What is PESTLE Analysis? - Definition & Examples

What is PESTLE Analysis? - Definition & Examples
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  • 0:02 The Stage Is Set
  • 0:58 Using PESTLE
  • 5:23 Lesson Summary
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Lesson Transcript
Instructor: Allison Tanner
How do you keep ahead of your competition and identify the risks or benefits of operating in a particular environment? This lesson will discuss how you can use PESTLE analysis to consider how external elements are affecting your company.

The Stage Is Set

Imagine that you work as a Strategic Development Manager for a global retail company. For the most part, your company sells clothing, with a particular focus on jeans. They have stores in 10 countries and they operate in more than 5,000 locations worldwide. With slipping sales and a rapidly changing global market, your team is tasked with keeping your company afloat.

You want to get ahead of your competition, so you sign up for a strategic analysis training using a model called PESTLE analysis. At the training, you find out that PESTLE is a strategic analysis tool that considers the political, economic, social, technological, legal, and environmental elements that affect your organization. PESTLE analysis looks at how the external environment influences the operations of your organization, which helps you to identify potential risks.

Using PESTLE

At the training, you're given a diagram. You notice that the arrows on the diagram show how each element of PESTLE affects your organization. It includes the political, economic, social, technological, legal, and environmental factors that are all affecting your organization at that time.

Diagram of PESTLE
PESTLE

By identifying how each element of PESTLE influences your business, you can look for solutions to problems, develop marketing strategies, and you can get ahead of your competition. You can even use PESTLE to evaluate the risks associated with states and countries you're interested in expanding your company into.

Because PESTLE helps you to understand how the external factors are affecting your company, you can gain a strategic advantage on competitors by preparing for anticipated changes to things such as the political or legal environment. Each element of PESTLE has a unique effect on your company.

Political

Political factors take into consideration the government and political actions or changes that may affect your company. Examples include:

  • Trading tariffs
  • Visa requirements
  • Restrictions on trade
  • Government policies, such as taxes or price control

For example, let's say the current U.S. political system is dominated by Republicans, but you know that the next political election will likely bring in Democratic leaders. You also know that Democratic leaders are known for raising corporate taxes. With this information, you can now develop a strategic plan to prepare for the possibility of increased taxes. Competitors who do not evaluate the impact of the political system on their organization may not be ready for a possible increase in taxes.

Economic

The economic situation of the environment you're working in affects your company's ability to remain profitable. Examples include:

  • Currency inflation rate
  • Currency exchange rate
  • Wealth of local citizens
  • Interest rates
  • Level of economic growth

Let's say that the local exchange rate for one of your international operations went from 2:1 to 1:4. Your company went from being ahead, to being really far behind. In this case, your profitability would take a major hit. If your company tracks the exchange rate, you can be aware of any pending changes, and prepare for them.

Social

Social factors are the unique characteristics of the people in the environment your company operates in. Examples include:

  • Age
  • Gender distribution
  • Cultural norms
  • Fashion interests
  • Growth of the population

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