firm, PESTLE analysis can raise awareness of potential threats. For example, if a company learns there will be a 15% increase in population growth within a certain city, this can be excellent for their business. But if the increase is predominately senior citizens while their target market is in the 20-30 age range, this could be a chance to reach a new audience with a new product.
With PESTLE, a firm can thoroughly examine changes and develop a plan to minimize any/all profit increase or damage. Opportunities are often external. By using PESTLE, opportunities can be found and used to strengthen a firm’s business model. If a company is using this tool to research social and technological trends, for example, it could learn that its target market is moving towards a new social media channel. This is now an opportunity to build marketing campaign before its competitor. A strong outreach approach gives the opportunity to convert these users into customers before anyone else.
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