PESTLE analysis

It is a broad fact-finding activity around the external factors that could affect an organisation’s decisions, helping it to maximise opportunities and minimise threats. It audits six external influences on an organisation: 

• Political: Tax policy; environmental regulations; trade restrictions and reform, tariffs, political stability.
  
  
• Economic: Economic growth/decline; interest, exchange, inflation and wage rates; minimum wage; working hours; unemployment (local and national); credit availability, cost of living.
  
  
• Sociological: Cultural norms and expectations; health consciousness; population growth rates; age distribution; career attitudes; health and safety.
  
  
• Technological: New technologies are continually emerging (for example, in the fields of robotics and artificial intelligence), and the rate of change itself is increasing. How will this affect the organisation’s products or services?
  
  
• Legal: Changes to legislation impacting employment, access to materials, quotas, resources, imports/exports, and taxation.
  
  
• Environmental: Global warming and the increased need to switch to sustainable resources; ethical sourcing (both locally and nationally), including supply chain intelligence.  Pandemics and other emergencies.

By analysing these factors, organisations can assess any risks specific to their industry and organisation, and make informed decisions.  It can also highlight the potential for additional costs, and prompt further research to be built into future plans. 

PESTLE analysis is part of the core knowledge on enabling change and the core behaviour commercial drive in the CIPD Profession Map.

Follow these steps:

• Identify the scope of the research. It should cover present and possible future scenarios, and apply to the industry and areas of the world in which the business operates. 
• Decide how the information will be collected and by whom. Identify more than one person to gather data to bring diverse evidence and perspectives.
• Identify appropriate sources of information. You may find some areas of PESTLE are a bigger focus to your industry than others but exploring information for all of them will give you a wider view of the external environment.
• Gather the information – you can use the template below. 
• Analyse the findings. 
• Mark each item in terms of importance in relation to potential risk to the organisation. 
• Identify the business options to address the issues.
• Write a discussion document for all stakeholders. 
• Disseminate and discuss the findings with stakeholders and decision makers. 
• Decide what actions need to be taken, and trends to be monitored. 

To be effective, a PESTLE analysis needs to be done regularly. Doing so can help organisations to spot trends early, and provide a competitive advantage.

You can download a PESTLE analysis template below. We’ve also created an example based on a fictitious retail sector organisation which shows how PESTLE factors have been analysed and interpreted.

Some useful tips for carrying out a PESTLE analysis:

• Collaborate - multiple perspectives can identify more risk.
• Use expertise and resources within the organisation.
• Use PESTLE analysis alongside other techniques, such as SWOT analysis, Porter's Five Forces, competitor analysis, or scenario planning. 
• Incorporate a PESTLE analysis into an ongoing process for monitoring changes in the business environment.
• Avoid collecting vast amounts of detailed information without analysing and understanding your findings appropriately.
• Don’t jump to conclusions about the future based on the past or present.

By auditing the external environment, a PESTLE analysis can detect and understand broad, long-term trends. This can support a range of business planning situations, such as:

Strategic business planning

It provides contextual information about the business direction, its brand positioning, growth targets, and risks (such as another pandemic) to productivity. It can help determine the validity of existing products and services and define new product development.

Workforce planning

It helps to identify disruptive changes to business models that may profoundly affect the future employment landscape. It can identify skills gaps, new job roles, job reductions or displacements.

Marketing planning

It provides the ‘climate’ element in the situation analysis phase of the marketing planning process. It can help prioritise business activities to accomplish specific marketing objectives within a set timeframe.

Product development

By monitoring external activity, it can help inform whether to enter or leave a route to market, determine if a product or service still fulfils a need in the marketplace, or when to launch a new product.

Organisational change

It helps recognise the context for change, and is most effective when used in association with a SWOT analysis to understand opportunities and threats around labour changes, such as skills shortages or current workforce capabilities. 

People strategies, reports and projects

It can be used as a framework to look outside the organisation to hypothesise what may happen in future and what should be further explored. It can ensure that some basic factors are not overlooked or ignored when aligning people strategies to the broader organisation strategy.

Books and reports

Morrison, M. (2013) Strategic business diagnostic tools: theory and practice. CreateSpace Independent Publishing. (Chapter 3: PESTLE).

Turner, S. (2002) Tools for success: a manager’s guide. London: McGraw Hill.

Journal articles

Dobbs, M.E. (2014) Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review. Vol 24, No 1, pp32-45.

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.