In Part 7, we explored the TOWS matrix and how the different perspectives can help you to develop new strategic options for your company.
In today’s blog post, I will share the benefits of doing the PESTLE Analysis, explain what it is and why you should consider doing one. The PESTLE Analysis will help you to understand the “big picture” forces of change that you’re exposed to, and, how you can take advantage of the opportunities that they present. The PESTLE Analysis will support you to adapt better to your current business environment.
- ⇒ What is PESTLE Analysis?
- ⇒ Why is a PESTEL Analysis important?
- ⇒ How does PESTEL Analysis relate to SWOT Analysis?
- ⇒ What are the benefits of a PESTLE Analysis?
- Benefit #1: Simple framework and easy to understand
- Benefit #2: Helps to spot and make use of opportunities
- Benefit #3: Anticipate the future and prepares for threats
- Benefit #4: Cost-effectiveness
- Benefit #5: Provides a deeper understanding
- ⇒ What are the PESTLE Analysis applications?
- ⇒ How should you conduct a PESTLE Analysis?
- ⇒ Why does your company need a PESTLE Analysis?
- ⇒ What do you need to cover in your assessment?
- ⇒ Summary
In my experience SWOT analysis, TOWS Matrix, and PESTEL Analysis are great analytical business tools and techniques to start with. I found them very helpful in my own businesses and in supporting my client’s businesses. However, these tools and techniques are just the beginning.
I recommend checking out the following business analysis tools and techniques, such as the MOST Analysis, Five Whys, STEEPLE, CATWOE, Business Process Modeling, MOSCoW, Six Thinking Hats, Core Competencies, Porter´s Five Forces, Balanced Scorecard, etc.
What is PESTLE Analysis?
A PESTLE Analysis is a framework to analyze the key factors (Political, Economic, Sociological, Technological, Legal, and Environmental) influencing a company from the outside. The analysis is flexible, so your company can use it in a range of different scenarios. The goal is to determine how different factors influence business performance.
Why is PESTEL Analysis important?
- It helps to identify significant changes in the political, economic, social, technological, legal, and environmental factors.
- By understanding these external factors, it´s possible to maximize opportunities and minimize weaknesses and avoid threats to your company.
- It plays a great role in the growth of your business. Whether it is an expansion of a product line or opening a new company in a new location, PESTEL analysis supports strategic planning to expand your business.
- These factors can impact the position, potential, and direction of your company.
- Having a clear idea of external forces that may influence the market growth or the decline of your business, is essential to come up with the right business strategy.
How does PESTEL Analysis relate to SWOT Analysis?
What’s the difference between a SWOT and PESTLE Analysis?
⇒ The main differences between SWOT and PESTLE analysis are that SWOT focuses on actions you can take internally in your company. A PESTLE analysis identifies external factors that are mainly outside of your control.
⇒ Performing SWOT analysis in your company or your team allows you to identify your strengths and weaknesses and set priorities on the opportunities that are available to you. It also helps you better understand where you are and where you want to go.
⇒ A PESTEL analysis and SWOT analysis complement each other. The PESTEL analysis is mainly focused on the external environment assessment, while SWOT analysis includes both internal and external factors.
I highly recommend that you perform a PESTEL analysis at least once a year, ahead of conducting a SWOT analysis as part of your annual strategic review. It will provide very valuable insights for doing the SWOT analysis.
What are the benefits of PESTLE Analysis?
⇒ Benefit #1: Simple framework and easy to understand
- The simple framework makes it very likely that it gets implemented effectively.
- PESTLE makes it easy to understand the factors that affect the business environment.
- Example: You´ll need to watch government policies with regard to various sectors of the economy and see whether it has a positive or negative impact on your company.
⇒ Benefit #2: Helps to spot and make use of opportunities
- Helps the company in making use of profitable opportunities that arise due to changes in external factors.
⇒ Benefit #3: Anticipate the future and prepares for any threat
- PESTLE helps the company to prepare for possible threats that arise due to external factors.
- Example: Any change in technology is a threat and if the company does not prepare and start making new products then it will lose market share to its competitors.
⇒ Benefit #4: Cost-effectiveness
- Time and effort are the only cost of a PESTEL analysis.
⇒ Benefit #5: Provides a deeper understanding
- The great benefit of PESTLE Analysis is that it forces you to write down all these factors. When you see all the factors in one place it’s much easier to identify patterns and connections between those external factors.
- That gives you a much deeper understanding of the circumstances you are operating in.
- Example: If you develop a new product, PESTLE increases strategic thinking and a deeper understanding of various factors such as consumer laws, new technological trends, etc. that can affect the product launch in the market.
What are the PESTLE Analysis applications?
For example, PESTLE can be applied to the following:
⇒ Business Planning
It provides data, feedback, and information about the factors to make business decisions. When used along with the SWOT Analysis, it can help identify the major threats and opportunities that a company will face.
PESTLE Analysis greatly influences the marketing environment of a product or service. It also determines the strategies adopted in marketing based on information obtained through this analysis.
⇒ Product Development
In order to decide on a product to be developed, knowing the external factors of the project via the PESTLE Analysis helps this decision-making.
How should you conduct your assessment?
Your PESTEL analysis should be conducted differently depending on:
⇒ If you are looking to enter a new market
- You will need to conduct a full analysis of PESTEL factors, as part of your entry strategy, to understand the constraints under which you need to operate.
- The insights from PESTEL will help you to make decisions if you enter the new market or not.
- As part of your decision-making process, you´ll need to look at items such as import duties, local taxation, local labor, and other costs, etc.
⇒ If you are reviewing the environment where you currently operate in
You will need to look only at PESTEL factors, which are generally progressive, such as upcoming law changes and how they could impact your company both in terms of revenues as well as in terms of additional costs.
What do you need to be aware of when conducting PESTLE?
Depending on where your country is located, you may need to be aware of supranational organizations your country is part of.
Example: If your company is located in Europe, and your country is part of the European Union (EU), you´ll need to analyze the impact the EU has on the country´s economy, industry, and your company. The EU influences strongly national law and politics through its regulations and guidelines and affects all six factors.
Why does your company need a PESTLE Analysis?
If you consider the five benefits (see above) and that internal and external challenges may either have a positive or a negative impact on your company, being aware of these factors is not an option, but rather a necessity to be competitive.
Having knowledge about the factors beforehand could help your company to minimize the impact of such factors. The PESTLE Analysis helps exactly with that. With the insight it provides, you can make smart business decisions in the future.
What do you need to cover in your assessment?
The PESTEL Analysis needs to analyze the impact of six PESTEL factors (political, economic, social, technological, environmental, and legal) on your company. In my next blog post, I will share more information about each factor.
⇒ Key Point #1:The PESTLE Analysis is a simple framework and easy to understand.
⇒ Key Point #2: It helps to spot and make use of the opportunities and to anticipate threats.
⇒ Key Point #3: The analysis is cost-effective and gives a deeper understanding of the factors that might affect your company.
I´m available to support you through this difficult time by re-imagine your business. A PESTEL analysis will help you in your decision-making process to determine if you should do business in that country, state, or region, and spots the external factors you´ll need to adapt your strategy too.
I will work with you and your leadership team to analyze the company´s six PESTLE factors. We will develop a tailored strategy that takes into account these six factors. The goal is to get your business fast running at its peak performance.
Contact me for a complimentary 30-minute strategy session:
Coming up next month…
In my next blog post, I’ll share how to conduct a PESTLE Analysis.
 The creation of this tool gets attributed to Harvard professor Francis Aguilar
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