10 Nov 2020

PESTLE analysis
Discover what PESTLE means, and use our PESTLE analysis template and example to
understand the external influences on your organisation

Introduction
A PESTLE analysis is a framework to analyse the key factors (Political, Economic,
Sociological, Technological, Legal and Environmental) influencing an organisation from
the outside. It offers people professionals insight into the external factors impacting their
organisation. The analysis is flexible, so organisations can use it in a range of different
scenarios. People professionals and senior managers can use the results to guide
strategic decision-making.

This factsheet explores the six elements of PESTLE and outlines what PESTLE analysis is
used for, focusing on the scenarios where it’s most valuable. It also provides a PESTLE
analysis example (of the retail sector) as well as a ready-to-use PESTLE analysis template.
The factsheet concludes by providing some PESTLE analysis tips and looking at the
advantages and disadvantages of a PESTLE analysis.

Watch our video on what PESTLE stands for

This short video provides a PESTLE analysis definition and explains how PESTLE analysis
works.

Play Video

For a transcript of this video, please scroll to the end of the page.

What is a PESTLE analysis?

A PESTLE analysis is an audit of six external influences on an organisation:

Political: Tax policy; environmental regulations; trade restrictions and reform;

tariffs; political stability

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 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 those factors, organisations can gain insight into the external influences
which may impact their strategy and business decisions. It allows HR and senior
managers to assess any risks specific to their industry and organisation, and use that
knowledge to inform their decisions.

The term PESTLE has been used regularly in the last decade or so and its true history is
difficult to establish. Various other similar acronyms have been used, including ETPS,
STEP, PEST, and STEEPLE (where the extra E stands for Ethical).

PESTLE is a popular topic in HR, learning and development, organisation development

and marketing courses in the UK as it underpins the importance of considering the
impact of external forces on a range of plans for change. It can also highlight the potential
for additional costs, and prompt further research to be built into future plans.

Carrying out and using a PESTLE analysis is part of the core knowledge on enabling
change in our Profession Map.

How to do a PESTLE analysis

Carrying out a PESTLE analysis should start with thinking through and planning the
process. This means following these steps:

Identify the scope of the research. It should cover present and possible future
scenarios, and apply to areas of the world in which the business operates.
Decide how the information will be collected and by whom. Data gathered is often

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 richer in content when more than one person collects it.
Identify appropriate sources of information. These could be stakeholders looking for
people professionals to address specific issues or current policies that require
updating.
Gather the information – it’s useful to use a template as the basis for recording the
information. Please see our practical, ready-to-use template below.
Analyse the findings.
Identify which of these factors listed above are most important or could cause
issues.
Identify the business specific options to address the issues, as demonstrated in the
example template.
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 which trends to monitor on an ongoing
basis.

To be effective, a PESTLE analysis needs to be done on a regular or ongoing basis.

Organisations that regularly and systematically conduct such analyses often spot trends
before others, thus providing competitive advantage.

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

PESTLE analysis template

(56 KB)

PESTLE analysis example

(61 KB)

PESTLE analysis tips

Some useful tips for carrying out a PESTLE analysis:

Collaborate - an analysis that involves multiple perspectives will deliver a better

outcome.
Use expertise and resources that are already available within the organisation.
Use PESTLE analysis together with other techniques, such as SWOT analysis, Porter's
Five Forces, competitor analysis, or scenario planning.
Incorporate the analysis into an ongoing process for monitoring changes in the

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 business environment.
Try not to get bogged down 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.

What is a PESTLE analysis used for?

A PESTLE analysis is often used as a broad fact-finding activity. It helps an organisation
establish the external factors that could impact decisions made inside the organisation.

An organisation on its own cannot affect these factors – nor can these factors directly
affect the profitability of an organisation. By understanding these external factors, it’s
possible to maximise opportunities and minimise threats to the organisation. Conducting
a strategic analysis means scanning the external environment to detect and understand
broad, long-term trends.

A PESTLE analysis is an appropriate framework and activity to use in a range of business

planning situations. These can encompass:

Strategic business planning

A PESTLE analysis report is a useful document to have available when starting a business
planning process. It provides the senior management team with contextual information
about the direction in which the business is going, brand positioning, growth targets, and
any risks (such as another pandemic) which might bring a decline in productivity. It can
also help determine the validity of existing products and services and define new product
development.

Workforce planning

Workforce planning is a business process that aligns business and people strategies. A
PESTLE analysis can help to identify disruptive changes to business models that may have
a profound impact on the future employment landscape. Organisations are facing huge
changes in their workforce from increased skills gaps, the creation of job roles that did
not exist 10 years ago, and job reductions or displacement. This pace of change will only
increase.

Marketing planning

As with business planning, a PESTLE analysis provides the essential element of ‘climate’ 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.

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Product development

By offering insights on what’s happening externally to an organisation, a PESTLE analysis

can help you decide whether to enter or leave a route to market, determine whether your
product or service still fulfils a need in the marketplace, or when to launch a new product.

Organisational change

A PESTLE analysis can be a powerful activity for understanding the context for change,
and the potential areas of focus to make change successful. In this situation, PESTLE is
most effective when used in association with a SWOT analysis to provide information
about potential opportunities and threats around labour changes; for example, skills
shortages and current workforce capabilities.

People strategies, reports and projects

A PESTLE analysis can also be used as a framework for looking outside the organisation to
hypothesise what may or may not happen in future. It can ensure that basic factors are
not overlooked or ignored when aligning people strategies to the broader organisation
strategy. It can also help in deciding what additional evidence-based research should be
explored.

Advantages and disadvantages of a PESTLE

analysis
Advantages:

It’s a simple framework.

It facilitates an understanding of the wider business environment.
It encourages the development of external and strategic thinking.
It can enable an organisation to anticipate future business threats and take action to
avoid or minimise their impact.
It can enable an organisation to spot business opportunities and exploit them fully.

Disadvantages:

Some PESTLE analysis users oversimplify the amount of data used for decisions – it’s
easy to use insufficient data.
The risk of capturing too much data may lead to ‘paralysis by analysis’.
The data used may be based on assumptions that later prove to be unfounded.
The pace of change makes it increasingly difficult to anticipate developments that

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 may affect an organisation in the future.
To be effective, the process needs to be repeated on a regular basis.

Useful contacts and further reading

Contacts

PEST analysis (Mindtools)

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.

This factsheet was originally written by Mike Morrison FCIPD, Managing Director of
RapidBI, a company specialising in organisational development tools and processes, and
revised by Ally Weeks.

Video transcript
A PESTLE analysis is a management framework and diagnostic tool. The outcome of the
analysis will help you to understand factors external to your organisation which can
impact upon strategy and influence business decisions.

The PESTLE tool: PESTLE is an acronym for:

P = Political

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 E = Economic
S = Social
T = Technology
L = Legal
E = Environmental

Let’s look at each of these factors more closely,

POLITICAL: When looking at Political factors you will need to take into account your
countries government policies and political stability. Other factors will include tax
implications, industry regulations and global trade agreements and restrictions.

ECONOMIC: Economic factors will include exchange rates, economic growth or decline,
globalisation, inflation, interest rates and the cost of living, labour costs and consumer
spending.

SOCIAL: Social factors look at trends such as lifestyle factors, cultural norms and
expectations such as career attitudes and work-life balance. It also concerns itself with
consumer tastes and buying habits as well as population demographics.

TECHNOLOGY: Technology has grown exponentially. How is your business responding to

technological innovation in your products and services? Other technological
advancements will impact on data storage, disruptive technologies such as smartphones,
social networking, automation robotics and the increasing shift towards AI artificial
intelligence?

LEGAL: Shifts in the Legal landscape are constantly changing especially here in the UK.
Employment labour law and employment tribunal decisions impact upon working
practices continuously. It is also important to keep up to date with all changes in
legislation and of course Health and safety regulations.

ENVIRONMENTAL: Does your business have a direct impact on the environment? Political
sanctions now govern carbon emissions and a move towards sustainable resources such
as wind turbines and recycling. This area also covers CSR corporate social responsibility
and ethical sourcing of goods and services which in turn has a direct impact on
procurement and your businesses supply chain management.

Next steps: Once you are clear on the main overarching factors included in a PESTLE
analysis the next challenge is to relate this in real terms into the industry sector you work
in.

Good luck.

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