Definition: PESTLE Analysis is a study that takes into consideration the six crucial factors of macro environment, namely Political, Economic, Social, Technological, Legal and Environmental for determining the gap in business operations. It is an excellent analytical tool used for strategic decision making and gap analysis by the companies.
With this one strategical move, the business can anticipate the upcoming dangers as well as business prospects in the long run.
Content: PESTLE Analysis
Components of PESTLE Analysis
As we have already read that PESTLE analysis is a process of examining the various macro environment elements, let us understand about each one of these below:
An organization is highly influenced by the various political factors by the way of government rules, regulations, policies and restrictions. Thus, changes in tariffs, tax policy, interstate trade policy, trade restrictions, etc. may prove favourable or unfavourable for the business entities.
For instance; the government levied high export duty on the sale of certain medicines to the other countries. The manufacturer, therefore, experiences a gradual decline in the international demand for such drugs.
Being the crucial one out of all, are the economic factors. These are monitored by the central bank in association with the different government agencies. Some of these economic circumstances are deflation, inflation, fall in growth rate, exchange rate fluctuation and unemployment.
For instance; the country experienced inflation and the people had to dispose of their savings. As a result, the demand for precious items like gold and diamonds went down.
There are multiple constraints related to the society, these include demographic trends, social norms, culture, perception, pressure, attitude and recognition which equally impact the business activities. The consumer’s age, income, gender, living standard, health status, etc. mould their buying behaviour.
For instance; during the covid-19 pandemic, people became more health-conscious and stopped visiting the eat out places which ultimately shattered the restaurant industry.
With technological development, many times companies face a setback. These factors involve innovation, automation, the pace of change, artificial intelligence, research and development activities, e-commerce and many more. Although making the related changes involve huge expenditure, it is crucial for keeping the organization updated.
For instance; Kodak is a classic example of ignoring the innovation. The company overlooked the emergence of digital cameras and stuck to its old product i.e., the roll cameras. As a result, it vanished from the market that was once led by the brand.
The laws of a country can restrict organizations from performing certain tasks. Such legal barriers comprise of labour laws, trade permits, industrial practices, intellectual property, cyber laws, business standards and licenses.
For instance; a company was found exploiting the labour laws by paying off only 60% of the wages to the labourers. After a surprise inspection, the officials penalized the company heavily and ordered the management to release the retained funds with compensation.
Most often ignored but the ecological changes act as a key player in the business functioning. The common ones out of these are pollution, weather conditions, natural resources, climate changes, natural calamities, temperature and deforestation.
The companies have to fulfil their corporate social responsibility along with profit-making. Since it is a step taken in the way of a better ecological balance and eco-friendly trade practices.
For instance; PHOOL.Co came up with an extraordinary business idea of reusing the floral waste of the temples to make incense sticks, cones and vermicompost. Such an incredible eco-friendly business idea it is.
How to do PESTLE Analysis?
The process of PESTLE analysis is somewhat similar to that of other gap analysis tools. One may proceed with the following steps while conducting this analysis:
- Determine the scope of research by stating the present situation and desired future position clearly.
- Gather ample information about the different macro-environment factors that influence the organization in any way.
- Arrange the data and understand the impact of changes in these macro environment elements over the business operations.
- Discover the prevailing opportunities which these developments bring for the company.
- Also, beware of the forthcoming dangers or risks indicated through the macro environment changes.
- Disclose every bit of information related to your analysis in a report and present it in front of the stakeholders or the board of directors.
- Lastly, the top management, stakeholders and the board of directors can jointly take appropriate decisions in this context.
Use of PESTLE Analysis
What makes PESTLE analysis essential for the business entities?
Even after the availability of various other analytical tools like SWOT analysis and Ishikawa diagram, this tool has its unique place and is applicable for:
- Organizational Change: As the macro environment changes result in a need for transforming the organizational ways, for this purpose PESTLE analysis is applied along with other analytical tools.
- Product Development: This tool is widely used by organizations to analyze the need for product or service improvement to stay competitive in the market.
- Strategic Human Resource Planning: When it comes to strategic human resource management, PESTLE analysis plays a key role in skill gap analysis and workforce planning.
- Marketing Research: Whether it is consumer preference or market segmentation analysis, companies adopt this tool for determining their marketing objectives, strategies and framework.
- Strategic Business Planning: PESTLE analysis is considered quite essential for accurately determining business goals and strategies.
Advantages of PESTLE Analysis
For the companies which operate globally, PESTLE analysis is one of the favourite tools to keep a track of the macro environment of different countries. Also, it has the following benefits to business organizations:
- Risk Anticipation: PESTLE analysis makes the organization aware of the outer world uncertainties which are difficult to predict otherwise.
- Easy to Apply: This tool can be effortlessly applied to any kind of business organization and doesn’t require much expertise, even the basic analytical skills may work.
- Discover New Opportunities: It helps the management to uncover future prospectives and the opportunities that the outer world brings about for the business entity.
- Crisis Management: The organization can foresee the macro-environment adversities to become familiar with the unfavourable situation and prepare for the same.
- Perceives Business Environment: The internal environment of a business is highly affected by the macro-environment elements which are facilitated by the PESTLE analysis.
- Broadens Perspective: Rather than focusing just internally, a company can go through the overall scenario and various macro-environment aspects to understand its impact on the business functioning and organizational performance.
- Backs Decision-Making: Every business entity strategically plans its goals and operations in the long run, this tool is quite prominent for such decision-making.
Disadvantages of PESTLE Analysis
A company cannot solely rely upon PESTLE analysis for business decision making. This is because this tool comes along with multiple limitations as discussed below:
- Rapid Development Hinders Analysis: In the present era of development, the pace of change is so fast that it becomes difficult to conduct PESTLE analysis effectively.
- Requires Frequent Implementation: With constant changes and uncertainties of the macro environment, the company needs to periodically conduct the analysis process.
- Insufficient Data or its Oversimplication: The information inadequacy can hinder the process of PESTLE analysis, also, it is prone to the limitations of user interpretation.
- Rely upon Assumptions: Many times, the companies end up creating blunders due to lack of realistic data, since this tool functions on mere assumptions.
- Excessive Data Reduces Efficiency: When the analysts are more concerned about the quantity of data rather than its quality, there are more chances of inaccurate analysis.
Pestle analysis is a technique that can be used to determine the specific presence or absence of certain compounds in a sample. It is most often used in laboratory settings, but it can also be useful for environmental testing and food inspection. pestle analysis works by crushing materials (like plants or rocks) and then analyzing the content of the crushed material using spectroscopy. This information can then help to identify what kind of chemicals are present, how much they’re present, and where they’re located on the spectrum.
This tool can be especially helpful when trying to assess environmental damage or identify contaminants like pesticides or heavy metals in food samples.
A pestle analysis is a common technique used to identify the composition of powders, pills, and other solid preparations. It involves taking a sample of the mixture and subjecting it to various physical tests in order for its constituents to be identified. This can include weight, compression strength, thermal decomposition rates (temperatures at which compounds break down), particle size distribution (smaller particles over larger ones), molecular structure (structure of molecules), etc.
By understanding how these different test parameters relate to one another, you can develop an accurate diagnosis for the formulation being analyzed. In particular cases where there are unknown ingredients or chemicals present, this information may help in identifying their potential harmful effects on humans or animals.
Pestle analyses are often helpful when dealing with medicines/drugs that have novel compositions or formulations that haven’t been tested before in human subjects. By using this versatile analytical toolkit, scientists can quickly determine if these substances might pose risks during long-term use or exposure.
To conduct a pestle analysis, you will need to gather the following equipment: mortar and pestle, water,nuts or seeds (for grinding), measuring cup or bowl. First, Grind the nuts or seeds in a food processor until they are finely ground. Next set up your work area by filling a large pot with cold water and placing the mortar and pestle on top of it. Put enough nuts or seeds into the mortar to make sure that they are fully covered. Then use your arm strength to pound them into small pieces using the side of the pestle.
Pestle analysis is a process used to identify and analyze potential environmental hazards. By using a pestle, analysts can extract information such as air quality, water quality, chemical residue levels, and more. This information can then be used to help determine where or how specific toxins may have leaked into the environment.
Pestle analysis is also commonly used in the inspection of food products for safety purposes.
Pestle analysis is the process of analyzing a compound using a pestle and mortar. This term was first used in 1717 by Pierre Louis Maupertuis when he attempted to determine the composition of water vapor.
Since then, pestle analysis has been widely adopted for various purposes including chemical synthesis, drug testing, food preparation and more. By physically breaking down complex molecules into smaller chunks (and eventually understanding their molecular structures), it becomes easier to identify potential flaws or contaminants. Additionally, this approach can also help in elucidating unique properties of compounds that might be otherwise difficult to detect.
No analytical tool can be good enough alone. They most often require the findings of one another to reach a sensible conclusion.
PESTLE analysis can be extensively applied by organizations operating oversees whether they are outsourcing or offshoring; exporting or importing; and even for the multi-national companies.