PESTLE ANALYSIS

What is the full form of PESTLE?

PESTLE is an acronym for:

·P- political

·E- economic

·S- socio-cultural

·T- technological

·L- legal

·E- environmental

These are the external environmental factors of an entity and PESTLE is a tool to analyse these external environment.

What is macro environment? And why is there the need for PESTLE?

Before understanding PESTLE, we have to know what Macro environment is.

Macro environment is the external environment of the entity. And it is way beyond its control. The environment is vast, dynamic and unpredictable. It consists of factors such as Political, Legal, Socio-cultural factors which are stable one moment and extreme the other, and technological and environmental factors which are changing and improving day by day.

The entity should carefully understand and evaluate this environment to find out trends and predict the future environment. Not only that, entity can recognize the opportunities beforehand and capitalize on it and identify the threats and improve on them. And a tool for making this kind of analysis is PESTLE.

What is PESTLE?

PESTLE is an extension of PEST analysis.

PESTLE is a tool which helps us analyse the macro environment. The macro environment of an entity is vast, dynamic and unpredictable. It involves various factors, and each of these factors have to be individually studied to understand the macro environment. And PESTLE helps managers make this analysis.

The term PESTLE is used to describe a framework for analysis of  macro environmental factors.

PESTLE analysis involves identifying the political, economic, socio-cultural, technological, legal and environmental influences on an organization and providing a way of scanning the environmental influences that have affected or are likely to affect an organization or its policy. ‘PESTLE analysis is an increasingly used and recognized term, replacing the traditional framework for monitoring environment known as PEST analysis.

The PESTLE analysis is a simple to understand and quick to implement. The advantage of this tool is that it encourages management into proactive and structured thinking in its decision making.

What are the Key Factors that are considered in The PESTLE analysis?

Let's break down PESTLE individually and see what these are all about.

Political factors are how and to what extent a government intervenes in the economy and the activities of corporate. Political factors may also include goods and services which the government wants to provide or be provided and those that the government does not want to be provided. Furthermore, governments have great influence on the health, education and infrastructure of a nation.

Economic factors have major impacts on how businesses operate and take decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy. The money supply, inflation, credit flow, per capita income, growth rates have a bearing on the business decisions.

Social factors affect the demand for a company's products and how that company operates.

Technological factors can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.

Legal factors affect how a company operates, its costs, and the demand for  its  products.

Environmental factors affect industries such as tourism, farming, and insurance. Growing awareness to climate change is affecting how companies operate and the products they offer--it is both creating new markets and diminishing or destroying existing ones.

On the basis of these, it should be possible to identify a number of key environmental influences, which are in effect, the drivers of change. These are the factors that require to be considered in the matrix.

Once the analysis is complete, we can see various trends both past and future, which will not only help us cope with the future environment but also provides various opportunities that will be fruitful to the entity and the threats on which the entity can work on.

This is the PESTLE analysis, if you have any queries, please feel free to comment.

Thank You!