A PESTLE analysis helps provide an objective look and the information you and your leadership need to make informed decisions about your business. It offers valuable insights into your company and its position in the world.
This strategic tool studies six key external factors (Political, Economic, Sociological, Technological, Legal and Environmental) that influence a company. It provides a comprehensive overview of these external factors to help a company better understand its trajectory, strategic brand positioning, business growth objectives, and productivity risks.
Why Use a PESTLE analysis
It can be used to evaluate the direction your company wants to move in relation to influencing external factors. For example, your company might use a specific part that you source from a manufacturer in another country. If there is concern about the manufacturer experiencing sanctions or tariffs from your government, this would be a political concern that would be evaluated during a PESTLE analysis. The analysis can be used to evaluate how the loss of the manufacturer would impact your business’s productivity and brand.
A PESTLE analysis can also be used for starting a business, launching a product, or project. The analysis will help you consider your strategic brand position, market position, and needs, and the research will dig deeper into external megatrends. For example, consider the economic environment that your business operates in. Inflation rates, shifts in consumer spending, supply chain issues, demand curves, and global economic health might be a part of your economic analysis.
These are only a couple of examples of how PESTLE scrutinizes the six external factors. Scrutinizing these areas allows you to quickly adapt to changes, identify emerging trends, and navigate regulatory landscapes, thus ensuring resilience and adaptability in a dynamic market. Having a good understanding of the six external factors is crucial for a strong strategic plan built on decisions using evidence, not hunches or feelings.
The Advantages and Disadvantages of PESTLE
PESTLE can be a great strategic tool for your business, but it is important to understand its advantages and disadvantages. The main reason for performing a PESTLE analysis is that it helps guide strategic business decisions, especially in terms of preparing your business for external shifts. It is primarily used for market research, helping you to identify potential opportunities and threats to proactively plan your strategies and mitigate risks accordingly.
PESTLE excels at discerning the potential effects of external factors on business operations. Since it identifies the trends and changes in the macro-environment, it can be particularly useful in helping you understand the factors that might impact a new business or industry.
One of the main disadvantages of the PESTLE analysis is that it is data-driven, and too little data can oversimplify a decision, while too much can overwhelm a decision. In addition, the six external factors it evaluates are constantly changing. Therefore, it is challenging to keep up, and the information may quickly become outdated. So, using a PESTLE analysis completed six months ago to make decisions about a new desire or problem will be ineffective.
SWOT vs PESTLE
While PESTLE is a great tool to start with, many businesses will eventually change to the more versatile SWOT analysis, which is a popular strategic tool that is used to evaluate Strengths, Weaknesses, Opportunities, and Threats.
Whereas a PESTLE analysis only focuses on the broader, external factors, a SWOT analysis is more focused on the internal factors that are within the control of the business, along with external factors.
SWOT is more adept at pinpointing a company’s current market standing. This is not to say that it is not worth doing a PESTLE analysis, because it can be very beneficial.
Both PESTLE and SWOT frameworks take time and research to fully analyze the situation. Therefore, understanding whether a PESTLE or SWOT analysis is better for the current circumstances of your business is essential.
If you are interested in performing a PESTLE or SWOT analysis for your business, Impact Branding Consulting can help you decide the best method for your current needs and complete the research needed. Contact us to get started.