PESTLE
is an analytical tool which considers external factors and helps you to think
about their impacts. It is a useful tool for understanding the “big picture” of
the environment in which you are operating. By understanding your environment,
you can take advantage of the opportunities and minimize the treats. This
provides the context within which more detailed planning can take place to take
full advantage of the opportunities that present themselves.
The
factors in a PESTLE analysis are:
1) Political
2) Environmental
3) Social
4) Technological
5) Legal
6) Economical
1. POLITICAL FACTORS:
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Tax policy
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Employment laws
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Environmental regulations
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Trade restrictions and tariffs
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Political stability
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Government type and stability
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Freedom of press, rule of law and levels of bureaucracy and corruption
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Regulations and de-regulation trends
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Environmental and consumer protection legislation
2. ECONOMIC FACTORS:
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Current and projected economic growth, inflation and interest rates
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Exchange rates
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Stage of business cycle
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Unemployment and labour supply
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Labour cost
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Levels of disposable income and income distribution
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Impact of globalization
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Impact of technological or other change in the economy
3. SOCIAL FACTORS:
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Health awareness
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Population growth rate
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Age distribution
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Career attitude
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Emphasis on safety
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Population health, education and social mobility, and attitudes
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Population employment patterns, job market freedom and attitudes top
work
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Press attitudes, public opinion, social attitudes and social taboos
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Lifestyle choices and attitudes.
4. TECHNICAL FACTORS:
- R
& D activity
-
Impact on emerging technologies and research and development activities
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Impact of internet, reduction in communication costs and increased
remote working
-
Impact of technology transfer
5. LEGAL FACTORS:
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Licensing framework
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Employment laws
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Competition laws
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Foreign transaction laws
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Taxation laws
6. ENVIRONMENTAL FACTORS:
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Environmental impact
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Environmental legislation
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Energy availability and costs
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Waste disposal.
This
checklist of the factors is inclusive in nature. Other related aspects that
have a bearing in respective factor may also be considered based on the stance
of the idea that is being converted into business.
PESTLE
analysis is in fact, an audit of environmental influence on the business ideas
with the purpose of using this information to pre ascertain the factors
affecting the likely project and thereby guide strategic decision making in
accordance. The assumption is that if any entrepreneur is able to audit his
influencing environment and assess potential threats to his project, it will be
better placed in the market, and be able to accommodate the influencing
factors. The term PESTLE has been in regular use for the past 10 years.
FACTORS TO BE CONSIDERED FOR
ENVIRONMENTAL SCANNING
The
external environment in which an organisation exists consists of a bewildering
variety of factors (could also be termed as influences) are events, trends,
issues and expectations of different interested groups. Events are important
and specific occurrences taking place in different environmental sectors.
Trends are the general tendencies or the courses of action along with which
events take place. Issues are the current concerns that arise in response to
events and trends. Expectations are the demands made by interested groups in
the light of their concern for issues. For example, the gas leakage accident at
the Union Carbide factory in Bhopal and the resulting holocaust was an event.
The trend that has arisen is a general tendency on the part of the regulatory
authorities and organisations to be conscious about safety from hazardous
exposure to chemicals. The issue is of a rising concern about environmental
pollution. The expectation of the general public from the government is of
legislating changes in the rules and regulations pertaining to safety measures
and stricter enforcement through various mechanisms. By monitoring the
environment through environmental scanning, an organisation can consider the
impact of the different events, trends, issues and expectations on its
strategic management process. Since the environment facing any organisation is complex and its scanning
absolutely essential, strategists have to deal cautiously with the process of
environmental scanning. The effort has to be to deal with it in such a manner
that unnecessary time and effort is not expended, while important factors are
not ignored. For this to take place, it is important to devise an approach or a
combination of different approaches, to environmental scanning.
SWOT ANALYSIS:
Business
firms undertake SWOT analysis to understand the external and internal
environments. SWOT which is the acronym for strength, weakness, opportunities
and threats, is also known as WOTS-UP or TOWS analysis. Through such analysis,
the strengths and weaknesses existing within an organisation can be matched
with the opportunities and threats operating in the environment so that an
effective strategy can be formulated. An effective organisational strategy,
therefore is one that capitalises on the opportunities through the use of
strengths and neutralises the threats by minimising the impact of weaknesses.
External and Internal Environment
The
external environment includes all the factors outside the organisation which
provides opportunities or poses threat to the organisation. The internal
environment refers to all the factors within an organisation which impact
strengths or cause weaknesses of strategic nature.
The environment in which an organisation
exists can, therefore be described in terms of the opportunities and threats
operating in the external environment apart from the strengths and weaknesses
existing in the internal environment. The four environmental influences could
be described as follows:
1) An opportunity is a
favourable condition in the organisation’s environment which enables it to
consolidate and strengthen its position. An example of an opportunity is the
growing demand for the products or services that the company provides.
2) A threat is an
unfavourable condition in the organisation’s environment which creates a risk
for, or cause damage to, the organisation. An example of a threat is the
emergence of strong new competitors who are likely to offer stiff competition
to the existing companies in an industry.
3) A strength is an inherent
capacity which an organisation can use to gain strategic advantage. An example
of a strength is superior research and development skills which can be used for
new product development so that the company gain a strategic advantage.
4) A weakness is an inherent
limitation or constraint which creates strategic disadvantage. An example of a
weakness is overdependence on a single product line, which is potentially risky
for company in times of crisis.
An understanding of an external environment, in terms of
opportunities and threats, and the internal environment, in terms of strengths
and weaknesses, is crucial for the existence, growth and profitability of any
organisation. A systematic approach to understanding the environment is the
SWOT analysis
