What Is PESTLE Analysis Used for? Most often to assess the viability of a new venture and to analyzing the macro environment.
PESTLE analysis is one of the most popular business analysis tools there is. Although it might sound too good to be true, looking at just the Political, Economic, Sociocultural, Technological, Legal, and Environmental factors at play in a chosen business environment can give you bounds of valuable insight.
A big part of using PESTLE analysis effectively is understanding what it should be used for. This is essential in including the right data in and drawing the most meaningful conclusions from your analysis. So, in this article, we're going to walk you through some of the most common uses of PESTLE analysis, explaining how you can get the most value out of this versatile tool.
Uses of PESTLE Analysis
In truth, PESTLE analysis has a lot of different uses — too many to list on just one page. Broadly speaking, though, there are two main applications for PESTLE analysis which we want to discuss:
- Assessing the viability of a new venture
- Analyzing the macro environment
Let's start by discussing the more specific application of the two: assessing the viability of a new venture.
Assessing the viability of a new venture
Many people look to business analysis tools to help them make the right decisions for their organization. Very often, business owners are unsure whether they should proceed with a new venture. Doubts of "will it work?" and "what if I fail?" flood their minds.
PESTLE analysis can be extremely useful in answering some or all of these questions. The six factors — Political, Economic, Sociocultural, Technological, Legal, and Environmental — really do cover all of the bases when assessing the viability of a new venture. For example:
- Political factors account for tariffs and regulations affecting your venture, such as the cost of selling a product or service abroad
- Economic factors help determine how much people will pay for your product or service
- Sociocultural factors give insight into the demand for your product or service. For example, a popular accessory in one country might flop in another (due to differing sociocultural values)
- Technological factors tell you whether a target market is ready for your product or service
- Legal factors help you understand the rules and regulations you'll have to meet to sell your product or service
- Environmental factors encourage you to look at your product or service in the context of the delicate environment
Overall, these factors give you a very strong picture of how the greater business environment will determine the success or failure of your venture.
Identifying opportunities and threats
While PESTLE analysis is a valid tool for analyzing individual business ventures, it's particularly powerful in the context of a broader, business-wide scope. The business environment is constantly changing, and understanding where it is now and where it is headed is an easy way to identify and capture potential opportunities or identify and avoid potential threats.
Of course, using PESTLE analysis for this purpose might require some prediction or forecasting, since you'll often find yourself looking to the future. However, present-day data still gives a lot of insight into potential opportunities and threats for your business. Here are some examples of what each of the PESTLE factors might indicate:
- Political factors can help you predict potential regulatory threats
- Economic factors describe how various market sectors are slowing down or picking up, allowing your organization to adapt
- Sociocultural factors show changes in your consumer which could help or hurt your business
- Technological factors generally point you towards new opportunities (since technology is mostly moving forward, with access to an infrastructure for new technologies constantly growing)
- Legal factors help protect your organization from costly fines or penalties
- Environmental factors allow you to plan for how your organization will adapt to climate change, deplenishing natural resources, and related regulatory movements
Again: PESTLE analysis is extremely good at giving you an insight into your business environment. It's understanding that business environment that allows you to capture new opportunities and avoid potential threats.
Who Should Use PESTLE Analysis?
With all this in mind, you may be wondering who should use PESTLE analysis. As you've seen, PESTLE analysis can provide valuable insight in a few ways, so we suggest that all businesses use this type of analysis on a regular basis.
Medium and large organizations often use PESTLE analysis more, since they have the resources needed to do so. However, PESTLE analysis is equally valuable for small businesses.
Aside from just businesses, researchers, governments, and non-governmental organizations might also find PESTLE analysis very useful. Researchers often look to PESTLE analysis to structure their reports on changing business environments; governments recruit the power of PESTLE analysis to help shape new regulations and distribute funding; non-governmental organizations use PESTLE analysis to help groups (and often entire countries) improve their financial situations.
When to Use PESTLE Analysis
The only other question is when you should use PESTLE analysis. Of course, this will depend on what you are using PESTLE analysis for.
If you are conducting PESTLE analysis to assess the viability of a new venture, then you should definitely do so before investing too much time and money into the venture. This is because PESTLE analysis is most useful during the decision-making stage — so you ought to have completed the analysis before you make the all-important decision.
If you are conducting PESTLE analysis to identify opportunities or threats for your organization, then you can do so whenever you please. We suggest that you conduct PESTLE analysis on a regular basis (so as to follow the dynamic business environment), depending on your organization's resource. Should you have the time and money for it, we recommend using PESTLE analysis every year or so. Smaller businesses might use PESTLE analysis less frequently, up to every five years, while larger business might use it more frequently, such as every quarter.
Final Thoughts
As a quick recap, PESTLE analysis is best used for assessing potential business ventures or identifying opportunities and threats in an existing business. Most often, it's used by for-profit businesses, but it can be used by almost anyone. We suggest conducting PESTLE analysis on a regular basis to keep track of the constantly changing business environment.
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