PESTLE Analysis – also referenced as PESTEL, PEST, and a number of other variants – is a framework or evaluating macro context factors as part of strategy development. PESTLE is an acronym for Political, Economic, Social, Technological, Legal, and Environmental. The PESTLE analysis framework is becoming increasingly popular and relevant with the rise of environmental concerns, the blurring of international borders, increasingly active monetary policy, and many more developments.
PESTLE Analysis Basics
There following are short descriptions of each of the PESTLE components, and some primary factors you might want to consider. Note that the components are not entirely discrete as there is some natural overlap among them.
P = Political
Political factors relate to the role a government plays in the economy or particular industry. It could be government at any level: local state, provincial, territorial, or national. Some primary political factors you might consider include: stability, tax policies, regulation, human rights, elections, spending, and trade.
E = Economic
Economic factors relate to anything effecting the economy’s performance. These factors can affect the demand/supply relationships, thus affecting pricing decisions, purchasing, supply chain, and overall economic development. Some primary economic factors you might consider include: interest rates, inflation, GDP growth, currency valuation, credit availability, and labor markets.
S = Social
Social factors refer to demographic characteristics, norms, customs and values of the general population. Such factors are especially important for marketing and employment concerns. Some primary social factors you might consider include: population, marriages/divorces, life expectancy, immigration/emigration, age distribution, wealth distribution, family size/structure, lifestyles, roles, crime, attitudes, and education.
T = Technology
Technology factors include innovations in technology that may affect advances in efficiency in all facets of the workplace, workforce preparedness, marketing and sales, and general ease of communications within the society. Some primary technology factors you might consider include: automation, research and development, access to new technology, supporting educational resources, web infrastructure, and technology awareness.
L = Legal
Legal factors include specific laws related to how citizens can interact, the rights citizens have with businesses and the government, how local government relates to national government, and how the legal system is structured. Some primary technology factors you might consider include: discrimination, antitrust, employment laws, consumer protection, copyrights/patents, education, data protection, and health and safety.
E = Environmental
Environmental factors include geography, water resources, natural resources, climate and weather patterns, agriculture, transportation, insurance, and attitudes and organization toward environmental issues. These factors overlap others above quite a bit. Some primary environmental factors you might consider include: weather, climate, environmental policies, natural disasters, pollution, recycling, and energy usage.
PESTLE Analysis and Other Strategy Frameworks
As such, PESTLE analysis is often performed in conjunction with other popular frameworks that focus more on the internal and external factors at work, such as:
The thing to recognize about PESTLE analysis is that it does not stand alone as a strategic framework, but rather is complementary to other frameworks.
These are considered to be PESTLE components are considered to be ‘macro’ factors in a strategic analysis – outside the range of external and internal factors that are normally core to a strategic plan.
External analysis by contrast includes such things as competition, where internal analysis includes things like strengths, assets, and weaknesses.
PESTLE Analysis Example
For an example, I am going to look at the case of a drone service company that is initiating an experimental project to look at the viability of a food delivery service from local restaurants. Below are the highlighted factors in the sample group of primary PESTLE factors to consider.
Here are the details on the relevant factors:
P = Political
- Stability – A stable political environment is necessary for such an undertaking.
- Regulation – A favorable regulatory environment, especially as relates to drone delivery, would be necessary.
E = Economic
- Currency valuation – If the company is not local, it would be important that currency valuations in the target locale would be favorable to profit from the venture.
- Labor markets – Assuming there will be some need for local labor, it is important that it will be practical to recruit workers with adequate skills and attitudes.
S = Social
- Attitudes – Local consumers need to be open-minded to this type of delivery possibility.
- Education – Consumers need to be reasonably educated to feel comfortable with the technology.
- Wealth distribution – Such a service will require upper income levels for consumers to justify the delivery expenditures.
- Lifestyles – Consumer lifestyles should already include eating out and consuming takeout by other methods.
- Population – There need to be significant population centers to support such a delivery service.
T = Technology
- Technology awareness – Being aware is a precursor to being open to the possibility.
- Automation – Also related to attitude and open-mindedness, automating this delivery process should be appealing to consumers.
- Web infrastructure – Communication should be enhanced with a well-developed infrastructure for this to work.
L = Legal
- Copyrights/patents – Legal protection should be in place in order to protect intellectual property related to the service and technology.
- Data protection – Technology controls will be in place, but it is important that the legal environment is set up to protect that information as well.
- Health and safety – Controls should be in place to ensure health and safety in drone operation, but there is some level of risk. What is the level of exposure and legal remedy in case something goes awry?
E = Environment
- Weather – Is the weather typically amenable to such a service year-round in the locale?
- Climate – Similarly, is the climate supportive of this venture?
As noted previously, there are numerous overlaps among the PESTLE components and factors, but the overall process is revealing inters of the macro factors that could affect the venture, and what risks need to be managed or accepted. The factors above are the priority factors of interest where more in depth review is warranted.
PESTLE Analysis in Project Management
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Your projects consistent of many contextual factors which are important to consider. Many of them will translate to risks. Performing a PESTLE analysis in project management is a good idea, as it helps you to identify those factors that will preset macro level risks.
If there is a PESTLE analysis or something similar at the organizational level, that makes it easy. You can simply borrow from it and highlight the factors that are significant within the project context. Once you have identified them, you can consider which you should move to the risk register for further consideration.
Using PESTLE analysis in project management does not ensure strategic alignment. However, it does help to identify which macro environment issues might affect the project, and enables you to build a risk management plan around those issues.
PESTLE analysis is a relatively basic concept, but can be a lot of research work. It is most important to identify the primary PESTLE factors that require further research and analysis. Dig as deep as you need to answer the questions relevant your situation. Particularly when using PESTLE analysis in project management, it is important to lean on analysis already done within your organization, and to consider only those factors that are clearly relevant to your project. If you do that, you will be in a good position to manage or accept any macro risks to the project.
I recommend these strategy resources (paid link):