Delta Partners Management Consultants
Your trusted advisors.

Tools for Managers: The PESTLE Analysis

Geoff Schaadt

In a previous post, we discussed the use of SWOT Analysis and it’s usefulness as a framework for discussing the internal and external environment that an organization faces.  I would like to extend that discussion here to introduce the PESTLE Analysis – another framework used to guide your thinking as you participate in strategic evaluations.

You might recall that the ‘O’ and ‘T’ of the SWOT Analysis (Opportunities and Threats) focussed on the external issues impacting the firm.  The PESTLE Analysis is similar to SWOT in that it provides a framework to guide your discussions.  However, where the PESTLE differs is in its focus on the external environment.

And, it’s clearly an acronym – so what does it represent?

PESTLE

Political
Economic
Social
Technological
Legal
Environmental

Here we have a list of factors that are external to the competencies and capabilities of the organization and can help you move logically through an evaluation of the external world in which you operate.  This framework was originally referred to as the PEST Analysis, but was expanded to PESTLE over the past ten years as Legal and Environmental factors gained increasing importance.  In fact, there are some in the strategy and analysis business who are encouraging people to move to STEEPLED in reaction to the current environment for greater emphasis on ‘Ethical’ concerns and ‘Demographics’.

Political

What is happening politically in the environment in which you operate – these issues can take on a community, regional, national, or international perspective? A few months ago we might have shrugged our shoulders and thought, “Meh – nothing ever really changes.”  But I think the events of the past couple of months in Tunisia, Egypt, Libya, etc., will have changed the minds of a great many people on that front.

Some issues to guide your discussion:

  • political stability
  • government structure
  • trade policy
  • tax policy
  • lobby impacts
  • local perceptions and attitudes
  • regional conflict

Economic

What is happening within the macroeconomy in which you operate – locally, regionally, nationally, globally?  Is it in decline, growth, recession, bubble status?

Our slow emergence from the global economic meltdown has provided a wakeup call for many who had come to expect that the good times would continue unchecked.  The level of expertise in currency management techniques within Canadian management circles has matured radically over the past two years.

Morter-pestle-300x199Other aspects for economic awareness:

  • economic growth
  • interest rates
  • inflation
  • currency valuations
  • credit availability
  • employment rates

Social

What is happening socially in the arena in which you operate - locally, regionally, nationally, globally?  Are cultural norms changing?  The coming change in the make-up of our workforce and the potential for an Intergenerational Divide is an example of a sociological challenge that our leaders will soon be facing.

Other examples of social factors:

  • demographics
  • skilled labour
  • education
  • health care
  • attitudes toward work
  • quality of life

Technological

What is happening within the technology sphere that can have a significant impact upon your operations?  If asked in 2005, would you have agreed that there would be an online social network that had 500 million members in 2010?

Some issues surrounding technology:

  • new research
  • rate of change
  • IT implementation in your area
  • product life cycles
  • government research funding
  • changes in Internet  use – service disintermediation, video and voice delivery, social networks
  • mobile telephony penetration and development – mobile applications, geolocation, near field communications
  • automation

Legal

An added facet to the original PEST model, this is in response to the increasing importance of the regulation and legislation on operations.  Maturity and appropriate enforcement of financial regulations will often form the baseline analysis for foreign direct investment.

  • tax law
  • trade
  • employment
  • security
  • resource acquisition

Environmental

The second addition to the PEST model, this item also reflects the importance of environmental issues on nearly the operations of nearly any organization.  Some firms are adopting environmental impact as a key differentiator in their strategic development.

  • local regulation
  • international treaties
  • public perception
  • local climate concerns
  • client values

Implementation

Again, like the SWOT, the PESTLE framework provides a tool to help you in guiding your discussion of the important external factors that can impact your organization.  However, some of the same weaknesses persist:

  • It is a “snapshot” analysis – findings will change over time, sometimes from day-to-day.
  • It will be as variable as the number of people involved in the discussion.
  • Be careful not to make sweeping judgments of future states on small data sets.

However, this can be a valuable tool in directing the analysis when used appropriately.  In fact, the SWOT – fuelled by the PESTLE – can be very effective in driving Scenario Planning activities.

If you would like to dig deeper into this tool, the RapidBI website has an excellent discussion and template for using the PESTLE Analysis.

Comments

Very interesting and valuable. I appreciated your links, Greg and checked out the ‘discussion’ and ‘templates’ as well as visiting the scenario planning site.

All this prompted me to recall the many planning and group-thinking exercises I have been involved in as a CEO, as a senior manager, and as an advisor.

These reflections prompted me also to think about how this process (which I think is essential in large organizations) fits with the role that vision plays in setting the course an organization or a unit of an organization will take.

One cannot imagine Steve Jobs doing a SWOT or Pestle analysis to come up with the iPad, a gizmo that almost everyone said (before it came to market) did not meet any existing need, respond to any threat or address any known opportunity.

Most large organizations suffer from a blurred vision of where they are going. They will have an anodyne vision statement that would suit many other organizations as well as their own. They rarely have a vision that drives the actions and daily decisions of most of the employees. One that elicits intense, focused commitment.

How does an organization combine a passionate vision of where it is going, with this kind of analysis (SWOT and PESTLE)? Has anyone else seen an example of how this can be done?

By Ellen Godfrey on 2011/03/15

Geoff, You present a superb, intelligent, and concise synopses of a really complex area. While most organizations will not need to do a full blown version of the PESTLE on an annual basis, this summary offers a really useful list enabling managers to cross check against their current strategic plan to determine what segment of the analysis need careful review and updating.

Ellen’s point about vision is critical of course; the more aggressive / innovative the vision the more thorough the analysis should be.

By Alcide DeGagn on 2011/03/15

Nice articulation of the intuitive facets of policy analysis/developement

By Joanne Lee on 2011/03/16

Some great points here.  In particular I would like to expand on Ellen’s thoughts: analytic frameworks like SWOT and PESTLE are tools.  They can be used effectively to guide strategic thinking.  They are effective in focussing conversation.  But always remember - they are just tools.

Much like a carpenter who carries a bag filled with hammers and mallets, various saws, a brace, planes, some chisels and awls, screwdrivers, various measuring devices, marking devices, etc. - all of these frameworks are tools.

The master carpenter must rely on experience, intelligence, creativity, vision, and in some cases innovative thinking, to decide how to most effectively deploy his/her tools to accomplish the task at hand.

Life as a leader and manager in a modern “knowledge based” workspace is no different.  There are many, many tools that have been created to meet a specific need.

It is up to the experience, intelligence, creativity, vision, and innovative thinking of the organization’s leaders to employ these tools appropriately to accomplish the task at hand.

By Geoff Schaadt on 2011/03/16

Geoff, great article and very timely

I did make use the PESTLE tool in a recent scenario planning project, which helped to understand the macro external environment.

The client, a branch in one of the departments of government, which until recently had a monopoly on the delivery of their services to other government departments, now has to compete with the private sector.

Doing a SWOT analysis wasn’t the right tool to help understand the micro environment, in particular the competitive pressures now facing the organization and how to compete in this environment.

So, I made use of Porter’s Five Forces model to good effect I thought.

Any chance you might add the Porter’s Five Forces model to your discussion of useful tools?

In answer to Ellen’s point, I suspect Steve Jobs may have applied the Porter’s Five Forces analysis in coming up with the iPad.

Allen

By Allen Black on 2011/03/16

This is all very valuable. Where my comments come from is how to bridge from the theoretical to the operational. I have been involved in many retreats and strategic planning sessions that developed outstanding scenario planning and SWOT analyses. But only in one case have I seen these turned into a driving vision that propelled the organization towards change with a drive strong enough to overcome staff skepticism, inertia and systemic barriers and which produced the intended outcomes.

I’m asking myself if there are tools we as advisors can offer beleaguered managers, fully occupied in battling the alligators of everyday crises, to support them in turning these analyses and visions into a sustainable change that will persist into the future.

By Ellen Godfrey on 2011/03/16

Yes, Allen, absolutely.  And given that this is the second request I’ve had for the 5 Forces today - I suppose we’d better get on that!  In the meantime, here is a link to someone who can probably explain it a little better than me.

By Geoff Schaadt on 2011/03/16

Ellen, you are, of course, bang on.

Personally, I don’t think there are “tools” that can make that happen.  Only people - real people, doing real leadership - can make sustainable change happen.

These tools help us define the path.  Getting the elephant to follow that path is a completely different matter!

By Geoff Schaadt on 2011/03/16

Thanks for a nice description of the PESTLE analysis.  I think the article could be enhanced if you provide a comparisson to SWOT Analysis and put a visual, something like this: http://ygraph.com/chart/2149

By Michael Denoal on 2012/05/25

Thanks Michael - yep, that’s a great visual to better demonstrate how the PESTLE fits within the external aspects of the SWOT.  I encourage everyone to hit that link to get a better grip on that concept.

By Geoff Schaadt on 2012/05/26

Add a Comment


Notify me of follow-up comments?


About this Article

Posted by Geoff Schaadt
Posted on March 15, 2011
10 Comments

Share |

Categories: leadership, management, strategy