Are you wondering what a PESTLE Analysis is and why’s it so important?

A PESTLE Analysis is a simple analysis tool that allows a company to understand the environment and industry in which it is operating. It is an analysis of the Political, Economic, Social, Technological, Legal and Environmental factors of the company’s environment/industry.

The environment of an organisation includes factors that it can easily influence as well as factors that are largely beyond its control. The latter group of factors is said to exist in the general environment. Because the general environment frequently has a significant impact on an organization's level of success, PESTLE analysis helps executives monitor trends and events as they evolve and attempt to anticipate the implications of these trends and events on the organization.

Political:
• Political factor focuses on the role of the government in shaping the future of the company/industry.
• Governments typically wield a great deal of power over businesses, and there is often little that businesses can do about it. These factors can add a great amount of risk for the businesses to operate smoothly.
• Political factors are the least predictable element of the PESTLE analysis. And so, businesses must monitor these changes as governments see business organisations as an important vehicle for social change.
• Examples of ‘Political’ can be tax policies, tariffs, trade restrictions, political stability, emerging wars, reforms, regulation changes, laws, etc.

Economic:
• Economic factor comprises all the economic activities surrounding the environment in which the businesses/industry operates.
• Businesses are heavily influenced by the economic climate. The economy decides the consumer’s ability to spend and consumer spending has an impact on prices, investment decisions, and the number of workers employed by businesses.
• Economic factor analysis especially aids in financial decision-making for a business.
• Examples of ‘Economic’ can be changes in the level of consumer income, interest rates, foreign currency exchange rate, impact of a pandemic on the economy, supply chain, inflation rates, GDP of the country, unemployment levels, general growth or decline of the economy.

Social:
• A business' social environment consists of everything a society believes, customs, practises, and how it behaves. It is, for the most part, an artificial construct that stands in stark contrast to the natural environment in which we live.
• They refer to changes or evolutions in how stakeholders approach life and leisure, which will in turn have an impact on commercial activity.
• Businesses will be able to succeed or fail based on how effectively they can analyse the social trends and incorporate them into their products or service offerings.
• Examples of ‘Social’ can be changes in consumer preferences, trends in demographics (population, age, ethnic mix, etc.), cultural trends such as attitudes toward obesity and consumer activism, etc.

Technological:
• Technological factors are variables used to evaluate available alternatives in terms of technological capabilities. Organizations regard it as a critical tool for improving operations and functions.
• Early adopters of new technology frequently gain a larger market share and higher returns. As a result, businesses must monitor these trends and changes.
• Identifying and analysing a technological trend can enable businesses to not only reduce their operational costs but also stay relevant for their customers in the long run.
• Examples of ‘technological’ can be advancement in Artificial intelligence, machine learning, automation, telematics, digitalisation, internet connectivity, Industry 4.0, etc.

Legal:
• Legal factors in the business environment are defined as legal issues and proceedings that a company must consider to run the business smoothly.
• In every country, the government creates legal systems to regulate the country's business ecosystem based on its specific goals and priorities. Regulations may also be used by the government to limit business activities. Thus, companies need to analyse these regulations to stay in the market.
• Examples of ‘Legal’ can be various legislations enacted, amended or repealed by the government (such as anti-trust law, GDPR, environment protection laws, anti-corruption laws, intellectual property rights), decisions issued by various commissions and agencies of the central, state or local government as well as judicial activities, administrative orders proclaimed by government authorities, involvement in lawsuits, etc.

Environmental:
• Environmental factors refer to the physical conditions in which the business/industry operates.
• Identifying environmental trends enables companies to understand how they need to conduct business sustainably as there is a great rise in the importance of CSR.
• Ignoring environmental issues is akin to going down a road that leads to unsuccessful marketing and lost revenue, which can harm the health of the business brand.
• Examples of ‘Environmental’ can be trends related to climate change, sustainability, pollution, natural disasters, GHG emissions, CO2 emissions, water and waste management, recycling, plastic pollution, etc.

A PESTEL analysis assists an organisation in identifying external forces that may impact their market and analysing how these forces may directly impact their business. When conducting such an analysis, the factors affecting the organisation must be not only identified but also assessed - for example, what impact might they have on the organisation?