CARRYING OUT A

PEST / PESTLE ANALYSIS.

Checklist 196

» INTRODUCTION

PEST analysis is a useful tool for understanding the macro-environment in which an organisation operates.
The technique involves reviewing factors which will have an impact on the organisation’s business and the
level of success it will be able to achieve. The analysis may be carried out as part of an ongoing process of
environmental scanning, to inform overall strategy development or to support the development of a new
product or service. Undertaking a PEST analysis can raise awareness of threats to ongoing profitability and
help to anticipate future difficulties, so that action to avoid or minimise their effects can be taken. It can also
alert the organisation to promising business opportunities for the future. The process of carrying out the
analysis will also help to develop the ability to think strategically.

Traditionally, PEST analysis has focused on political, economic, sociological and technological factors, but
increasing awareness of the importance of environmental, legal and cultural factors has led to the evolution of
a growing number of variants. For example:

› PESTLE - Political, Economic, Social, Technological, Legal and Environmental

› PESTEL – Political, Economic, Social, Technological, Environmental, Legal
› STEEPLE - Social, Technological, Economic, Environmental, Political, Legal, Ethical
› SPECTACLES - Social, Political, Economic, Cultural, Technological, Aesthetic, Customers, Legal,
Environmental, Sectoral
› PEST-C, - where the C stands for cultural
› SLEEPT-C Sociological, Legal, Economical, Environmental, Political, Technological and Cultural.

This checklist focuses on PESTLE - the traditional four factor analysis plus the consideration of legal and
environmental aspects. It is important for managers and business leaders to consider which factors are
particularly relevant to their organisation and to include these in the analysis.

» DEFINITION

PESTLE analysis is a technique used to identify, assess and evaluate external factors affecting the
performance of an organisation with the aim of gathering information to guide strategic decision-making.

» FRAMEWORK FOR ANALYSIS

To facilitate the analysis, it can be helpful to create a matrix of the factors to be analysed and the
opportunities or threats they represent, as in the table below. This provides a simple framework for the
analysis, but bear in mind that there will be varying degrees of overlap and interrelation between the different
factors.

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 Implications for the Opportunity Threat
Category Fact
organisation Rate 1-5 Rate 1-5
Political List here the To get from fact to Rate as a Rate as a
relevant implication ask yourself combination of combination of
political facts "so what does this likelihood of likelihood of
mean for my occurrence and occurrence and
organisation" seriousness of seriousness of impact
impact
Economic List here the "so what does this
relevant mean for my
economic facts organisation"
Socio/ List here the "so what does this
cultural relevant socio/ mean for my
cultural facts organisation"
Technological List here the "so what does this
relevant mean for my
technological organisation"
facts
Legal List here the "so what does this
relevant legal mean for my
facts organisation"
Environment List here the "so what does this
relevant mean for my
environmental organisation"
facts

Political factors

This part of the analysis is concerned with how the policies and actions of government affect the conduct of
business. Legislation may restrict or protect commercial operations in a number of ways. Issues to be
considered under this heading include:

› the level of political stability

› the legislative and regulatory framework for business, employment and trade
› the tax regime and fiscal policy
› programmes of forthcoming legislation
› the dominant political ideology.

Questions to ask:

› When is the next election due?

› How likely is a change of government?
› Is the government inclined towards interventionist or laissez-faire policies?
› What is the government's approach to issues such as tax, competition, corporate social
responsibility and environmental issues?
› How do sector rules and regulations affect your business?

Economic factors

This part of the analysis is concerned with overall prospects for the economy. Key measures include:

› GDP/GNP
› inflation
› interest rates
› exchange rates
› unemployment figures

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any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the
prior permission of the publisher.
 › wage and price controls
› fiscal and monetary policy.

Issues such as the availability of raw materials and energy resources, the condition of infrastructure and
distribution networks and the changing nature of global competition may also be relevant.

Questions to ask:

› Is the economy in a period of growth, stagnation or recession?

› How stable is the currency?
› Are changes in disposable income to be expected?
› How easily is credit available?
› Are trade agreements for imports/exports likely to change?

Social factors

These are probably the most difficult factors to quantify and predict, as personal attitudes, values and beliefs
are involved. Demographic factors such as birth rates, population growth, regional population shifts, life
expectancy or a change in the age distribution of the population should be taken into account. Factors to be
considered include:

› levels of education
› employment patterns
› career expectations
› family relationships
› lifestyle preferences
› trends in fashion and taste
› spending patterns
› mobility
› religious beliefs
› consumer activism.

Questions to ask:

› How much leisure time is available to customers?

› How is wealth distributed throughout the population?
› How important are environmental issues?
› What moral or ethical concerns are reflected in the media?
› What might be the impact of an unknown retirement age approach?

Technological factors

Rapid technological change has had far-reaching effects on business in past decades. Factors to be
considered here include:

› investment in research and development

› new technologies and inventions
› Internet and e-commerce developments
› developments in production technology
› rates of obsolescence.

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any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the
prior permission of the publisher.
Questions to ask:

› Which new technological developments will have implications for my business?

› Where are research and development efforts focused, and is there a match with our own focus?
› How are communication and distribution operations being affected by new technologies?

Legal factors

Legal factors are external factors which refer to how the law affects the way businesses operate and
customers behave. These factors include; national employment laws, international trade regulations and
restrictions, monopolies and mergers’ rules, and consumer protection. Legal factors are those which have
become law and regulations. Legal needs to be complied with, they are mandatory.

Examples of things which may be influenced by legal factors include:

› current legislation
› future legislation
› international legislation
› regulatory bodies and processes
› employment law
› consumer protection
› Industry-specific regulations
› competitive regulations.

Questions to ask:

› How do the current legal factors affect business?

› How might future legislation change and impact?
› What regulatory bodies and processes
› How does consumer protection effect the business environment?

Environmental factors

Environmental impacts can include issues such as limited natural resources, waste disposal and recycling
procedures. Environmental factors have become important due to the increasing scarcity of raw materials,
pollution targets, doing business as an ethical and sustainable company, carbon footprint targets set by
governments (this is a good example were one factor could be classes as political and environmental at the
same time). An increasing number of consumers are also demanding that products are sourced ethically and
if possible from a sustainable source. Among the factors to be considered are:

› ecological
› environmental regulations
› customer values
› market values
› stakeholder/ investor values
› global factors.

Questions to ask:

› What are the stakeholder/ investor values – how can this impact?
› How might customer values influence how we as company or our products and service viewed?
› How will the existing environmental regulations affect a trading position?

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any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the
prior permission of the publisher.
» ACTION CHECKLIST

1. Identify the most important issues

The usefulness of the analysis will depend not so much on the quantity of information collected, but on its
relevance. Consider which factors are most likely to have an impact on the performance of the organisation,
taking into account the business it is in and the fields where it is active or may be active in the future. Local
and national factors will usually be most important for small businesses, but larger companies will need to
consider the environment in any countries in which they do business, as well as the global scene and
emergent competition. Information on current and potential changes in the environment should be included.

2. Decide how the information is to be collected and by whom

Check first how much of the required information has already been collected or is available within the
organisation in reports, memos and planning documents. In the context of a large organisation it may
be wise to consult those with expertise in specific areas and delegate to them the collection of some
types of information.

3. Identify appropriate sources of information

Hard factual information, such as employment figures, inflation and interest rates, and demographics, is often
easily available from official statistical sources and reference books. A wide range of additional sources, such
as newspapers, magazines, trade journals, research reports, websites, discussion boards, email newsletters
and social networking sites, will be needed for softer information such as consumer attitudes and public
perceptions. You may also wish to consult consultants, researchers and known experts in the relevant fields
to supplement published material.

4. Gather the information

Decide in advance how the information is to be organised and stored. Ensure that the required IT systems for
storage and analysis are in place. Take into consideration factors such as the resources available and the
personnel who will need to access the information.

5. Analyse the findings

Assess the rate of change in each area - which changes are of minor or major importance; which are likely to
have positive or negative implications. It is possible that some trends will have both positive and negative
effects and it will be necessary to weigh these against each other. Avoid an over-emphasis on events with a
negative effect and try to identify positive opportunities which may open up. Although a PESTEL analysis
often focuses on anticipating changes in the environment, it is also important to consider areas where little or
no change is expected.

6. Identify strategic options

Consider which strategies have the best chances of success and what actions could or should be taken to
minimise threats and maximise opportunities.

7. Write a report

Summarise your findings, setting out the threats and opportunities identified and the policy choices which
should be considered. Use appendix to include relevant information. Preliminary recommendations for action
should also be included.

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any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the
prior permission of the publisher.
8. Disseminate your findings

The results of a PESTLE analysis will be useful to those in the organisation who are responsible for decision
making and strategy formulation.

9. Decide which trends should be monitored on an ongoing basis

Trends and patterns will have emerged from the research and it may be clear that an ongoing review of
developments in these areas will be needed. Alternatively, further evidence may be required to support
hunches or hypotheses which have been formed in the course of the analysis. In the case of risks, these do
need specific attention and monitoring.

» POTENTIAL PITFALLS

Managers should avoid:

 making assumptions about the future solely based on the past or the present. PESTLE is a
diagnostic tool and many other factors should be included before reaching a conclusion
 getting bogged down in collecting vast amounts of detailed information without analysing the
findings
 seeing PESTLE analysis as a one-off, it should form part of an ongoing process for monitoring
changes in the business environment
 using PESTLE analysis in isolation - combine it with other techniques, such as SWOT analysis,
Porter’s five forces, competitor analysis or scenario planning.

» ADDITIONAL RESOURCES

BOOKS

Creating competitive advantage: how to be strategically ahead in changing markets, Kevin Uphill
London: Kogan Page, 2016
This book is also available as an e-book

Business and competitive analysis: effective application of new and classic methods, 2nd ed
Craig S Fleisher, Babette E Bensoussan
Upper Saddle River NJ: Pearson Education, 2015

Business analysis, 3rd ed, Debra Paul, James Cadle, Donald Yeates
Swindon: BCS Learning and Development, 2014

Understanding markets and strategy: how to exploit markets for sustainable business, Malcolm Morley
London: Kogan Page, 2014

The business environment, 7th ed, Adrian Palmer, Bob Hartley

Maidenhead: McGraw-Hill, 2012

Business environment, E-learn

Oxford: Taylor & Francis, 2009
This book is available as an e-book.

This is a selection of books available for loan to members from CMI’s library. More information at:
www.managers.org.uk/library

All rights reserved. No part of this publication may be reproduced in a retrieval system, or transmitted, in
any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the
prior permission of the publisher.
 RELATED CHECKLISTS

056 Strategic planning

005 Performing a SWOT analysis

RELATED MODEL

PEST (Pestle/Steeple) Analysis

» NATIONAL OCCUPATIONAL STANDARDS FOR MANAGEMENT AND LEADERSHIP

This checklist has relevance for the following standards:

› Unit, BA4: Evaluate your organisation’s operating environment

» MORE INFORMATION

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This publication is for general guidance only. The publisher and expert contributors disclaim all liability for any
errors or omissions. You should make appropriate enquiries and seek appropriate advice before making any
business, legal or other decisions.

Revised December 2016

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