5 Tips for Effective Use of PESTLE Analysis in the Business World

PESTLE analysis is an extremely powerful tool in the business world. After all, it accounts for the political, economic, sociocultural, technological, legal, and environmental factors which affect or could one day affect your business — in other words, it’s an amazingly comprehensive analysis tool.

But like with all things, using PESTLE analysis effectively is the key to success. If you simply guess and scribble down a handful of business variables, that’s probably not going to provide any value to your organization. However, if you use these five PESTLE analysis tips, you’ll be on the fast-track to conducting a concise and meaningful analysis for your organization.

1. Have a good reason

With any business analysis tool, you need to have a good reason for using it. That’s especially true for PESTLE analysis, since there are multiple circumstances which might warrant using this powerful business tool. Most commonly, PESTLE analysis is used to:

    Better understand a business environment before launching a new venture or entering a new market, or,

    Analyze an existing business environment in the hopes of finding new opportunities and identifying potential threats.

If you know why you’re doing PESTLE analysis — whether your reason is one of the above or something else — you’ll be better able to tailor your analysis to your organization, and, ultimately, better able to draw meaningful conclusions.

As an example, if you’re a member of a large, highly successful transnational corporation, you might be more concerned with maintaining your existing business than with finding new opportunities. Then, you can approach PESTLE analysis with a more defensive mindset — focusing on, for example, looming environmental issues more so than the growing economy.

2. Know your organization

Following on from our first tip, knowing your organization is an easy way to get more value out of PESTLE analysis. PESTLE analysis looks at so many different factors, and there’s no limit to how much depth you can go into. As such, the old, idiomatic rule of “less is more” can also apply to PESTLE analysis: instead of covering each of the six categories in great depth, why not focus on the categories that are most relevant to your organization?

This is where knowing your organization comes in handy. If your organization is a B2B (business-to-business) product or service, sociocultural factors like consumer spending might not be needed as part of your PESTLE analysis. Alternatively, if your organization offers exclusively digital products and services, you should be a whole lot more concerned with the technological aspect of the PESTLE model than the environmental one.

3. Look to the future

PESTLE analysis isn’t just about understanding where your business is now; it’s also about looking to the future to identify opportunities that you could one day capture or threats that require prophylactic action now. If you always focus your PESTLE analysis on the current state of matters, you really do miss out on some of the most valuable insight.

Here are two ways you can quickly improve your PESTLE analysis by looking to the future:

    Make predictions about the future (e.g. how do we expect government regulation to change over the next years as pertaining to vehicular emissions?)

    Use data that represents change, in addition to data that represents the existing state (e.g. the rate of population growth, in addition to the current population)

With both of these approaches, you need to be careful. Predictions are exactly that — predictions — while past results aren’t always indicative of the future. However, if you use sensible assumption and look at major trends, you’re bound to gain at least some insight into your organization’s future business environment.

4. Use other tools

PESTLE analysis is a powerful tool, even when used alone. However, you shouldn’t refrain from using other business analysis tools in place of or in conjunction with PESTLE analysis. Each of these tools takes a different approach to looking at ventures, organizations, and their surrounding business environments, and they will help you draw fuller, more balanced conclusions when used in tandem.

Here are two powerful alternatives to consider:

    SWOT analysis

    Porter’s Five Forces analysis

We particularly like SWOT analysis, since it forces you to focus on the future with the O (opportunities) and the T (threats). It also encourages your organization to critically self-evaluate, looking at strengths and weaknesses. Porter’s Five Forces analysis is also a great tool, but you’ll find that much of the content overlaps with SWOT analysis.

5. Draw simple conclusions

It may sound silly, but one of the easiest ways to make good use of PESTLE analysis is to draw simple conclusions from the data you collect. Many of us have a tendency of collecting huge amounts of data for our PESTLE analysis (and that’s OK!), and from that creating large, multi-page reports which are extremely difficult to digest.

If you want to get the most value out of PESTLE analysis, you should aim to draw simple conclusions wherever possible, that others can easily understand and act on. After all, having just a few actionable conclusions is significantly more useful than having loads of partially-relevant analysis.

This is all the more important if you plan to share the results of your PESTLE analysis with others. Don’t expect coworkers to read ten and twenty page reports; instead, see if you can condense the most important findings from your PESTLE analysis onto a single sheet of paper. By doing so, you’ll find that learnings from your PESTLE analysis are a lot more likely to be implemented.

Final thoughts for making good use of PESTLE analysis

As you’ve seen, making good use of PESTLE analysis is all about looking at the bigger picture: understanding your organization, knowing your reasons for conducting the analysis, thinking about the future, drawing from other tools, and ending with conclusions that others can understand and act on. Sure, you don’t need to do any of this to conduct PESTLE analysis, but if you do, you’ll find the whole experience a lot more valuable!

Photo by Drew Beamer