It can also be applied to analyze the environment in which an organization is operating and evaluate possible improvements in its performance or its products, if the aim is to improve competitiveness and positioning in the sector.
PESTLE: political, economic, sociological, technological, legal, and environmental factors
PESTLE analysis is a tool to identify surrounding factors that may affect our future or present business.
Most of the analyses you can find on the Internet, even some shown in the bibliography about this topic, focus on identifying and defining the variables related to the context.
My PESTLE analysis proposal combines the identification of such factors with evaluating their impact in the short, medium, and long term. This proposal is based on the knowledge developed in the risks and effects analysis of environmental, industrial safety, and labor studies. To illustrate my proposal, I include a PESTLE analysis for the launch of a startup in the ICT sector at the end of this post.
Political & legal factors
The political variables of the context in which our company will operate will affect, direct or indirect, its performance and functioning.
Many sectors, especially in the European Market, are regulated for different legislation at European, national, regional, and even local levels. Knowing the possible regulatory scenarios of our sector is a crucial piece to guarantee the adjustment of our business to the environment.
The legislation means, in many cases, investment and adaptation to the rules, so these are situations that will affect the profit and loss account of the business and that must be planned. Likewise, our business may be affected by the general infrastructures of a certain area.
In the case that I present, the company is affected by the ease of access to the Internet. Government proposals to improve online communication infrastructures or, otherwise, penalize or prohibit access to the Internet, as occurs in certain countries with significant government intervention, will favor or harm the operations of our company and is something that we must consider in our expansion plans.
Other examples related to this item may be the penalty for using certain raw materials or promoting others by a government, incentives for using specific energies, and health regulations related to our service.
Thus, the more or less interventionist policy in different sectors of society -economy, health, culture, education, energy, communications, etc.- will positively or negatively affect our activity. Therefore, through PESTLE, we must identify political factors and integrate them into our action plan.
The macro and microeconomic environment affect the present and future of our organization.
A market operating in a compressed economy, in crisis, or with a high unemployment rate means less money for consumption of certain goods and services. In these kinds of scenarios, we will have to evaluate carefully how the context could affect our operation and, even, whether there is in this context room for our value proposition.
In the shown case, the company began its launch in a market immersed in an economic crisis, which affected its sales and growth forecasts. Furthermore, its expansion approach to other international markets required the evaluation of the domestic financial situation of these potential consumers. For example, an increase in the price of consumer staples in emerging economy countries may mean fewer consumer resources to purchase our product or service.
Identifying and properly managing the socio-cultural factors related to our value proposition can make the difference between the success or failure of our launch.
The buyers or users of our proposal are people immersed in a culture and society with specific rules and customs; this affects their behavior, way of thinking and deciding, and consumption habits.
Mental schemes and shared behaviors, beliefs, or forms of relationship and communication are, among many others, key aspects that will influence the purchase decision of our potential customers. Likewise, knowing different segments of the same culture will help us properly segment our potential market.
At the end of the analysis in this chapter, we should know what technological factors can prevent, slow down or enhance the entry of our proposal in the market.
Is there the right technology for what we want to do? Are we capable of developing it? How do other related technological factors affect us?
In the case that I propose, mobile technology and Internet access infrastructures become essential since they are the basis of the operational capacity of an ICT company.
The reports issued by different national and international observatories can help us carry out this part of the PESTLE analysis.
Ecological / environmental factors
The environmental chapter of PESTEL is directly related to the political-legal chapter and usually derives from it. Aspects related to the ease of access to resources and how their exploitation affects the environment, the environmental legislation that will regulate our operations, aimed at sustainable development: carbon footprint, waste, type of energy available, penalties for certain uses and behaviors related to a possible environmental impact, incentives for certain environmentally positive behaviors, etc.
In recent decades, environmental policies have become more restrictive in response to global environmental problems. In this sense, with or without environmental regulation that applies to our business (we will hardly be exempt from complying with any regulation related to the environmental issue), we must analyze this section in detail and act responsibly, considering the environmental cost of our activities as one more cost that affects the placing on the market of our product and that society is paying in some way. In this sense, eco-innovative projects within the circular economy paradigm have gained importance in recent years.