How to Write PESTLE Analysis

Updated: 02 Sep 2022

Businesses use many tools to enhance their productivity. These include analytical tools that help management determine the direction the company should take going forward with regard to external and internal factors. One of the most popular of these is the PESTLE analysis, in which newer students may have challenges maneuvering.

Please keep reading to find out more about PESTLE Analysis and how to write it properly.

What Is A Pestle Analysis?

PESTLE is an acronym that stands for Political, Economic, Socio-cultural, Technological, Legal, and Environmental. A PESTLE Analysis is a strategic framework utilized by marketers to evaluate the internal and external factors that can affect their growth and help when launching products. The factors considered provide the firm with different angles to consider when performing research.

What Is PESTLE Analysis Used For?

Based on its popularity, we can deduce that the PESTLE analysis offers companies a variety of uses. These are:

1. Provides context on what direction the business is taking. A company may be stagnating in comparison to its competitors or succeeding. Alternatively, the firm may be long overdue for a product relaunch or market change, and a PESTLE analysis will help them achieve this.
2. PESTLE Analysis audits the external environment to assess market trends. Companies do not exist in vacuums, and external factors affect them a lot. As such, a market trend can lead to unforeseen consequences on the firm’s operations.
3. Helps a business make plans. Since a business is multifaceted, it requires planning for staff, marketing, strategy, product development, and proposed changes. Efficiency is key when planning since financial resources are scarce, so decisions should be made with caution.
4. Assist companies in developing products. A company may develop a good product but lack an understanding of the different factors that may affect its success. For one, the market may be unprepared and appropriate infrastructure may be insufficient, e. g the drone business. In such cases, companies perform PESTLE analysis to determine if the risk is worth taking.

How To Write A PESTLE Analysis

1. Form an introduction

A short introduction that introduces the topic of discussion and explains what the PESTLE analysis hopes to achieve as well as the industry it is related to. This allows the reader to proceed with sufficient background information and knowledge of the thesis statement.

2. Brainstorm

Using your business knowledge, assess which external factors are affecting the business. Begin by listing all the factors related to the business, so you need to be aware of current events that may shape the business world. 

3. Conduct research on the implications

PESTLE includes six different categories that help experts draw meaningful conclusions about the data presented. Credible information from recent scholarly articles that post statistical figures and texts that analyze the data. Using this information, you can help the company understand its position and possible direction.

• Political factors

Politics affects companies greatly as it determines taxes, trade regulations, and environmental regulations. It also determines political stability, which affects a company’s ability to continue its activities. Oftentimes, companies have to exit markets if the political situation is too tense, leading to such, politics is a crucial influence on how a business operates.

• Economic factors

These relate to the economy and mostly deal with finance. They include interest rates, employment, economic growth or decline, cost of living, unemployment, and inflation, among others. While it is important to assess these factors, many experts tend to focus overly on them since they are easily quantifiable.

• Socio-cultural

Unlike economic factors, these are complex to quantify since they are more subjective (qualitative). They address social shifts in attitude and culture, such as lifestyle changes, beliefs, and demographic changes. Many affect the way a business interacts with clientele. An example would be the consumer preference shifting from soda to healthier options such as water.

• Technological

Technology has changed the business world. However, more changes are coming owing to the law of accelerating returns which states that since each technology is an improvement compared to the last hence production and progress speed up over time. The tools used in the past can build better tools faster as well. These factors are automation, cyber security, and robotics.

Due to these rapid changes, companies need to keep looking into the best technology that can advance their reach and lower operating costs. Examples include the spread of mobile phones, which allowed for online shopping.

• Legal

The government may decide to enact changes to existing legislation, thereby affecting the country as a whole. They include changes to laws that affect licensing laws, employee and consumer protection, intellectual property, quotas, and resources. 

Regulations can be a headwind or a tailwind for companies. A tailwind refers to legislation that grows or protects the firm, such as heavy regulations that limit the entry of new firms, while a headwind is a legislation that poses challenges, such as increased requirements to remain registered.

• Environmental

Everything depends on the resources provided by the environment. Companies also benefit from these resources in the form of minerals and water. Even if the company is not directly related to the environment, it can suffer the consequences of climate change through rising costs for utilities and pollution that affects employee health, in addition to a bad image.

4. Rate their impact and likelihood

Some companies benefit from performing predictive analysis where they anticipate potential challenges they may face. For this reason, some PESTLE factors have not yet come to fruition, such as legislation that may be passed as a law. As such, it is prudent for the firm to assess its likelihood and impact. 

A law that changes how businesses operate, such as increased corporate taxation, may impact the business greatly, while if the changes are not welcome by the general public and a majority of legislators, they may have a low likelihood of occurring. 

For this reason, each factor requires a rating to help provide clarity on what the firm should prioritize.

5. Develop your analysis further

A business is fueled by information, and having different perspectives to help the firm cover any disadvantages it faces can help them perform better. There are several analytical methods used, all of which perform a different use.

Some are complementary, such as the SWOT and PESTLE analysis. While a SWOT analysis helps a business identify its strengths, weaknesses, opportunities, and threats, a PESTLE analysis provides a rigorous view of the business’s external environment. 

As such, you can use your PESTLE analysis takeaways to form solutions that can help mitigate any potential challenges. This is because the SWOT analysis highlights the various strengths and opportunities the firm has while cautioning on the current threats and weaknesses it faces.

Advantages and Disadvantages Of A PESTLE Analysis

Advantages Of A PESTLE Analysis

1. Allow companies to prepare for difficult circumstances. Once the firm identifies potential challenges, it can plan accordingly.
2. Empowers companies to assess and utilize opportunities that occur. For example, a tailwind can allow them to expand their market, leading to increased productivity.
3. Helps companies and staff develop strategic frameworks and thinking. Once companies introduce staff to this form of planning, they can formulate better strategies in the long run.
4. It is relatively simple to use compared to more complex and technical analytical tools. PESTLE analysis does not require extensive data analytics and financial models, so it is simpler to use.
5. Assists the company in gaining an understanding of its external environment and factors that may affect it in the long and short term.

Disadvantages Of A PESTLE Analysis

1. Lack of data prioritization leads to a situation of analysis paralysis where the firm cannot make a firm decision as it is considering data from too many sources. This leads to lower productivity, delays, and inefficiency as the company does not make any steps. As such, the firm should focus on relevant information.
2. Others use insufficient data, thus risking poor decision-making. The process of formulating a PESTLE analysis is complex, and oversimplification will lead to poor results. 
3. Sometimes, there is inaccurate data used that is based on incorrect assumptions. If the firm depends on such sources, it can lead to poor decision-making. As such, room for contingency situations is necessary, and resources should be used sparingly.
4. Some external environment changes occur rapidly. This leaves the firm with little time to no time to properly perform a PESTLE analysis. An example is rapid political changes that leave the company with no time to adjust.
5. Firms need to invest in carrying out PESTLE analysis repeatedly. This is because the firm exists in a dynamic environment. Even if there are no political changes currently occurring, there may be socio-cultural or environmental changes that affect its performance.

Conclusion

In summary, a PESTLE analysis is crucial for a company seeking to understand how external factors can affect its operations in the future. Using this analytical tool, the firm can understand its brand position, performance targets, risks, opportunities, and threats it faces. This is essential to forming a good business strategy that also aids in reducing the wastage of time and other resources. 

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