PESTLE Analysis (Strategic Management): Examples, Template

PESTLE (PESTEL or PEST) analysis, also at times referred to as PEST analysis, is a concept in marketing principles. It’s used as a tool by companies to track the environment they’re operating in, or before they are planning to launch a new project/product/service etc.

Introduction

Environmental influences can be thought of as layers around an organisation, with the outer layer making up the macro-environment, which can be analysed in terms of the PESTEL factors. A PESTEL analysis helps identify key drivers of change, which need to addressed in strategy; alternative scenarios can be constructed around key drivers.

PESTLE is a mnemonic which in its expanded form denotes P for Political, E for Economic, S for Social, T for Technological, L for Legal and E for Environmental. It provides a top view of the whole environment so that you can effectively brainstorm a certain idea/plan.

Francis Aguilar is the man behind this tool. The framework has undergone several iterations and factors like Legal and Environmental were added later to form the term PESTLE Analysis.

It is a framework or tool used by marketers to analyse and monitor the macro-environmental (external marketing environment) factors that have an impact on an organisation, the result of which is used to identify threats and weaknesses which is then used in a SWOT analysis.

The various factors, mentioned in the PESTLE analysis, may affect different industries differently. For example, economic factors are more important to companies that belong to the Banking sector, whereas companies in the tourism sector will care more for the Environmental factors.

PESTLE Explained

PESTEL analysis highlights six environmental factors in particular: political, economic, social, technological, ecological and legal. 

Organisations need to consider:

• The market environment (e.g. suppliers, customers and competitors).
• The non-market environment (e.g. NGOs, Government, media and campaign groups).

PESTEL helps to provide a list of potentially important issues influencing strategy. It is important to assess the impact of each factor.

Political: Takes into account the political situation

Political factors include:

• The role of the state e.g. as an owner, customer or supplier of businesses.
• Government policies.
• Taxation changes.
• Foreign trade regulations.
• Political risk in foreign markets.
• Changes in trade blocks (e.g. BREXIT).
• Exposure to civil society organisations (e.g. lobbyists, campaign groups, social media).

Political risk analysis is the analysis of threats and opportunities arising from potential political change.

Economy: Takes into account how is the economy doing

Economic factors include: Business cycles. Interest rates. Personal disposable income. Exchange rates. Unemployment rates. Differential growth rates around the world.

Economic cycles – economic growth rates have an underlying tendency to rise and fall in regular cycles. Certain industries are particularly vulnerable to economic cycles, such as Discretionary spend industries (e.g. housing, cars), High fixed cost industries (e.g. airlines, hotels).

Social: Takes into account the social fabric of the market. Important events, festivals, shopping habits, other social/cultural factors.

Social factors include:

• Changing cultures and demographics (e.g. ageing population in Western societies).
• Income distribution.
• Lifestyle changes.
• Consumerism.
• Changes in culture and fashion.
• Social networks within an organisational field (e.g. with regulators, campaign groups, trade unions).

Technology: How various Technological innovations can impact a business.

Technological factors include New discoveries and technology developments. Examples include developments on the internet, nano-technology or the rise of new composite materials. Various indicators of innovative activity include: Research and development budgets. New product announcements. Patenting activity. Media coverage.

Legislations: Take into account various law-related factors that could impact the business – consumer laws, safety standards, labour laws etc.

Legal factors include Labour, environmental and consumer regulations. Taxation and reporting requirements. Rules on ownership. Competition regulations. Regulation of corporate governance.

Environment: Companies today want to be seen as a responsible company. Factors include but are not limited to climate, weather, global changes in climate, etc.

Ecological factors: This refers to ‘green’ or environmental issues, such as pollution, waste and climate change. Examples are environmental protection regulations, energy problems, global warming, waste disposal and recycling.

Various ecological challenges that organisations may need to meet:

• Direct pollution obligations– minimising the production of pollutants; cleaning up and disposing of waste.
• Sustainable development – whether the product or service can be produced indefinitely into the future.
• Managing ecological issues throughout the organisation’s entire value chain and the whole life cycle of the firm’s products.

PESTLE analysis helps businesses assess the external environmental factors and see how it affects the business (positively or negatively). Some of these factors may boost the fortunes of the company, and some may cause a decline in the company’s sales. Irrespective, being aware of these factors is a necessity for all businesses out there as it helps in decision making and strategic planning. While it’s difficult to totally avoid the impact of external forces, companies can minimize the impact of such factors if they know about it beforehand.

PESTLE Analysis: Examples / Case  Studies

PESTLE Analysis of Patanjali Ayurved

• Political:
  Baba Ramdev’s association with political parties
• Economical:
  Positive macro-economic scenario. Government favoring ‘Make in India’ initiatives. Government initiatives to boost spending
• Social:
  Middle class growing financially stronger
  Patanjali riding on popularity of yoga and Baba Ramdev
  Seen as a patriotic brand (nationalist sentiments)
• Technological:
  Technology initiatives for distribution efficiency
  Mobility and e-commerce initiatives
  Strategic alliance with DRDO
• Legal:
  Has been penalized for misbranding of products
• Environmental:
  Investment in Bio-Research
  Environmental friendly products including detergent powders

Academic Questions on PESTLE Analysis

[MBA Case Study]: PESTLE analysis (Strategic Management)

Q. Undertake an environmental analysis using PESTEL, by surfing the Internet for appropriate information and by using available market research reports, for one of the following markets / industries.

• a. The automotive market (e.g., You might be BMW, Ford, Toyota, Volvo);
• b. The global multiple retail grocery market (e.g., You might be Walmart, Carrefour, Tesco, Wholefoods);
• c. The beer industry (you might be InBev, Carlsberg, Heinken, Miller brands or Budwiser);

Q. Délifrance is a bakery company that produces “French style” bakery, savoury and snacking products that wishes to enter India’s Retail market. Conduct a PESTLE analysis for Délifrance in India & suggest whether Délifrance should enter India or otherwise.

Q) Carrefour is a French Retail Giant wanting to enter into India’s multi-brand retail industry. Perform a PESTLE analysis for Carrefour’s entry strategy into India. (10 Marks)

Q) One of IKEA’s key competitors ASDA wants to enter into India into the furniture product category. Conduct a PESTLE analysis for ASDA in India & suggest whether ASDA should enter India or otherwise.

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