Pest and Pestle

home business/selling pest market analysis tool
pest market analysis tool

PEST analysis method and examples, with free PEST
template
The PEST analysis is a useful tool for understanding market growth or decline, and as such the
position, potential and direction for a business. A PEST analysis is a business measurement tool.
PEST is an acronym for Political, Economic, Social and Technological factors, which are used to
assess the market for a business or organizational unit. The PEST analysis headings are a
framework for reviewing a situation, and can also, like SWOT analysis, and Porter's Five Forces
model, be used to review a strategy or position, direction of a company, a marketing
proposition, or idea. Completing a PEST analysis is very simple, and is a good subject for
workshop sessions. PEST analysis also works well in brainstorming meetings. Use PEST analysis
for business and strategic planning, marketing planning, business and product development and
research reports. You can also use PEST analysis exercises for team building games. PEST
analysis is similar to SWOT analysis - it's simple, quick, and uses four key perspectives. As PEST
factors are essentially external, completing a PEST analysis is helpful prior to completing a
SWOT analysis (a SWOT analysis - Strengths, Weaknesses, Opportunities, Threats - is based
broadly on half internal and half external factors).
pest variations
The PEST model, like most very good simple concepts, has prompted several variations on the
theme. For example, the PEST acronym is sometimes shown as STEP, which obviously
represents the same factors. Stick with PEST - nearly everyone else does.
More confusingly (and some would say unnecessarily) PEST is also extended to seven or even
more factors, by adding Ecological (or Environmental), Legislative (or Legal), and Industry
Analysis, which produces the PESTELI model. Other variations on the theme include STEEP and
PESTLE, which allow for a dedicated Ethical section. STEEPLED is another interpretation which
includes pretty well everything except the kitchen sink: Political, Economic, Social and
Technological - plus Ecological or Environmental, Ethical, Demographic and Legal.
It's a matter of personal choice, but for most situations the original PEST analysis model
arguably covers all of the 'additional' factors within the original four main sections. For example
free PEST market analysis template and method, free pest market a... http://www.businessballs.com/pestanalysisfreetemplate.htm
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Ecological or Environmental factors can be positioned under any or all of the four main PEST
headings, depending on their effect. Legislative factors would normally be covered under the
Political heading since they will generally be politically motivated. Demographics usually are an
aspect of the larger Social issue. Industry Analysis is effectively covered under the Economic
heading. Ethical considerations would typically be included in the Social and/or Political areas,
depending on the perspective and the effect. Thus we can often see these 'additional' factors as
'sub-items' or perspectives within the four main sections.
Keeping to four fundamental perspectives also imposes a discipline of considering strategic
context and effect. Many potential 'additional' factors (ethical, legislative, environmental for
example) will commonly be contributory causes which act on one or some of the main four
headings, rather than be big strategic factors in their own right.
The shape and simplicity of a four-part model is also somehow more strategically appealing and
easier to manipulate and convey.
Ultimately you must use what version works best for you, and importantly for others who need
to understand you, which is another good reason perhaps for sticking with PEST, because
everyone knows it, and you'll not need to spend half the presentation explaining the meaning of
STEEPLED or some other quirky interpretation.
If you have come across any other weird and wonderful extended interpretations of PEST I'd
love to see them.

pest or swot
A PEST analysis most commonly measures a market; a SWOT analysis measures a
business unit, a proposition or idea.
Generally speaking a SWOT analysis measures a business unit or proposition, whereas a PEST
analysis measures the market potential and situation, particularly indicating growth or decline,
and thereby market attractiveness, business potential, and suitability of access - market
potential and 'fit' in other words. PEST analysis uses four perspectives, which give a logical
structure, in this case organized by the PEST format, that helps understanding, presentation,
discussion and decision-making. The four dimensions are an extension of a basic two heading
list of pro's and con's (free pro's and con's template here).
PEST analysis can be used for marketing and business development assessment and decision-
making, and the PEST template encourages proactive thinking, rather than relying on habitual
or instinctive reactions.
Here the PEST analysis template is presented as a grid, comprising four sections, one for each
of the PEST headings: Political, Economic, Social and Technological.
As previously explained, extended variations of PEST (eg., PESTELI and STEEP, etc) include
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other factors, such as Environmental, Ethical, Legal or Legislative, etc., however in most
situations you will find that these 'additional' factors are actually contributory causes or detailed
perspectives which then manifest or take effect in the form or one or several of the original four
main PEST factors. For example, Ethical and Environmental factors will always tend to produce
an effect in at least one of the main four headings (Political, Economic, Social, Technological),
but it will tend not to work the other way. Hence why the basic PEST model is often the most
powerful - it puts more pressure on strategic appreciation and analysis than a longer list of
headings. When you next see a PESTELI or a STEEPLED analysis ask yourself (or the author):
"Okay, I understand that customers tend to be more ethically minded now, but what does that
mean in terms of the basic four PEST factors - what's the effect going to be?..." or: "Okay we
know that carbon emissions is an issue, but tell me where in the main four PEST factors will it
impact..?
You will gather I am not a fan nor a particular advocate of extending the PEST model. It works
great as it is - why make it more complicated and less specific? If you are worried about
missing or forgetting a crucial point of ethics or legislation (or anything else) keep a reference
list of these headings, and only build them into the model if you are sure that doing so will
make it work better as a strategic tool.
The free PEST template below includes sample questions or prompts, whose answers are can
be inserted into the relevant section of the PEST grid. The questions are examples of discussion
points, and obviously can be altered depending on the subject of the PEST analysis, and how
you want to use it. Make up your own PEST questions and prompts to suit the issue being
analysed and the situation (ie., the people doing the work and the expectations of them). Like
SWOT analysis, it is important to clearly identify the subject of a PEST analysis, because a PEST
analysis is four-way perspective in relation to a particular business unit or proposition - if you
blur the focus you will produce a blurred picture - so be clear about the market that you use
PEST to analyse.
A market is defined by what is addressing it, be it a product, company, brand, business unit,
proposition, idea, etc, so be clear about how you define the market being analysed, particularly
if you use PEST analysis in workshops, team exercises or as a delegated task. The PEST subject
should be a clear definition of the market being addressed, which might be from any of the
following standpoints:
a company looking at its market
a product looking at its market
a brand in relation to its market
a local business unit
a strategic option, such as entering a new market or launching a new product
a potential acquisition
a potential partnership
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an investment opportunity
Be sure to describe the subject for the PEST analysis clearly so that people contributing to the
analysis, and those seeing the finished PEST analysis, properly understand the purpose of the
PEST assessment and implications.

PEST analysis template
Other than the four main headings, the questions and issues in the template below are
examples and not exhaustive - add your own and amend these prompts to suit your situation,
the experience and skill level of whoever is completing the analysis, and what you aim to
produce from the analysis.
Ensure you consider the additional PESTELI/STEEPLED headings, and any others you feel are
relevant, but avoid building these into the final analysis model unless you gain some strategic
planning or presentation benefit from doing so.
If helpful refer to a list of these other 'headings', for example: Ecological/ Environmental,
Legislative/or Legal, Demographic, Ethical, Industry Analysis. Apply some strategic consideration
and pressure to the points you list under these 'additional' headings. Ask yourself what the
effects of each will be on the 'big four' (Political, Economic, Social, Technological). Often your
answers will persuade you that the original four-part PEST model is best and that using a more
complex series of headings makes it more difficult to complete the analysis fully and
strategically.
The analysis can be converted into a more scientific measurement by scoring the items in each
of the sections. There is are established good or bad reference points - these are for you to
decide. Scoring is particularly beneficial if more than one market is being analysed, for the
purpose of comparing which market or opportunity holds most potential and/or obstacles. This
is useful when considering business development and investment options, ie, whether to
develop market A or B; whether to concentrate on local distribution or export; whether to
acquire company X or company Y, etc. If helpful when comparing more than one different
market analysis, scoring can also be weighted according to the more or less significant factors.

(insert subject for PEST analysis - market,
business, proposition, etc.)
political economic
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ecological/environmental issues
current legislation home market
future legislation
European/international legislation
regulatory bodies and processes
government policies
government term and change
trading policies
funding, grants and initiatives
home market lobbying/pressure
groups
international pressure groups
wars and conflict
home economy situation
home economy trends
overseas economies and trends
general taxation issues
taxation specific to
product/services
seasonality/weather issues
market and trade cycles
specific industry factors
market routes and distribution
trends
customer/end-user drivers
interest and exchange rates
international trade/monetary
issues
social
lifestyle trends
demographics
consumer attitudes and opinions
media views
law changes affecting social
factors
brand, company, technology
image
consumer buying patterns
fashion and role models
technological
competing technology
development
research funding
associated/dependent
technologies
replacement technology/solutions
maturity of technology
manufacturing maturity and
capacity
information and communications
consumer buying
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major events and influences
buying access and trends
ethnic/religious factors
advertising and publicity
ethical issues
mechanisms/technology
technology legislation
innovation potential
technology access, licencing,
patents
intellectual property issues
global communications

more on the difference and relationship between PEST
and SWOT
PEST is useful before SWOT - not generally vice-versa - PEST definitely helps to identify SWOT
factors. There is overlap between PEST and SWOT, in that similar factors would appear in each.
That said, PEST and SWOT are certainly two different perspectives:
PEST assesses a market, including competitors, from the standpoint of a particular proposition
or a business.
SWOT is an assessment of a business or a proposition, whether your own or a competitor's.
Strategic planning is not a precise science - no tool is mandatory - it's a matter of pragmatic
choice as to what helps best to identify and explain the issues.
PEST becomes more useful and relevant the larger and more complex the business or
proposition, but even for a very small local businesses a PEST analysis can still throw up one or
two very significant issues that might otherwise be missed.
The four quadrants in PEST vary in significance depending on the type of business, eg., social
factors are more obviously relevant to consumer businesses or a B2B business close to the
consumer-end of the supply chain, whereas political factors are more obviously relevant to a
global munitions supplier or aerosol propellant manufacturer.
All businesses benefit from a SWOT analysis, and all businesses benefit from completing a
SWOT analysis of their main competitors, which interestingly can then provide some feed back
into the economic aspects of the PEST analysis.
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see also
Porter's Five Forces Competitive Position Model
SWOT Analysis and Template
Marketing and Planning Templates
Balanced Scorecard
Project management
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Gillespie: Foundations of Economics - Additional
chapter on Business Strategy
Table of Contents
Business and strategy A.
Business as a
transformation process
B.
Forms of business C.
Why buy shares? D.
Mission statements E.
Objectives F.
Strategy G.
The functions of business H.
Business and the
environment
I.
Analysing the micro-
environment
J.
Porter's Five Forces
analysis of market
structure
K.
PESTEL analysis of the
macro-environment
L.
Opportunities and Threats M.
Using PESTEL analysis N.
Influencing the PESTEL
environment
O.
Developing a strategy:
SWOT analysis
P.
PESTEL analysis of the macro-environment
There are many factors in the macro-environment that will effect
the decisions of the managers of any organisation. Tax changes,
new laws, trade barriers, demographic change and government
policy changes are all examples of macro change. To help analyse
these factors managers can categorise them using the PESTEL
model. This classification distinguishes between:
Political factors. These refer to government policy such as the
degree of intervention in the economy. What goods and
services does a government want to provide? To what extent
does it believe in subsidising firms? What are its priorities in
terms of business support? Political decisions can impact on
many vital areas for business such as the education of the
workforce, the health of the nation and the quality of the
infrastructure of the economy such as the road and rail
system.
Economic factors. These include interest rates, taxation
changes, economic growth, inflation and exchange rates. As
you will see throughout the "Foundations of Economics" book
economic change can have a major impact on a firm's
behaviour. For example:
- higher interest rates may deter investment because it
costs more to borrow
- a strong currency may make exporting more difficult
because it may raise the price in terms of foreign currency
- inflation may provoke higher wage demands from
employees and raise costs
- higher national income growth may boost demand for a
firm's products
Social factors. Changes in social trends can impact on the
demand for a firm's products and the availability and
willingness of individuals to work. In the UK, for example, the
population has been ageing. This has increased the costs for
firms who are committed to pension payments for their
employees because their staff are living longer. It also means
some firms such as Asda have started to recruit older
employees to tap into this growing labour pool. The ageing
population also has impact on demand: for example, demand
for sheltered accommodation and medicines has increased
whereas demand for toys is falling.
PESTEL analysis of the macro-environment http://www.oup.com/uk/orc/bin/9780199296378/01student/addition...
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Technological factors: new technologies create new products
and new processes. MP3 players, computer games, online
gambling and high definition TVs are all new markets created
by technological advances. Online shopping, bar coding and
computer aided design are all improvements to the way we do
business as a result of better technology. Technology can
reduce costs, improve quality and lead to innovation. These
developments can benefit consumers as well as the
organisations providing the products.
Environmental factors: environmental factors include the
weather and climate change. Changes in temperature can
impact on many industries including farming, tourism and
insurance. With major climate changes occurring due to global
warming and with greater environmental awareness this
external factor is becoming a significant issue for firms to
consider. The growing desire to protect the environment is
having an impact on many industries such as the travel and
transportation industries (for example, more taxes being
placed on air travel and the success of hybrid cars) and the
general move towards more environmentally friendly products
and processes is affecting demand patterns and creating
business opportunities.
Legal factors: these are related to the legal environment in
which firms operate. In recent years in the UK there have
been many significant legal changes that have affected firms'
behaviour. The introduction of age discrimination and disability
discrimination legislation, an increase in the minimum wage
and greater requirements for firms to recycle are examples of
relatively recent laws that affect an organisation's actions.
Legal changes can affect a firm's costs (e.g. if new systems
and procedures have to be developed) and demand (e.g. if
the law affects the likelihood of customers buying the good or
using the service).
Different categories of law include:
consumer laws; these are designed to protect customers
against unfair practices such as misleading descriptions of the
product
competition laws; these are aimed at protecting small firms
against bullying by larger firms and ensuring customers are
not exploited by firms with monopoly power
employment laws; these cover areas such as redundancy,
dismissal, working hours and minimum wages. They aim to
protect employees against the abuse of power by managers
health and safety legislation; these laws are aimed at
ensuring the workplace is as safe as is reasonably practical.
They cover issues such as training, reporting accidents and
the appropriate provision of safety equipment
Typical PESTEL factors to consider include:
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Factor Could include:
Political e.g. EU enlargement, the euro, international trade,
taxation policy
Economic e.g. interest rates, exchange rates, national income,
inflation, unemployment, Stock Market
Social e.g. ageing population, attitudes to work, income
distribution
Technological e.g. innovation, new product development, rate of
technological obsolescence
Environmental e.g. global warming, environmental issues
Legal e.g. competition law, health and safety, employment
law
By using the PESTEL framework we can analyse the many different
factors in a firm's macro environment. In some cases particular
issues may fit in several categories. For example, the creation of the
Monetary Policy Committee by the Labour government in 1997 as a
body that was independent of government but had the ability to set
interest rates was a political decision but has economic
consequences; meanwhile government economic policy can
influence investment in technology via taxes and tax credits. If a
factor can appear in several categories managers simply make a
decision of where they think it best belongs.
However, it is important not to just list PESTEL factors because this
does not in itself tell managers very much. What managers need to
do is to think about which factors are most likely to change and
which ones will have the greatest impact on them i.e. each firm
must identify the key factors in their own environment. For some
such as pharmaceutical companies government regulation may be
critical; for others, perhaps firms that have borrowed heavily,
interest rate changes may be a huge issue. Managers must decide
on the relative importance of various factors and one way of doing
this is to rank or score the likelihood of a change occurring and also
rate the impact if it did. The higher the likelihood of a change
occurring and the greater the impact of any change the more
significant this factor will be to the firm's planning.
It is also important when using PESTEL analysis to consider the level
at which it is applied. When analysing companies such as Sony,
Chrysler, Coca Cola, BP and Disney it is important to remember that
they have many different parts to their overall business - they
include many different divisions and in some cases many different
brands. Whilst it may be useful to consider the whole business when
using PESTEL in that it may highlight some important factors,
managers may want to narrow it down to a particular part of the
business (e.g. a specific division of Sony); this may be more useful
because it will focus on the factors relevant to that part of the
business. They may also want to differentiate between factors which
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are very local, other which are national and those which are global.
For example, a retailer undertaking PESTEL analysis may consider:
Local factors such as planning permission and local economic
growth rates
National factors such as UK laws on retailer opening hours and
trade descriptions legislation and UK interest rates
Global factors such as the opening up of new markets making
trade easier. The entry of Bulgaria and Rumania into the
European Union might make it easier to enter that market in
terms of meeting the various regulations and provide new
expansion opportunities. It might also change the labour force
within the UK and recruitment opportunities.
This version of PESTEL analysis is called LoNGPESTEL. This is
illustrated below:
LOCAL NATIONAL GLOBAL
POLITICAL Provision of
services by local
council
UK
government
policy on
subsidies
World trade
agreements
e.g. further
expansion of
the EU
ECONOMIC Local income UK interest
rates
Overseas
economic
growth
SOCIAL Local population
growth
Demographic
change (e.g.
ageing
population)
Migration flows
TECHNOLOGICAL Improvements in
local
technologies e.g.
availability of
Digital TV
UK wide
technology e.g.
UK online
services
International
technological
breakthroughs
e.g. internet
ENVIRONMENTAL Local waste
issues
UK weather Global climate
change
LEGAL Local
licences/planning
permission
UK law International
agreements on
human rights
or
environmental
policy
In "Foundations of Economics" we focus on the economic
environment. We examine issues such as the effect of interest rate
changes, changes in exchange rates, changes in trade policy,
government intervention in an economy via spending and taxation
and economic growth rates. These can be incredibly important
4 of 5 6/24/09 4:56 PM
factors in a firm's macro-environment. The growth of China and
India, for example, have had massive effects on many
organisations. Firms can relocate production there to benefit from
lower costs; these emerging markets are also providing enormous
markets for firms to aim their products at. With a population of over
1 billion, for example, the Chinese market is not one you would
want to ignore; at the same time Chinese producers should not be
ignored either. However, the relative importance of economic factors
compared to other factors will depend on the particular position of a
business. Exchange rate fluctuations may be critically important to a
multinational but less significant to a local window cleaner. Rapid
economic growth or economic decline may be very significant to a
construction business that depends heavily on the level of income in
the economy but may be slightly less significant to a milk producer
whose product is less sensitive to income. So whilst the economy is
important to all firms on both the supply side (e.g. unemployment
levels affect the ease of recruitment) and demand side (e.g. income
tax affects spending power) the relative importance of specific
economic factors and the relative importance of the economy
compared to, say, regulation or social trends will vary. Whilst we
hope this book provides a good insight into the economy and the
possible effects of economic change on a business these must be
considered in the light of other macro and micro factors that
influence a firms' decisions and success.
OxfordUniversity Press, 2007
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Home > Subjects > Corporate and HR strategy > General
PESTLE analysis
March 2008
This factsheet gives introductory guidance. It:
introduces the concept and history of PESTLE analysis
examines the model, process and possible applications
considers its pros and cons and offers some dos and donts
provides two example case studies.
Introduction
PESTLE stands for - Political, Economic, Sociological, Technological, Legal, Environmental.
PESTLE analysis is in effect an audit of an organisation's environmental influences with the
purpose of using this information to guide strategic decision-making. The assumption is that if
the organisation is able to audit its current environment and assess potential changes, it will be
better placed than its competitors to respond to changes.
The concept
To help make decisions and to plan for future events, organisations need to understand the
wider meso-economic and macro-economic environments in which they operate. (The
meso-economic environment is the one in which we operate and have limited influence or
impact, the macro-environment includes all factors that influence an organisation but are out of
its direct control). An organisation on its own cannot affect these factors, nor can these factors
directly affect the profitability of an organisation. But by understanding these environments, it is
possible to take the advantage to maximise the opportunities and minimise the threats to the
organisation. Conducting a strategic analysis entails scanning these economic environments to
detect and understand the broad, long term trends.
A PESTLE analysis is a useful tool for understanding the big picture of the environment in
which an organisation is operating. Specifically a PESTLE analysis is a useful tool for
understanding risks associated with market (the need for a product or service) growth or
decline, and as such the position, potential and direction for an individual business or
organisation.
A PESTLE analysis is often used as a generic 'orientation' tool, finding out where an
organisation or product is in the context of what is happening outside that will at some point
affect what is happening inside an organisation. The six elements form a framework for
reviewing a situation, and can also be used to review a strategy or position, direction of a
company, a marketing proposition, or idea.
Completing a PESTLE analysis can be a simple or complex process. It all depends how
thorough you need to be. It is a good subject for workshop sessions, as undertaking this activity
with only one perspective (that is, from just one persons view) can be time consuming and
miss many critical factors. We all see things differently and harnessing the knowledge of
several people will ensure the process is robust and meaningful.
History
The term PESTLE has been used regularly in the last 10 years and its true history is difficult to
establish.
The earliest know reference to tools and techniques for scanning the business environment is
by Francis J. Aguilar
1
who discusses ETPS - a mnemonic for the four sectors of his taxonomy
Return to previous page
CIPD - PESTLE analysis http://www.cipd.co.uk/subjects/corpstrtgy/general/pestle-analysis...
1 of 7 6/24/09 4:57 PM
of the environment: Economic, Technical, Political, and Social.
Shortly after its publication, Arnold Brown for the Institute of Life Insurance (in the US)
reorganized it as STEP (Strategic Trend Evaluation Process) as a way to organise the results
of his environmental scanning.
Thereafter, this macro external environment analysis, or environmental scanning for change,
was modified yet again to become a so-called STEPE analysis (the Social, Technical,
Economic, Political, and Ecological taxonomies).
In the 1980s, several other authors including Fahey, Narayanan, Morrison, Renfro, Boucher,
Mecca and Porter included variations of the taxonomy classifications in a variety of orders:
PEST, PESTLE, STEEPLE etc. Why the slightly negative connotations of PEST have proven to
be more popular than STEP is not known.
Some purists claim that STEP or PEST still contain headings which are appropriate for all
situations, other claim that the additional breakdown of some factors to help individuals and
teams undertaking an environmental scan.
Quite who and when added what elements to the mnemonic is a mystery, but what we do know
is that the actual order and words contained are common to certain parts of the world and
streams of academic study. The term PESTLE is particularly popular on HR and introductory
marketing courses in the UK. Others favour PEST, STEP or STEEPLE.
The PESTLE model
The PESTLE model provides users with a series of headings under which users can brainstorm
or research key factors:
Political: what is happening politically in the environment in which you operate,
including areas such as tax policy, employment laws, environmental regulations, trade
restrictions and reform, tariffs and political stability.
Economic: what is happening within the economy, for example; economic growth/
decline, interest rates, exchange rates and inflation rate, wage rates, minimum wage,
working hours, unemployment (local and national), credit availability, cost of living, etc.
Sociological: what is occurring socially in the markets in which you operate or expect
to operate, cultural norms and expectations, health consciousness, population growth
rate, age distribution, career attitudes, emphasis on safety, global warming.
Technological: what is happening technology-wise which can impact what you do,
technology is leaping every two years, how will this impact your products or services,
things that were not possible five years ago are now mainstream, for example mobile
phone technology, web 2.0, blogs, social networking websites. New technologies are
continually being developed and the rate of change itself is increasing. There are also
changes to barriers to entry in given markets, and changes to financial decisions like
outsourcing and insourcing.
Legal: what is happening with changes to legislation. This may impact employment,
access to materials, quotas, resources, imports/ exports, taxation etc.
Environmental: what is happening with respect to ecological and environmental
aspects. Many of these factors will be economic or social in nature.
The PESTLE process
Decide how the information is to be collected and by whom (often a team approach is
much more powerful than one persons view).
Identify appropriate sources of information.
Gather the information - it is useful to use a template as the basis for exploring the
factors and recording the information. An example of such a practical and ready-to-use
template created to accompany this factsheet can be found on the RapidBI website.
Go to the template
Analyse the findings.
Identify the most important issues.
Identify strategic options.
Write a report.
Disseminate the findings.
Decide which trends should be monitored on an ongoing basis.
Applications and when to use it
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PESTLE analysis can be used for business and strategic planning, marketing planning,
organisational change, business and product development and research reports. It can also be
used from a departmental or individual perspective to look at what you deliver to whom and
how you do it.
To be effective a PESTLE needs to be undertaken on a regular basis. Organisations that do
analyses regularly and systematically often spot trends before others thus providing
competitive advantage.
Business planning
A PESTLE analysis is a useful document to have available at the start of a business planning
process. It can provide the management team with background and context information about
targets towards growth, new product development and brand positioning. The opportunities and
threats identified can be fed into a SWOT (Strengths, Weaknesses, Opportunities, Threats)
process and strategies identified to avoid or minimise the impact of the threats, and equally
strategies employed to build on the opportunities presented. For more on SWOT analysis, see
our factsheet on that topic.
Go to our SWOT analysis factsheet
Marketing planning
As with business planning, a PESTLE analysis provides the essential element of climate within
a situation analysis phase of the marketing planning process.
Product development

It is often said that there are few bad products but lots of wrong time and wrong places. As a
PESTLE analysis provides a view of what is occurring in the external world, this will help when
making the decision to enter or leave an area of product development. For example, portable
tape recorders are excellent devices, but a PESTLE analysis might show that that, socially and
technologically, MP3 technology is more acceptable. Equally from an environmental point of
view the manufacture of tapes requires the use of heavy chemicals and would be increasingly
taxed and rejected by society.
Organisational change
When looking at changing one function or department a PESTLE analysis can be a powerful
tool for understanding the context in which the change is occurring and the potential areas of
focus. Best used in association with a SWOT analysis, a PESTLE will provide information about
potential opportunities and threats around labour changes, for example skills shortages.
Using the PESTLE to look at factors outside of the function but still inside the organisation can
highlight factors such as:
Political: who is in what position, their power, vision, goals and directions etc.
Economic: financial implications, productivity etc.
Socially: what is and is not acceptable within the culture.
Technological: new computer systems or other new technology.
Legal: changes to employment law, recruitment, visas etc.
Environmental: the space available, what can or cannot be moved where etc.
In this situation, a PESTLE analysis can be thought of more an as audit. It is best used at the
data capture phase as part of a pre-planning process of any strategic intervention.
While using the tool internally can add some value, it will focus on factors which can be
changed, that is they are in the control of the organisation, if not the function concerned. So
while it may be a useful framework, it should be used with caution in this context.
Research reports

A PESTLE analysis can also be used as a framework for looking outside the organisation to
hypothesise what may or may not happen. It is a useful framework to use to ensure that some
of the basic factors are not overlooked or ignored. Used in a similar way to that of business
planning but the application of the data is different.
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Advantages and disadvantages of using a PESTLE analysis
Advantages
Simple framework.
Facilitates an understanding of the wider business environment.
Encourages the development of external and strategic thinking.
Can enable an organisation to anticipate future business threats and take action to
avoid or minimise their impact.
Can enable an organisation to spot business opportunities and exploit them fully.
Disadvantages
Some users over simplify the amount of data used for decisions it is easy to use
scant data.
To be effective this process needs to be undertaken on a regular basis.
The best reviews require different people being involved each having a different
perspective.
Access to quality external data sources, this can be time consuming and costly.
The pace of change makes it increasingly difficult to anticipate developments that may
affect an organisation in the future.
The risk of capturing too much data is that it may make it difficult to see the wood for
the trees and lead to paralysis by analysis.
The data used in the analysis may be based on assumptions that subsequently prove
to be unfounded (good and bad).
Examples
A PESTLE analysis can be carried at different levels depending on the context. Two case
studies are offered below to illustrate what a PESTLE analysis might look like in two different
situations: a more detailed level, using a soft drinks manufacturer as an example, and a simpler
level, using a childrens charity by way of example.
Case study 1: a detailed PESTLE analysis
What follows is a summary of the findings, not the data collection phase, of a PESTLE analysis
using a soft drink manufacturer called Soft Drink Co.
Political
The government plays a role within the operation of manufacturing these products in terms of
regulations. There are potential fines set by the government on companies if they do not meet
a standard of laws. The following are some of the factors that could cause Soft Drink Co's
actual results to differ materially from the expected results described in their underlying
company's forward statement:
Changes in laws and regulations, including changes in accounting standards, taxation
requirements, (including tax rate changes, new tax laws and revised tax law
interpretations) and environmental laws in domestic or foreign regulations.
Changes in the non-alcoholic business environment. These include, without limitation,
competitive product and pricing pressures and their ability to gain or maintain share of
sales in the global market as a result of action by competitors.
Their ability to penetrate developing and emerging markets, which also depends on
economic and political conditions, and how well they are able to acquire or form
strategic business alliances with local packaging firms and make necessary
infrastructure enhancements to production facilities, distribution networks, sales
equipment and technology.
Economic
Last year the economy was strong and nearly every part of it was growing and doing well.
However, things changed. Most economists loosely define a recession as two consecutive
quarters of contraction, or negative GDP growth.
Due to low interest rates it can use the borrowing on research of new products or technology.
As researching for new products would cost less the Soft Drink Co will sell its products for less
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and the people will spend as they would get cheap products from Soft Drink Co.
Before the terror attacks on 7 July, the UK was starting to see the economy recover slightly and
it is only just recently that they achieved the economic levels. Consumers are now resuming
their normal habits, going to the high streets, car shopping, and eating out at restaurants.
However, many are still handling their money cautiously. They believe that with lower inflation
still to come, consumers will recover their confidence over the next year.
Sociological

Many people are practicing healthier lifestyles. This has affected the non-alcoholic drink
industry in that many are switching to bottled water and diet colas instead of beer and other
alcoholic drinks. The need for bottled water and other more convenient and healthy products
are important in the average persons day-to-day life.
Consumers from the ages of 37 to 55 are also increasingly concerned with nutrition. Since
many are reaching an older age in life they are becoming more concerned with increasing their
longevity. This will continue to affect the non-alcoholic drink industry by increasing the demand
overall and in the healthier drinks.
Technological
The effectiveness of company's advertising, marketing and promotional programs. The new
technology of internet and television which use special effects for advertising through media.
They make some products look attractive.
Introduction of cans and plastic bottles have increased sales for Soft Drink Co as these are
easier to carry and you can bin them once they are used.
As the technology is getting advanced there has been introduction of new machineries all the
time. Due to introduction of this machineries the production has increased tremendously then it
was few years ago
Soft Drink Co has several factories which use state of the-art technology to ensure top product
quality.
Legal
With changes to the chemicals allowed in consumable drinks with the impact of upcoming EU
legislation this will impact Soft Drink Cos production. They will have less than three years to
comply or be forced to remove the product from the shelves.
Environmental
With several EU countries introducing fines to manufacturers who do not use recycle-able
packaging, Soft Drink Co will need to review its strategy of using plastic bottles and look
towards new package technology or the use of cans.
Case Study 2: a simpler PESTLE analysis
This might result from a simpler PESTLE analysis of a childrens charity and shows only items
deemed strategically important.
Political
Level of government interest in childrens based services.
Big Lottery Fund priorities and objectives.
Sociological
Concerns around child obesity/lack of physical activity.
Perceived danger for children restrictions on childrens freedom of movement.
Increase in organised activities.
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Technological
Negative impact of sedentary activities such as computer games.
Impact of increased car use.
Increased access to multi-media.
Economic
Costs of play schemes and including disabled children.
Shift towards paid or subsidised childcare/extended schools.
Competitive tendering.
Legal
Legislation Childrens Act.
DDA.
OfSTED.
Environment
Culture within the organisation.
Culture in the community.
Premises we have to use (buildings, layout and space).
Impact on the environment noise, etc.
PESTLE analysis dos and donts
DO get other people involved.
DO exploit any expertise and resources that are already available within the
organisation.
DO use PESTLE analysis in conjunction with other techniques, such as SWOT
analysis, PRIMO-F analysis (see our SWOT analysis factsheet linked to above for
more information), Porter's five forces (see Useful links and Further reading below),
competitor analysis or scenario planning etc.
DO incorporate your analysis within an ongoing process for monitoring changes in the
business environment.
DONT try to do this on your own.
DONT jump to conclusions about the future based on the past or the present.
DONT get bogged down in collecting vast amounts of detailed information without
analysing your findings appropriately.
Useful contacts
RapidBI PEST / PESTLE analysis tool and template
Prime Ministers Strategy Unit Strategy survival
guide
Thames Valley University e-learning unit on PESTLE
Wikipedia on Porters Five Forces
References
1. AGUILAR, F.J. (1967) Scanning the business environment. New York: Macmillan.
Further reading
CIPD members can use our Advanced Search to find additional library resources on this topic
and also use our online journals collection to view journal articles online. People Management
articles are available to subscribers and CIPD members on the People Management website.
CIPD books in print can be ordered from our Bookstore
Go to Advanced Search
Go to our online journals collection
Go to the People Management website
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Copyright CIPD 2009
151 The Broadway, London SW19 1JQ, UK
www.cipd.co.uk
Incorporated by Royal Charter, Registered charity no. 1079797
About us, Contact us, Find us, My profile, Terms and conditions, Privacy policy, Cookie policy, Link to us
Go to our online Bookstore
Books and reports
PIERCE, C. (2001) The effective director: the essential guide to director and board
development. London: Kogan Page.
TURNER, S. (2002) Tools for success: a managers guide. London: McGraw Hill.
Journal articles
GRUNDY, T. (2006) Rethinking and reinventing Michael Porter's five forces model. Strategic
Change. Vol 15, No 5, August. pp213-229.
This factsheet was written by Mike Morrison, Managing Director of RapidBI, a company
specialising in organisational development tools and processes.

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