The core of an organization must be assessed. What strategies are used, what technologies are available, and which resources are valuable are considered along with analysis. But also how external factors will affect the ways in which a firm concludes business.
The most known analysis type is PESTLE analysis. And it’s crucial to strategic planning and management.
PESTLE Analysis: The Basics
A tool to identify critical external factors that may affect a corporation. That is what PESTLE analysis is. The factors may be opportunities — methods that provide a competitive advantage. Or it could be threats, which could become so severe the firm must shut down.
PESTLE analysis is important in strategic management. But the analysis must be completed first before management can truly harness the information.
A corporation using this analysis are examining how political, economic, social, technological, legal and environmental forces affect their business. Truthfully, not all of these categories will affect a business equally.
IT businesses are greatly influenced by technological factors. While firms using a word of mouth approach heavily rely on understanding social trends and changes.
PESTLE analysis provides an overall explanation of influences and your business. And highlight areas to pay special attention to.
Additionally, PESTLE analysis can be used to address new markets. If it is plagued by many negativity, it’s an industry that is difficult to succeed in. If your business is considering bridging into a new market, PESTLE helps determine whether it’s a smart decision or not.
The factors and strategic management
Political factors address various laws (education, copyright, and employment for example). But it also includes government stability and potential corruption. These laws can only be changed by political parties. They exist, and everyone else must work with them or pay legal consequences.
Economic factors are straightforward. They’re anything that affects the state of the economy, profits, and revenue. Consider taxes, inflation rates, stock market trends, labor costs and others.
Social factors focus primarily on consumers and prospective customers. Buying trends, lifestyle choices, population rates, education level and social classes affect how consumers buy. Considering all businesses need customers, heavy amounts of focus are put in this section of the PESTLE analysis.
Technological factors are levels and advancements in technology. Every business uses technology to sell products. It’s appropriate to study access to modern technology, communication methods, technological change rates and prices. Tech-based companies pay special attention to this section.
Legal factors are sometimes considered similar to political factors. But it affects how companies operate costs, facilitate business, and handle product demands. For example, some firms require several patents to ensure competition don’t copy their products. But this section also includes consumer laws, health and safety laws, and more.
Environmental factors include climate (change), weather, and eco-friendliness of products. Tourism, forestry, and agriculture industries must pay extra attention to these factors. Bad weather may mean a severe lack of profits.
Strategic management requires the information from PESTLE analysis to be useful. By combining the two, a company will keep a close eye on the factors that directly affect their business. They will monitor these factors and seek out opportunities. And will continuously optimize business performance and objectives to work with these influences.
Since these influences cannot be directly affected — it’s not like we can stop a blizzard or ignore labor laws — businesses need strategic management to ensure businesses are working with the factors. Otherwise the company can be left behind by competitors.
The benefits of PESTLE analysis is having an idea of where opportunities lie. And to begin a plan of action to reduce risks and threats. Strategic management means you can take these influences and ensure the business aligns with the factors for success.