PESTLE
By understanding the wider context or bigger picture of political, economic, social, technological, legal and environmental (PESTLE) forces you will be able to see what possible future scenarios might be facing your organization.
What this external analysis does is to scan the current and future envi-ronment to see what trends might impact on the strategic decision-making process. Under the various headings below are listed the sorts of questions that a leader or senior management team might care to ask.
Political
• What are the key policy directions of the current government (European, central and local) as it relates to our operating environment?
• What are the possible and likely alternative policy directions on the horizon (of this and any future government)?
• What are the effects of the wider global political environment?
Economic
• What are the current trends in the economy and how might they impact (favourably or adversely) on our organization, market and industry?
• What are the trends in individuals’ prosperity and how will this impact on our current and future offering?
Social
• What are the social trends that will affect our customers and markets?
• In what ways will demographics, changes in purchasing patterns, families and community cohesion influence our strategy?
Technological
• How will new technologies help us get our products and services to market?
• What challenges and opportunities will technology present in the future?
Legal
• Given current and emerging trends in national and international legis-lation, what do we see as the most significant factors?
• What are the internal and external requirements of future legislation?
Environmental
• What environmental factors are likely to influence or require us to adjust our strategy?
• How are the unfolding environmental crises (potential oil shortages, climate change, etc) likely to impede our direction and what opportunities might arise?
The purpose of doing the PESTLE analysis is twofold: identification of general external trends or events that will influence the organization’s ability to deliver; and identification of the key factors that will either enhance or impede any current or future strategy of the organization.
Having collected and sifted the data, you need to draw some conclusions as to the likely impact and the depth of impact. Similarly, if opportunities present themselves one has to assess the importance and possibility of grasping them.
Table 2.1 takes a snapshot in time of the PESTLE environment and applies it to three different industries. As you will see, different factors loom larger in the different industries.
Table 2.1 PESTLE snapshot
Financial Pharmaceutical Social housing Political Looming pensions Low-cost drugs for Uncertainty around
crisis developing countries Government’s ability Regulatory regime High cost of drugs for to tackle housing
Security issues hospitals crisis
Security issues
Economic Increasing household More money to House prices
debt purchase life style continue to rise
House prices continue Lack of affordable
to rise housing
Social Increased public Shift towards alternative Ageing population
sophistication medicine requiring more
Family breakdowns Movement towards food residential care Student debts as a channel for taking
medicine
Technological Greater ease of Continuing development Systems access to online of efficient and effective improvements to accounts production methods allow for internal
Greater potential for efficiencies and
fraud better customer
service
Legal Increased regulatory Increased regulatory Increased regulatory
framework framework framework
Rise in compensation culture
Environmental Ethical investment Ethical issues around Greener house
drug testing building
Key questions to ask in each case would be:
• What is the meaning of this?
• What is the probability of this?
• What is the likely impact of this?
• What are the implications of this, on revenue and/or on costs?
• How might we respond to this?
Industry, competitor and market analysis
The next part of the jigsaw is to look at the immediate operating envi-ronment. By this I mean the industry you are in and the competitors that are there or may well be there in the future. As an aside, managers within the public sector or not-for-profit organizations would still benefit from doing this analysis, though they may prefer to use different terminology.
Increasingly the boundaries between public and private are being eroded and for better or worse managers need to be able to operate across these boundaries.
What we are looking at in terms of change are a number of things. First how the macro-environment might impact the industry; second how the different constituent parts within the picture might be acting and reacting now and into the future; and third how the overall structure of the industry might change.
You may also wish to conduct a market analysis to ascertain where you should be focusing your efforts. Principally, in any given situation you will have a number of options:
• to focus on current products and services in current markets;
• to expand your current products and services into new markets;
• to develop new products and services for current markets; and
• to develop new products and services in new markets.
Responding to any and all of these options will mean adapting something in your organization. Indeed, only if in the first option there were no changes in customer expectations or buying patterns; there were no changes in competitor activity; there was a stable economic environment; and there was a stable equilibrium within the organization, would you not need to make any changes.
Scenario planning
As we scan the environment and scrutinize our particular operating envi-ronment for what might happen in the future we’ll note that there are some things that we’re pretty sure will happen while other things might have some chance of happening. With others, they may or may not happen – we don’t know the probability. Each will have different meanings when viewed within the overall context of the future. Rather than take a view on just one set of circumstances coming about and planning for that, it can be useful to construct a number of different future scenarios and see how well placed the organization is to meet and master those.
Conclusion
An external analysis looks at the macro and micro factors that may or may not impact on your organization and its performance in the short, medium and long term. Having done the initial analysis you can then generate a number of possible futures that would suggest some of the scenarios that you may wish to plan for and exploit. Each of the factors that might impact your organization can be seen as a potential threat or a potential opportunity.