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What is PESTLE analysis & how does it work?

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Building your brand from a strategic perspective is key, and that starts with understanding the external factors that influence it. A PESTLE analysis is one technique for examining how outside factors, including political, economic, social, technological, legal, and environmental factors, influence your brand.

Conducting a PESTLE analysis can help with strategic planning by giving you more context about your brand and what impacts it. You can use this information to drive decision-making, identify threats and weaknesses, and protect your brand from business disruptions.

Understanding how to conduct a PESTLE analysis and use that information to guide your business is essential. In this guide, we’ll examine PESTLE model analysis and how it can help your business succeed.

Conduct a PESTLE analysis for free with Confluence

PESTLE analysis framework

A PESTLE analysis analyzes six factors — political, economic, social, technological, legal, and environmental. It provides a structured framework for evaluating external influences on a business. 

Political factors

Several political factors affect businesses, including changes in the political climate and political threats. Government policies, leadership changes, foreign trade and relations, and tax policy can also significantly affect your brand. You also have to consider changes in regulation and deregulation.

Economic factors

Economic factors are external impacts caused by the economy. The economy's current state significantly impacts your business — from labor costs and interest rates to the health of the supply chain. It’s important to monitor the economy and analyze economic changes and how they could affect your business.

Social factors

Social factors deal with the social environment as a whole, including changes in population and demographics, social movements, and shifts in consumer behavior. The social environment guides consumer behavior and sentiments, so it’s crucial to understand how your brand can capitalize on that.

Technological factors

Changes in technology are one of the biggest factors that affect brands and businesses. When new technology emerges, it often makes simple aspects of an industry more efficient — but technology can also introduce new threats. Think about new technology, how you’re utilizing it, and what that means for your business.

Legal factors

Changes in laws — from federal to local laws — can change how your business operates. Laws change, new ones are added, and some are even abolished as time passes. Look at potential or recent legal changes and consider how they may affect your business.

Environmental factors

The environment is constantly changing, and those changes impact nearly every industry. Wildfires and other environmental events can affect the supply chain, and pollution and waste management regulations transform how businesses operate. Understanding how climate and health crises can impact your business can help you set clear and beneficial goals.

When to use PESTLE analysis

There are several situations where conducting a PESTLE analysis can benefit your business. A PESTLE analysis can benefit you during many transitional periods, from project planning to product launches. You can use a PESTLE analysis template when:

  • Launching a new product
  • Entering a new market
  • Exploring a focal problem in project management
  • Transitioning to a new strategy

Why is a PESTLE analysis important?

A PESTLE analysis is essential because it gives you a clear picture of everything that impacts your business. When a new law comes into effect or there’s a major shift in the country's economic health, a PESTLE analysis helps you mitigate risks and make decisions that drive your business forward.

A PESTLE analysis also plays a significant role in risk management. It helps identify threats and weaknesses that could pose a risk to your business so you can make the necessary changes to mitigate them.

How to conduct a PESTLE analysis

Regardless of the size of your business, a PESTLE analysis can help you gain knowledgeable insights about external factors that could affect your business. Let’s walk through each step to ensure you conduct an effective PESTLE analysis to protect your business from potential threats.

Define the objective and scope

Setting clear and measurable goals is the first step in conducting an effective PESTLE analysis. For instance, your goal might be to identify emerging technologies or evaluate potential legal or technological changes that could pose risks to your business.

If you begin a PESTLE analysis without clear goals, it can be difficult to focus on the right aspects of the analysis.

Research and gather data

To conduct an effective PESTLE analysis, you must gather data about the political and economic climate, social factors, technological changes, and laws.

When it comes to a PESTLE analysis, it's better to gather more data than less. You can analyze and interpret the information later, but for now, prioritize collecting as much relevant data as possible.

Analyze the impact of each factor

Once you’ve gathered enough information about the external factors that impact your business, start analyzing the impact of each factor to learn more. For example, you can analyze how technological changes make your business more efficient while introducing new threats. 

Collaboration is key at this stage. By involving team members who are integral to your business, you can gain valuable insights into how current or recent events impact your operations. Confluence Whiteboards facilitate collaboration, allowing team members and stakeholders to contribute their perspectives on an interactive, shared canvas.

Develop strategic insights and actions

A PESTLE analysis aims to identify external factors that could impact your business. However, identifying those external factors won’t be helpful if you don’t take the proper steps to mitigate your risk. Now is the time for you and your team to work together and use a strategic planning framework to develop an attack plan.

The better you prepare for the potential impact of these external factors, the less likely they are to impact you, and the easier it will be for your business to respond.

Pros and cons of PESTLE analysis

Conducting a PESTLE analysis is an excellent way to learn more about your business and its relationship to the world's current climate. You can use a PESTLE analysis to identify threats and weaknesses, discover new opportunities, and forge a strategic plan for the future.

One of the biggest challenges of PESTLE analysis is the large volume of data you need to collect and analyze. Political and social factors tend to be more subjective than technological and legal ones, so gathering accurate data can be difficult.

Overall, a PESTLE analysis is an excellent tool for gaining deeper insights into your business. Following project collaboration best practices can help you work better with your team and reduce the burden of collecting and processing large amounts of data during your analysis.

PESTLE analysis example

A great way to see a PESTLE analysis in action is by examining how a company might be impacted by various external factors, such as:

  • Political: Adopting fair trade practices and using sustainable raw materials
  • Economic: Seeking more affordable alternatives during economic downturns
  • Social: Reducing foot traffic during peak hours due to the rise of remote work
  • Technology: Enabling mobile payments to expand access to a broader audience
  • Legal: Complying with industry-specific licensing regulations and relevant policy changes
  • Environmental: Adopting eco-friendly packaging solutions in response to new regulations on waste

With this information, businesses can adapt by implementing sustainable practices, adjusting pricing strategies, and embracing technology to enhance customer convenience.

Optimize your PESTLE analysis process with Confluence

When conducting a PESTLE analysis, you need to have a central location to collect and analyze your data. Confluence whiteboards make it easy to brainstorm and analyze data to determine which external factors could have the most significant impact on your business.

Improve project collaboration with Confluence by allowing everyone to collaborate and add their unique ideas to a whiteboard in real time. You can even embed Confluence pages to provide more context about the external factors you’re examining. This centralized approach ensures that all insights are captured and accessible for more informed decision-making.

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