What is PESTLE analysis, and Why it is Important for Business? – The Ultimate Guide

Different analyses are used for the assessment of business performance. What is PESTLE analysis, and why is it essential for business?

This assessment method is very flexible and is used widely.

Without wasting time, let us move ahead and study its factors, the process to conduct it, and its importance for business.

What is PESTLE Analysis?

The process in which we examine all external factors that affect the business is known as PESTLE analysis.

PESTLE is mnemonic, and in it, P stands for political, E stands for economical, S stands for social, T stands for technological, L stands for legal, and E stands for environmental factors.

Factors of PESTLE Analysis

Here is a brief description of each factor of PESTLE analysis

1. Political Factors

In it, we study the present and future reforms of the government related to trading, for example, tax policy, tariff reforms, trade restrictions, etc.

Suppose you implement a project without checking the updated tax policy; your whole project will be disturbed because you may not be able to generate enough revenue. So must perform this assessment.

2. Economic Factor

In it, you go through the wage of workers, working hours, unemployment rate, cost of living, etc., then check and balance your strategy according to it.

3. Social Factors

For a successful business, you have to target the audience and understand their needs, financial conditions, job status, interests, culture, age distribution, etc.

All these agents help you very much in marketing and growing your business.

4. Technological Factors

Over the past few years, many innovative devices have been made, and now many functions are automatic, and some of the humans’ jobs are performed by robots.

It is crucial to go through the change in business infrastructure due to new technology while checking strategy.

5. Legal Factors

All companies and countries have different rules, and some companies update their rules often. So must check if there is any change in the import/export laws, tax, taxation, material access, etc.

If any amendment has been made, modify your policy accordingly to survive in the future.

6. Environmental Factors

For a growing business, you have to consider the environmental laws and confirm you are not harming the environment because the governments are taking strict steps to protect the environment.

So if you are disposing of non-degradable material in the environment, go through the laws formulated by your environmental protection agency ad use their preferred method for disposing of wastes.

Importance of PESTLE Analysis for Business

What is PESTLE analysis, and why is it important for business? Entrepreneurs and business owners have to make many decisions having a large number of effects on their business. That’s why they use some tools and tricks for checking their decision before implementing it.

PESTLE analysis is widely used to gather information and find the answer to questions that arise and must be considered while formulating a new strategy or modifying an existing plan.

The core of the strategy is in the following questions that you have to answer during the PESTLE analysis.

  1. How is the country doing politically, and will this plan work in such political conditions?
  2. What is the economy’s condition, and what are the main factors that will affect your policy.
  3. The strategy we are going to implement is suitable for this culture or not.
  4. What are the current rules and regulations of the country? Can we run our policy by following all rules of our industry?
  5. Is this environment has enough potential to support the policy.
  6. Is there any technology that can help us improve our strategy, or will it overshadow policy?

Here is a list that will tell you the importance of questions asked in PESTLE analysis and why pestle analysis is essential for business.

1. Modification of Strategy

If you think that there are certain areas in which your strategy is not working, update your system. For example, suppose you have kept the tax rate low while counting revenue, upgrade it, then again count the revenue.

2. Organizational Change

If you are planning to bring some changes to your organization, PESTLE analysis, joined with SWOT analysis, will help you learn the areas you have to focus on to make changes successful.

3. Launching of new Products

From the analysis result, you can learn about the needs of people, their budgets, and problems. This information will help you formulate and launch a new product with confidence that it will be famous among the people and help you generate revenue.

4. Marketing Planning

After analysis, you have complete information of all external factors, and you know how to approach your target audience and plan better marketing strategies.

5. Workplace Planning

Furthermore, it also helps you identify the expected changes shortly. For example, many services will not be in demand in the future. Because technology is becoming innovative with time and humans may be replaced by machines in some working areas, for example, IT department. This is how you can use it in workplace planning.

How to Conduct PESTLE Analysis?

To better understand what PESTLE analysis is and why it is essential for business, you must learn how to conduct it. Following is the step-by-step guideline.

1.   Research Scope

First of all, define your research scope, and it must include the present and future scenarios of the environment where your business runs.

2.   Make a Team

Secondly, you can never perform this assessment alone. It would help if you had a team of people. So gather some experts in the assessment and assign them different responsibilities.

3.   Find out Authentic Sources of Information

Similarly, you cannot add the information in your analysis, which does not have any base. You are not confirmed about it, so you must identify the source of information and make sure it is authentic.

4.   Assemble the Information

Now collect the information of your teammates they have gathered from different resources and assemble it in an easy-to-understand form.

5.   Create a List of all Issues

Navigate the data you have collected and separate all the agents you think are affecting the business badly, or they can damage it in the future and write them in order.

6.   Address the Issues

Now view them from different business aspects and try your best to solve the issues. Furthermore, suggest some changes and modifications in the business.

7.   Inform all the Stakeholders

Create an official paper on which all issues are addressed, and the information you have collected is written. Then send it to all the stakeholders and decision-makers.

8.   Formulate Changes

Now arrange a meeting of all managers and higher authorities to discuss the document and make some decisions by considering the result of the PESTLE analysis.

Now you have a complete understanding of PESTLE analysis and why it is important for business.

To Sum up

In short, in PESTLE analysis, we study the effect of six external factors on our business and modify our strategies accordingly. Moreover, it helps business owners launch new products successfully, make better organizational changes, plan better marketing and workplace strategies.