Tools for Managers: The PESTLE Analysis
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?
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’.
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
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.
Other aspects for economic awareness:
- economic growth
- interest rates
- currency valuations
- credit availability
- employment rates
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:
- skilled labour
- health care
- attitudes toward work
- quality of life
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
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
- resource acquisition
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
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.