How to Conduct a PESTLE Analysis

What is a PESTLE analysis?

A PESTLE analysis is used to conduct a broad assessment of the key features of the external environment facing a business. It delves into six key factors affecting a company’s operations: Political, Economic, Social, Technological, Legal, and Environmental.

By identifying and recording the Political, Economic, Social, Technological, Legal and Environmental factors your business faces, you can provide decision makers with a clear outline of the threats and opportunities that may influence outcomes. This can then directly tie into a, which identifies the Strengths, Weaknesses, Opportunities, and Threats faced by a business, as well as the Porter's Five Forces Model, which analyses the competitive landscape a company faces.

Although many of the factors that tie into a PESTLE analysis involve issues outside the direct control of a business, awareness and effective management of the external environment are vital for attaining competitive advantage and ensuring a company is best placed to respond to any upheaval or opportunities on the horizon.

How to conduct a PESTLE analysis

To conduct a PESTLE analysis, you must consider each of the six different factors the framework covers. Each category within the PESTLE framework encompasses a host of factors that can be researched and recorded to form the final analysis. Below, we’ve highlighted the main considerations for each stage of the analysis. We’ve also provided examples of company analysis for each of the PESTLE factors and put together a free PESTLE analysis template to get you started on your own analysis.

1. Political

Political factors are those that influence a company’s operating environment through government practice, whether at the international, national, regional or local level. Considerations that may affect business plans include upcoming changes of government, prevailing instability, competition policy, spending and tax regimes, business and labour regulations, business policy and incentives and the government’s approach to trade and tariffs.

To conduct an analysis of political factors, ask yourself questions like:

• What is the political situation of the country and how might it affect our company?
• Are there any trade restrictions in place that could affect our company’s operations?
• What tax regimes are in place that may affect our company?

Example: Facebook

It’s no secret that Facebook is a top competitor in the Online Advertising in Australia, Social Networking Sites in the US and Social Media Platforms in the UK industries. To remain on top, influential companies like Facebook need to regularly evaluate the external environment to help hedge against risks and seize untapped opportunities. When it comes to political factors, the social media giant has both wins and drawbacks to consider.

Here’s our analysis of Facebook:

• The political stability of developed countries provides opportunities for Facebook to continue diversifying its operations in these markets.
• The use of Facebook’s social media platform is prohibited in some countries for political reasons, most notably in China, North Korea and Iran, which limits the company’s potential in these markets.
• Former high-profile security breaches, such as the infamous Cambridge Analytica scandal, have led governments to explore online data mining practices more seriously. Government bodies are increasingly working to limit the collection, sharing and processing of consumer data. As these processes are a key part of Facebook’s business model, this can threaten the company’s revenue streams.
• In the “fake news” era, social media platforms are increasingly coming under fire for allowing the distribution of false information. This threat has been particularly prominent during the COVID-19 pandemic. Social media platforms, including Facebook, have aimed to combat this threat by flagging posts that contain misinformation.

2. Economic

The Economic aspect of the PESTLE analysis model considers the general state of the economy, goods, services and finances, including inflation, interest, economic growth, exchange rates and unemployment, as well as geographic factors influencing the economic environment. Economic factors can often be researched through government databases and other public sources. However, quantifying the impact of these factors can be difficult from industry to industry. Accessing industry-specific research reports can be helpful in understanding the unique impact of each factor.

To conduct an analysis of economic factors, ask yourself questions like:

• How strong is economic performance in our country and what does that mean for our company?
• How much foreign direct investment is our company likely to benefit from?
• How high is the unemployment rate in our geography and how might this impact our company’s performance?

Example: Apple

Apple is one of the most recognizable companies in the world, with its popular iPhone and Mac products making it one of the most influential players in the Retail Market for Smartphones in the US and Retail Market for Laptop Computers in the US. As a global company that sells its products around the world, Apple must continuously monitor the economic conditions of the countries where it operates to ensure its continued success.

Here’s our analysis of the economic factors that influence Apple’s performance:

• As one of the world’s largest manufacturers of consumer electronics, Apple exports its products around the world. As a result, imports and exports can be influenced by movements in exchange rates; a strong US dollar can reduce demand from overseas consumers by making products comparatively more expensive.
• Economic growth and increasing disposable incomes support demand for Apple’s generally expensive products, as consumers are more willing to spend on products such as smartphones and laptops when incomes are strong.
• High unemployment typically leads to a reduction in the amount of money consumers have to spend on discretionary goods, such as smartphones and laptop computers. As a result, rising unemployment is likely to threaten demand for Apple’s products.

3. Social

Social factors in a PESTLE analysis are varied and can differ substantially depending on the industry or business in question. Longer-term social factors, such as population growth and age demographics, and shorter-term social trends, such as changing behaviour regarding social media and purchasing practices, all influence a company’s performance.

Societal trends can have a considerable influence on business practices. Reputation is intrinsically linked to the Social factor of the PESTLE framework and consumer-facing companies can face substantial reputational damage if they do not effectively consider social and market trends.

To conduct an analysis of social factors, ask yourself questions like:

• How does the size and age distribution of the population impact demand for our products/services?
• How could changing lifestyle attitudes affect our performance?
• To what extent could rising health consciousness affect demand for our products/services?

Example: Starbucks

Starbucks is one of the best-known companies in the Coffee & Snack Shops in the US, Coffee & Snack Shops in Canada and Cafés & Coffee Shops in the UK industries. An innovator in the coffee retail space, Starbucks has secured its top position by keeping a watchful eye on social trends and reacting accordingly.

These are the social factors that we expect to affect the company:

• Rising coffee consumption and the growth of “coffee culture” in developed economies provide an opportunity for Starbucks to capitalise on increasing demand.
• Growth in the size of the population widens the potential market for Starbucks, which could allow it to increase its customer base.
• Changing working patterns, such as the increased adoption of work-from-home policies, can threaten Starbucks’ performance, as many of its stores are located in business centres. Reduced commuter footfall can therefore threaten revenue for some establishments. This trend has been particularly prevalent during the COVID-19 pandemic.
• The growing trend towards dairy-free and vegan diets has necessitated a shift towards dairy-free alternatives, such as soy and oat milk, to help maintain demand.

4. Technological

The Technological aspect of a PESTLE analysis covers the rate of technological change, R&D activity and automation. This can be both in terms of an industry’s direct activities and how it is affected by technological changes through its supply chain. Digital technologies have been particularly prominent in recent years, but mechanical and physical technological development remains important. Technological developments can refer to production and operational practices or the product or service itself. An assessment of the technological factors that affect a company also includes disruptors to traditional modes of operation.

To conduct an analysis of technological factors, ask yourself questions like:

• What technological developments are occurring in our industry and is our company keeping up?
• Has our company automated its operations or could it benefit from doing so?
• How much does our company invest in R&D to help release new products/service lines?

Example: Microsoft

A leader in the technology sector, Microsoft’s name is known across the world. As the producer of the world’s most used computer operating system, it is a leading player in the Operating Systems & Productivity Software Publishing in the US and Software Publishing in the UK industries, as well as the Video Games in the US industry. Given the fast-moving nature of these markets, Microsoft must continuously assess its performance to ensure it remains ahead of the curve.

Here’s our analysis of the technological factors that can affect its performance:

• Microsoft has traditionally been at the forefront of technological innovation. Heavy investment in R&D has helped Microsoft maintain strong demand for its products, particularly its operating system, Windows.
• The Windows 10 operating system is run on the majority of computers, with new versions of the system regularly released. The company’s focus on advancing its operating systems provides it with strong opportunities to remain in high demand.
• Microsoft also produces one of the world’s most popular gaming consoles, the Xbox. The company’s focus on R&D and innovation also results in regular releases of new consoles, helping it to capitalise on new sales and continue to open new revenue streams.

5. Legal

The PESTLE analysis model includes assessment of the legal and regulatory regime under which a company or industry operates. This factor is focused on the laws directly connected to a business and its area of activity, either domestic or international. This can include employment law, such as minimum wage laws, health and safety regulations, environmental regulation and data protection laws such as the EU’s GDPR.

To conduct an analysis of legal factors, ask yourself questions like:

• Does our company treat its staff fairly and comply with all relevant employment laws?
• Does our company protect its intellectual property through the use of copyrighting and patents?
• Do our operations comply with health and safety regulations?

Example: Google

Google is one of the world’s most well-known tech giants and a highly influential player in the Search Engines in the US, Search Engines in the UK and the Online Advertising in Australia industries. The sheer volume of personal information that Google has access to has been turning heads. With regulators taking a closer look at the company, Google has been heavily affected by privacy laws and other legislation.

Here is what we’ve determined to be the most important legal factors affecting the company:

• Growing regulation related to protecting consumers’ information online could threaten Google’s business model, given its focus on tailoring advertisements to customers based on their search history.
• However, Google can improve its reputation and improve trust among consumers by showing how it is adapting to help to protect consumer data, which could help it attract demand in place of its competitors.
• Given its focus on innovation, Google can benefit from ensuring its products and technologies are protected by intellectual property rights to help it keep ahead of the competition.

6. Environmental

Environmental factors influence some industries more than others. Although trends in environmental factors can be hard to predict, assessing an industry’s exposure to environmental changes is an important part of a PESTLE analysis. Without investigating environmental trends, businesses cannot fully understand the impact such trends may have on their operations or plan for future changes that address environmental risk factors. As climate risk becomes increasingly important in business analysis, this factor of the framework becomes more critical.

In addition to the direct impact of climate change, as public concern over the environment grows, a company’s sustainability strategy and its environmental reputation are also important factors to consider.

To conduct an analysis of environmental factors, ask yourself questions like:

• How high are our emissions and what are we doing to reduce pollution?
• Are we complying with environmental targets set by the government?
• What environmental initiatives does our company have in place?

Example: Nike

Nike is a leading manufacturer of sporting goods and apparel, sitting among massive names in the Athletic & Sporting Goods Manufacturing in the US, Footwear Wholesaling in Australia and Athletic Shoe Stores in the UK industries. With fashion production responsible for at least 10.0% of humanity's carbon emissions, large manufacturers like Nike must closely monitor their environmental impact.

Here’s our analysis of the environmental factors the affect Nike:

• Nike’s production facilities require a large amount of energy to run and therefore release a significant amount of emissions. The significant damage to the environment that these emissions cause is contributing to climate change.
• Leather is a key input into many of Nike’s products, given that the company is a leading manufacturer of sports footwear. The production of leather can involve the use of toxic dyes and chemicals, which can be harmful to the environment.
• Nike has established a sustainability initiative, where the company sets itself targets to help make its operations more environmentally friendly. The four main focuses of Nike’s sustainability efforts are carbon, waste, water and chemistry. Demonstrating efforts to improve its environmental credentials could help Nike attract demand from environmentally conscious consumers.

IBISWorld and the PESTLE framework

IBISWorld industry research reports are designed around best practice frameworks, like the PESTLE model. Offering extensive research on the external environment, our reports include actionable data and analysis that helps you make better, more strategic business decisions. By taking a deep dive into specific industries, your company can find the information needed to conduct thorough PESTLE, SWOT and Porter’s Five Forces analyses.

A growing collection of thousands of industry reports and 500+ Business Environment Profiles, IBISWorld’s data and insights are the perfect complement to strategic planning frameworks.

Contact us to speak with one of our representatives today.