Actually, originated as PEST Analysis, this framework is used in the early stages of strategy development to describe the landscape and ecosystem in which a company operates (PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal).

Note: STEEPLE (Social, Technological, Economic, Environmental, Legal, Ethical) and DESTEP (Demographic, Economic, Social, Technological, Environmental, Political) are often transformed into SLEPIT (Social, Legal, Economic, Political, Intercultural, Technological).

When beginning a new company or entering a foreign market, this method is extremely useful. It is often used to provide a clear understanding of a situation and related internal and external factors in collaboration with other analytical business tools such as SWOT analysis and Porter’s Five Forces.

• Introduction
• Components of a PESTLE Analysis
• What is a PESTLE Analysis used for
• When to perform PESTLE Analysis
• How to do a PESTLE Analysis
• Examples of PESTLE Analysis
• PESTLE Analysis tips
• Advantages and Disadvantages of a PESTLE Analysis

Introduction

A PESTLE analysis is a management framework and diagnostic tool. The outcome of the Analysis is to understand critical factors external to the organization which can impact on strategy and influence business decisions.

PESTLE is an acronym for P- Political, E – Economic, S – Social, T – Technology, L – Legal and E – Environmental

Let’s look into each of these factors in detail

P – Political: The primary political factors include the government policies and political stability of the country, other factors may include tax implications, regulations of industry, and restrictions and global trade agreements.

E – Economic: This may include exchange rates, economic growth or decline, globalization, inflation, living costs and interest rates, labor costs and consumer spending.

S – Social: Trends such as lifestyle preferences, societal values and aspirations, career attitudes and work-life balance are social influences. Consumer preferences and buying habits as well as population demographics are also concerned with it.

T – Technology: Recent developments in technological advancement, goods and services, other technological innovations that affect data storage, security levels, disruptive technologies such as smartphones , social networking, automation , robotics and the growing change towards AI ( Artificial Intelligence) are the main technology factors that can influence the organization.

L – Legal: Employment labor law and Employment tribunal decisions impact upon working practices. It is also important to keep up-to-date with all changes in legislation and health and safety regulation.

E – Environmental: The Environmental factors that can impact the organization are political sanctions that govern carbon emissions, shift towards renewable resources such as wind turbines. This area also covers CSR (Corporate Social Responsibility) and ethical sourcing of goods and services which has a direct impact on the procurement and your business supply chain management

Figure: PESTLE Analysis Template

P	Political	Government policy Political stability Tax Industry regulations Global trade agreements and or restrictions
E	Economic	Exchange rates Globalization Economic growth/ decline Inflation Interest rates
S	Social	Income Distribution Demographic Influences Lifestyle Factors
T	Technology	International Influences Changes in Information Technology Take-up rates
L	Legal	Tax Policies Industry Regulations Health and Safety regulations
E	Environmental	Regulations and Restrictions Customer attitudes

It provides people with an insight into the external factors that influence their organization. The research is versatile, so it can be used in a variety of different situations by organizations. The findings can be used by individual practitioners and senior managers to direct strategic decision-making.

This Strategic Tool discusses PESTLE’s six components and explains what PESTLE analysis is used for, concentrating on the most valuable scenarios. It also provides a PESTLE analysis example (of Amazon.com Inc.).

Components of a PESTLE Analysis

Political Factors

These factors are about how a government intervenes in the economy and to what degree. This can include: government policy, overseas market political stability or uncertainty, foreign trade policy, tax policy, labor law , environmental law, trade restrictions, etc.

From the list above, it is clear that political factors also have an impact on companies and how they do business. Organizations need to be able to adapt to and change their marketing practices accordingly to current and expected future legislation.

Economic Factors

Economic factors have a huge effect on how a company does business and also on how profitable it is. Factors include economic development, interest rates, exchange rates, inflation, customer and company disposable income, and so on.

These factors can be further broken down into factors that are macro-economic and micro-economic. Macro-economic issues deal with demand management in any given economy. Governments use interest rate regulation, tax policy, and government spending as their primary instruments for this reason.

The way individuals invest their incomes is all about micro-economic factors. In particular, this has a significant influence on B2C organizations.

Social Factors

Also known as socio-cultural factors, are the areas that involve the shared belief and attitudes of the population. These factors include population growth, age distribution, knowledge of health, job attitudes, and so on. Such factors are of special interest because they have a significant influence on how marketers understand clients and what drives them.

Technological Factors

Technological factors affect marketing and the management thereof in three distinct ways:

• New ways of producing goods and services
• New ways of distributing goods and services
• New ways of communicating with target markets

Legal Factors

Legal factors include – health and safety, equal opportunities, advertising standards, consumer rights and laws, product labelling and product safety. It is clear that to trade effectively, businesses need to know what is and what is not legal. This becomes a very challenging field to get correct if a company trades internationally, since each nation has its own set of rules and regulations.

Environmental Factors

In the last fifteen years or so, these factors have only really come to the fore. Due to the the shortage of raw materials, emissions quotas, doing business as an ethical and sustainable company, carbon footprint goals set by governments have become relevant (this is a good example where one aspect could at the same time be categorized as political and environmental).

These are just some of the problems facing marketers inside this factor. More and more people are demanding that the goods they purchase be sourced from a sustainable source, ethically and where possible.

What is a PESTLE analysis used for

The main purpose of the PESTLE analysis is to understand whether your company could be influenced by external factors and how those factors may generate opportunities or threats to your business.

A PESTLE analysis is also used as a systematic fact-finding activity. It allows an organization to recognize external factors that may have an impact on decisions taken within the organization.

A company on its own does not control these factors, nor can these factors directly impact an organization’s profitability. It’s important to maximize opportunities and mitigate risks to the enterprise by knowing these external factors. To detect and comprehend large, long-term trends, performing a strategic analysis means scanning the external environment.

In a variety of business planning scenarios, a PESTLE analysis is an acceptable framework and practice to be used. These will cover:

Strategic business planning

When beginning a business planning process, a PESTLE analysis report is a valuable document to have available. It offers contextual information to the senior management team about the direction in which the organization is heading, brand positioning, growth goals, and any areas or threats related to a decrease in productivity.

It may also assist in assessing the validity of current goods and services and in identifying the production of new products.

Workforce planning

Workforce planning is a business method that incorporates plans for business and people. An examination of PESTLE can help recognize revolutionary improvements to business models that can have a significant effect on the future environment of jobs.

From increased skills shortages, the emergence of job positions that did not exist 10 years ago, and job reductions or relocation, companies are facing major changes in their workforce. It is only going to accelerate this rate of transition.

Marketing planning

A PESTLE analysis provides the essential element of ‘climate’ in the situation analysis phase of the marketing planning process, as with business planning. It can help priorities company operations within a defined timeline to meet clear marketing targets.

Product development

A PESTLE analysis will help you decide whether to join or exit a path to market, assess whether your product or service still serves a need in the marketplace, or when to launch a new product, by providing insights into what is happening externally to an company.

Organizational change

PESTLE analysis can be a powerful practice to understand the meaning of change and the possible areas of focus for successful change. In this case, when used in combination with a SWOT analysis to provide information on potential opportunities and challenges to labor changes, PESTLE is most effective; for example, shortages of skills and current workforce capabilities.

People strategies, reports and projects

A PESTLE analysis may also be used to hypothesize what may or may not arise in the future as a basis for looking beyond the company. It should ensure that when aligning individual objectives with the larger organizational strategy, essential considerations are not overlooked or ignored. It may also assist in determining whether more evidence-based studies should be investigated.

When to perform PESTLE Analysis

A PESTLE analysis is best used when you need a big-picture understanding of your business. Some of the best times for a PESTLE analysis to be performed include:

• When you launch a new company,
• When you uncover a big issue
• When / if the company pivots
• If you recognize potential developments in one sector (e.g. politics) and want to re-evaluate the market.

Bear in mind that macro-level assessments are PESTLE studies. For smaller internal tasks or problems, you probably should not perform a PESTLE analysis.

How to do a PESTLE analysis

Conducting a PEST analysis is fairly straightforward, but it can be time-consuming. Use the following steps to help you conduct your next PEST analysis—just be sure to give yourself plenty of time to do a thorough evaluation.

Consider PEST factors that could impact your business

The first step is to study and collect as much knowledge as possible about the external factors on your company. Enlist the support of other company leaders or managers to ensure that you have a robust data collection.

As you start brainstorming and gathering data, consider the following list of PEST examples to guide your research:

P: Political factors

Political factors look at how legal and governmental rules, as well as the political environment, could affect the freedom to operate of your organization and its ultimate profitability.

Such factors might include:

• Upcoming polls at local, state or national level
• Principal political candidates and their thoughts on various policies
• Regulation of business by the government or competition
• Commercial policies (e.g. tariffs, present or prospective trade agreements, etc.)
• Degree of organized crime or corruption in your region or country
• Restrictions on imports
• Policies on E-commerce
• Protections for clients and workers

E: Economic factors

For any business, the economy has a huge effect. Consider the following economic factors that may impact the operations of your business:

• Economic prosperity at present
• Growth and inflation rates expected
• The rates of interest
• The Economic Policies
• The habits of customers and financial health
• Unemployment rate and job competition
• Credit access (personal and corporate)

S: Socio-cultural factors

Socio-cultural factors consider the makeup of the population and your target demographics to understand how well your business can compete in the market. Such factors could include age distribution, cultural behaviors, and patterns in the workplace or lifestyle.

Consider how the following factors could influence your organization as you evaluate the market:

• Rise and demographics of population
• Shifts of generations
• Consumer habits and values ( e.g., emphasis on the quality of goods or environmental friendliness)
• Scale and composition of families
• Lifestyles for Customers
• Rates of Immigration
• Attitudes in relation to work

T: Technological factors

This step takes into account the particular role and growth of technology in an organization and industry, as well as wider technological developments and applications that affect society as a whole.

For example, increasing access and availability of remote working opportunities is one way that technological developments have changed the workforce. Such improvements have far-reaching effects for the future of work and will influence how organizations organize their companies and workers.

Additional technical factors to remember include:

• Access of the company to emerging technologies
• Access to Competition to Technology
• Level of progress in technology
• Infrastructure Evolution
• Study by government or academic research

L: Legal factors

Employment labor law and Employment tribunal decisions impact upon working practices. It is also important to keep up-to-date with all changes in legislation and health and safety regulation.

The major Legal factors to be considered includes:

• Employment law
• Common law
• Local labor law
• Health and safety regulations

E: Environmental factors

Due to the shortage of raw materials, emissions quotas, doing business as an ethical and sustainable company, carbon footprint goals set by governments have become relevant (this is a good example where one aspect could at the same time be categorized as political and environmental). These are just some of the problems facing marketers inside this factor.

Other Significant Environmental factors include:

• Environmental restrictions imposed by in-country governments
• Sustainable resources
• CSR (Corporate social responsibility)
• Ethical sourcing
• Transportation
• Procurement
• Supply chain management

Identify opportunities

When you have studied the different ways in which your company is changed and influenced by external circumstances, begin to recognize opportunities that these changes could bring.

For Instance, Is there a technical advancement, that you might take advantage of to improve efficiency? Or are there changes in the demographics of customers that might open up new markets for your products?

Find out as many possibilities as possible so that your company can create the best strategic response.

Identify threats

Unfortunately, change also comes with risks.

You need to recognize possible challenges to your company so that you can minimize the risks and change your strategies accordingly, whether an economic downturn affects your bottom line or the access of a competitor to a new technology gives them a competitive advantage.

The earlier you consider threats, the more likely you are to eliminate or reduce the effects of them.

Act on your findings

With all your information collected and your opportunities and threats outlined, it’s time to take action. Incorporate these findings into your business plan to take advantage of opportunities and manage threats as soon as possible.

Example of PESTLE Analysis

PESTLE Analysis of B2B Company – McKesson Corporation

McKesson is a B2B Pharmaceutical company that provides pharmaceutical distribution services and health information technology, medical supplies, and care management tools.

The success of Mckesson Corporation relates to the issues shown in this PESTLE analysis of the business and its remote or macro-environment.

The business enjoys the advantages of broad market scope, high capitalization, and high visibility as one of the major players in the global market for pharmaceutical supplies, information, and care management products and services.

The Pharmaceutical market is competitive, however, and constantly presents Mckesson Corporation with new challenges. To meet the corporate mission and vision statements of Mckesson Corporation ensuring flexibility and integrity in meeting such challenges is crucial.

The decision-makers of the organization will recognize the most important opportunities and risks based on external factors in the remote or macro-environment of the sector through methods such as the PESTEL / PESTLE analysis model.

This PESTEL / PESTLE analysis of Mckesson Corporation shows the importance of the expansion of operations into more countries to help the global growth of the Healthcare services segment.

The company, however, needs to tackle rivalry between large and aggressive corporations such as Cerner Healthcare, Wallgreens boots alliance as well as technology companies such as EMIS Group, Cardinal Health which are competing against healthcare software from Mckesson Corporation.

Nevertheless, as seen in this PESTEL / PESTLE study, the competitive environment provides opportunities in different business segments to continue growing Mckesson Corporation’s operations, including those of subsidiaries such as covermymeds and relayhealth.

	External Factors to Consider	Factors affected within the Industry
Political	Government Policy Political stability Tax Industry Regulations Global trade agreements and or restrictions	Rising tensions and instability in the global political environment will affect the growth of the healthcare sector (Threat) Current developments in the US political scenario as change in government will alter the government’s priorities for the growth of different sectors (Threat & Opportunity) Entry in countries with a high level of taxes directly affects the profitability of McKesson Corporation. High taxes influence foreign trade and discourage exports (Threat)
Economic	Exchange Rates Globalization Economic Growth / Decline Inflation Interest Rates Cost of Living Labor Costs Consumer Spending Habits	Growing economies offer wide-ranging growth opportunities to the McKesson Corporation (Opportunity) The high interest rate would stimulate investment activity and increase growth opportunities for the Mckesson Corporation (Opportunity) Skilled labor shortages can impact business performance and make attracting and retaining talent more difficult (Threat)
Social	Consumer trends / rates Fashions Consumer buying habits Career attitudes Demographics	Rising inequality in many countries is altering the power system, which has significant consequences for international business organizations such as McKesson Corporation (Threat). Offering luxury products at premium rates to a market where the high-end market is considerably limited in size will require McKesson Corporation to adopt the niche marketing strategies. (Threat & Opportunity)            Increasing Online buying habits (Opportunity)
Technology	Automation Innovation Disruptive Technologies Social Networking Upgrades Robotics Artificial Intelligence Security	McKesson Corporation. can leverage the opportunities offered by social media marketing to improve business performance (Opportunity) The adoption of emerging technology has shortened the life-cycle of new product growth. Today, new products are rapidly developing and supply chain partners have also gained more power (Threat & Opportunity) Foreign Governments reluctant to transfer technology (Threat)
Legal	Employment Law Common Law Local Labor Law Health and Safety Regulations	Rising Product Regulation (Opportunity) Data protection has become an important issue due to consumer privacy and security concerns. (Opportunity) Intellectual property regulations are designed to protect the companies’ patents and valuable ideas. (Opportunity)
Environmental	Environmental restrictions imposed by in-country governments Sustainable Resources CSR (Corporate Social Responsibility) Ethical Sourcing Supply Chain Management	Many countries have placed strict norms to protect their urban areas through effective waste management. (Opportunity) Some countries offer subsidies to encourage investment in renewable technologies. (Opportunity) Regulatory bodies’ emphasis on ensuring compliance with environmental norms is altering the product innovation priorities. (Opportunity)

Recommendations for McKesson corporation based on PESTLE Analysis

McKesson Company boasts a long background in the prescription drug business and is currently ranked 14th on the Fortune checklist at present. In response to the challenges posed by the global scope, McKesson should act seriously regardless of its renowned position in the global market. It is worth paying attention to the dynamic nature of the technology to prevent losing its market control.

In addition, if the enterprise may serve a worldwide market, the importance of providing a consistent system of information to manage the actual activity coming from the organization should not be overlooked.

In order to sustain significant degrees of performance, McKesson needs to establish organic processes in addition to natural processes that are continually changing along with the usually transforming realities of the typically competitive modern day. Except when the organization progresses as the world order usually shifts, failure is specific.

PESTLE Analysis of B2C Company – Amazon.com Inc.

Amazon.com, Inc., is a Seattle, Washington-based American multinational technology corporation focused on e-commerce, cloud computing, digital streaming, and artificial intelligence. Along with Google, Apple, Microsoft, and Facebook, it is considered one of the Major Five companies in the U.S. information technology industry.

The company has been referred to as “one of the most influential economic and cultural forces in the world”, as well as the world’s most valuable brand.

This PESTLE Analysis focuses mainly on Amazon’s B2C e-commerce segment. Cloud computing services, consumer electronics, and retail are other sectors or segments included in this external analysis of Amazon. The company enjoys the advantages of broad market scope, high capitalization, and high visibility as one of the major players in the global market for information technology and related online services.

This Amazon.com Inc. PESTLE analysis shows the importance of the expansion of operations into more countries to help the global growth of the e-commerce sector. The company, however, needs to tackle rivalry between large and aggressive corporations such as Walmart, as well as technology companies such as Google, Apple, Microsoft and IBM, which are competing against cloud services and related technological products from Amazon.

The business now also has its own microchips used in its cloud infrastructure, rendering Intel a possible rival. Nevertheless, as seen in this PESTLE study, the competitive landscape provides opportunities in different business segments to continue growing Amazon’s operations, including those of subsidiaries such as Whole Foods Market.

	External Factors to Consider	Factors affected within the Industry
Political	Government Policy Political stability Tax Industry Regulations Global trade agreements and or restrictions	Political stability of developed countries especially the USA and European Countries (Opportunity) Overall Government Support for e-Commerce (Opportunity and Threat) Increasing Governmental efforts on cyber-security (Opportunity)
Economic	Exchange Rates Globalization Economic Growth / Decline Inflation Interest Rates Cost of Living Labor Costs Consumer Spending Habits	Economic stability of developed markets, especially the USA and European countries (Opportunity) Increasing disposable income in developing countries (Opportunity) Potential Economic Recession of China (Threat)
Social	Consumer trends / rates Fashions Consumer buying habits Career attitudes Demographics	Increasing wealth disparity (Threat) Increasing consumerism in developing countries (Opportunity) Increasing Online buying habits (Opportunity)
Technology	Automation Innovation Disruptive Technologies Social Networking Upgrades Robotics Artificial Intelligence Security	Rapid Technological Obsolescence (Threat & Opportunity) Increasing efficiencies of IT Resources (Opportunity) Increasing rates of Cybercrime (Threat)
Legal	Employment Law Common Law Local Labor Law Health and Safety Regulations	Rising Product Regulation (Opportunity) Changing Import and Export Regulations (Opportunity) Rising Environmental Protection Regulations on Businesses (Opportunity)
Environmental	Environmental restrictions imposed by in-country governments Sustainable Resources CSR (Corporate Social Responsibility) Ethical Sourcing Supply Chain Management	Rising Interest in environmental programs (Opportunity) Rising emphasis on business sustainability (Opportunity) Increasing popularity of low-carbon lifestyles (Opportunity)

Recommendations for Amazon.com Inc. based on PESTLE Analysis

In the online shopping market, Amazon.com Inc. remains the top player. Despite rising rivalry with firms like Walmart, the business has shown resilience.

This Amazon PESTLE analysis identifies key problems that are crucial to the long-term sustainability of the company. A recommendation is to extend the operations of the organization into emerging markets that offer rapid economic development and a strong potential for growth in e-commerce.

Also, by continuing and strengthening its current IT protection and integrity policies, the organization must resolve IT security issues. Such problems impact customer trust and the stability of the company’s remote or macro-environment.

In addition, it is recommended that Amazon improve its brand strength through a corporate social responsibility strategy that addresses current issues that connect the organization to the natural environment, based on the external variables in this PESTLE analysis.

PESTLE Analysis tips

To perform a PESTLE analysis, some valuable tips are:

• Collaborate-there would be a better result for a study with multiple viewpoints.
• Using the skills and resources inside the organization that are already available.
• Along with other approaches, such as SWOT analysis, Porter’s Five Powers, competitor analysis, or scenario preparation, use PESTLE analysis.
• To track changes in the market climate, integrate the study into an ongoing process.
• Try not to get bogged down by gathering large quantities of quantitative information without adequately evaluating and interpreting the data.
• Don’t leap to the past or present-based conclusions about the future.

Advantages and Disadvantages of a PESTLE Analysis

Advantages:

• It is a simple system.
• It promotes an awareness of the larger market environment.
• It promotes external and strategic thinking to evolve.
• It will help an organization to predict potential business risks and take steps to prevent their effect or mitigate them.
• It can help an organization to spot and fully leverage market opportunities.

Disadvantages:

• The amount of data used for decisions is oversimplified by some PESTLE analysis users; insufficient data is easy to use.
• The risk of too much data being collected could lead to ‘paralysis by analysis’.
• The knowledge used could be based on assumptions that prove to be unfounded later on.
• It is increasingly difficult to predict changes that will impact a company in the future due to the speed of change.
• The process needs to be replicated on a regular basis to be successful.