Strategic Management and Pestle Analysis

PESTLE stands for – Political, Economic, Sociological, Technological, Legal, and Environmental

A PESTLE analysis is a useful tool for understanding the ‘big picture’ of the environment in which an organisation is operating. Specifically a PESTLE analysis is a useful tool for understanding risks associated with market (the need for a product or service) growth or decline, and as such the position, potential and direction for an individual business or organisation.

A PESTLE analysis is often used as a generic ‘orientation’ tool, finding out where an organisation or product is in the context of what is happening outside that will at some point affect what is happening inside an organisation.

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The six elements form a framework for reviewing a situation, and can also be used to review a strategy or position, direction of a company, a marketing proposition, or idea. Advantages and disadvantages of using a PESTLE analysis There are a number of advantages and disadvantages associated with using a PESTLE analysis:

Advantages include:

  • It is a simple framework. It facilitates an understanding of the wider business environment.
  • It encourages the development of external and strategic thinking.
  • It can enable an organisation to anticipate future business threats and take action to avoid or minimise their impact.
  • It can enable an organisation to spot business opportunities and exploit them fully.

Disadvantages include:

  • Some users over simplify the amount of data used for decisions – it is easy to use scant data.
  • To be effective this process needs to be undertaken on a regular basis.
  • The best reviews require different people being involved, each having a different perspective. Access to quality, external data sources can be time consuming and costly.
  • The pace of change makes it increasingly difficult to anticipate developments that may affect an organisation in the future.
  • The risk of capturing too much data is that it may make it difficult to see the wood for the trees and lead to ‘paralysis by analysis’.
  • The data used in the analysis may be based on assumptions that subsequently prove to be unfounded (good and bad).

MORRISON,  M. (forthcoming) SWOT and PESTLE and other diagnostic tools [provisional title]. Putney: Intelligent Press.