PESTLE Analysis (Political, Economic, Social, Technological, Legal, Environmental)
When India got freedom from the Britishers in 1947, on one side the entire country was beaming with happiness & ecstasy and on the other hand, few politicians were wondering how to deal with the newfound freedom as for many centuries either we were under the control of Mughals and later with the English army. Everything has to be started from scratch like what should be our constitution and what needs to be done to lead a country that is facing the heat of partition!
The ability to foresee the future is unquestionably the number one ability everyone longs to possess. With the right tools and resources, the organization can make accurate business projections.
PESTLE framework represents one of the vertebras of the backbone of strategic management that not only defines what a company should do but also accounts for an organization’s goals and the strategies stringed to them.
The importance of each of the factors may be different to different kinds of industries, but it is imperative to any strategy a company wants to develop that they conduct the PESTLE analysis as it forms a much more comprehensive version of the SWOT analysis.
A PESTLE analysis studies the key external factors (Political, Economic, Sociological, Technological, Legal and Environmental) that influence an organisation. It can be used for different scenarios and can guide professionals and senior managers in strategic decision-making.
It is related to the macro environment. The macro-environment is about external influences and factors that can heavily influence a business. According to research conducted by the Small Business Administration (SBA), one of the reasons 22% of start-ups fail within the first five years of launching is due to poor management.
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There are certain pertinent questions that one needs to ask while conducting this analysis, which gives them an idea of what things to keep in mind. They are:
- Political Factor: What is the political situation of the country and how can it affect the industry? For example, a government may impose a new tax or duty due to which entire revenue generating structures of organizations might change. Like the implementation of GST in India on 1 July 2017.
- Economic: What are the prevalent economic factors? For example, a rise in the inflation rate of any economy would affect the way companies price their products and services. Like the Announcement of demonetization in India on 8 November 2016.
- Social: How much importance does style, fashion, culture, the standard of living, demographic have in the market and what are its determinants? An example of this can be buying trends for the USA during Thanksgiving Day and Christmas or in India during Diwali. Similarly, India has a 65% young population which makes it an interesting destination for investment.
- Technological: New technologies are continually emerging (for example, in the fields of robotics and artificial intelligence), and the rate of change itself is increasing. How will this affect the organization’s products or services? For Example, Fast changing technology from Petrol to EVs and mobile (Touch screens) resulted in the vanishing of Nokia. Use of Drones for transportation, Artificial Intelligence like the use of Alexa! Robot (computer) asking a human to prove that they are not a ROBOT? Cyber-crime, blockchain technology for cryptocurrency
- Legal: Are there any current legislations that regulate the industry or can there be any change in the legislations for the industry? For example, consumer laws, safety standards, labour laws, etc. Recently Government of Haryana decided to have a minimum of 75% of the worker from Haryana setting up a new factory in Haryana, the law regarding data protection (GDPR) in the European Union.
- Environmental: What are the environmental concerns for the industry? An example of this can be factors related to climate, weather, geographical location, global changes in climate, environmental offsets, etc. Recently the government of India announced a scrap Policy of old vehicles, Green House gases related to Global warming, to control pollution, generator sets were banned for 4 months in Haryana (Nov 21 to Mar 2022), COP 26 at Glasgow: Green gas Emission.
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Example of PESTLE analysis
The following PESTLE analysis example clarifies how the six external factors work and what type of information you should include in your analysis. This example scenario involves the ‘EV Sales in India.’
|Possible Factors||Government policy toward EV||Cost of EV in comparison to Petrol||Fear of EV for Safety (Fire)||Battery Life, charging facility, Swapping facility||Tax sops on the EV||Disposal of Lithium-Ion Batteries|
|Business Impact||Speedup the EV market penetration in India||High cost will defer user for EV as the first option||Slowdown the sale||Better infrastructure will improve the sales and vice versa||Reduce the on-road cost of the vehicle||May force the government to think of alternate sources like Hydrogen, CNG|
|Time Frame||Immediate||Immediate||Long term||2 to 5 years||3 to 5 years||Long term|
|Type of Impact||Positive||Negative||Negative||Positive||Positive||Negative|
|Rate of Impact||Increasing||Decreasing trend||Unknown||Increasing||Increasing||Increasing|
|Importance||Critical||Important||Unknown at the moment||Important||Important||Critical|
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Advantages of PESTLE Analysis:
- evaluate the risks associated with markets you’re interested in
- determine their long-term effect on the performance of your business
- review any strategies you have in place and identify solutions to problems
- encourages the development of external and strategic thinking
- enable an organisation to spot business opportunities and exploit them fully
- gain strategic advantage over competitors
Disadvantages of PESTLE Analysis:
- The risk of capturing too much data may lead to ‘paralysis by analyses.’
- The data used may be based on assumptions that later prove to be unfounded
- The pace of change makes it increasingly difficult to anticipate developments that may affect an organisation in the future.
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IATF 16949: 2016, Sanctioned Interpretation & FAQ
This is the 155th article of this Quality Management series. Every weekend, you will find useful information that will make your Management System journey Productive. Please share it with your colleagues too.
In the words of Albert Einstein, “The important thing is never to stop questioning.” I invite you to ask anything about the above subject. Questions and answers are the lifeblood of learning, and we are all learning. I will answer all questions to the best of my ability and promise to keep personal information confidential.
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