How to conduct PEST or PESTLE analysis?
PEST or PESTLE analysis can be conducted on any business but it is most commonly done on new businesses to identify potential risks and opportunities before they become too big of a problem. This allows them to take proactive measures rather than reactive ones regarding management decisions.
- Understanding the political factors are circumstances that arise from the nature of governments, regulations, laws, policies, and events. This includes such things as taxes, regulations, legal issues, trade barriers, and foreign markets.
- Identifying economic factors related to the behavior of the market or public opinion. This includes such things as economic cycles and inflation rates. The amount of money you need to invest in starting your business. The profit you can expect from your business, the number of employees you need, and the capital required to sustain yourself through the first few years. Factors like economic influences that affect the business climate and how these economic forces impact the market opportunities for your product.
- Social factors are environmental changes in society that might affect a business. This includes the cultural influences, values, and societal factors that influence the legal environment. Market/public opinion is the most influential factor for a business and also for an individual.
- Understanding the external factors that might affect the company’s success or failure. Identifying the macro-environmental forces that may affect the company’s operating environment.
- The technological advancement and infrastructure to stay competitive in the market. Technological factors impact the market opportunities for the product.
- Analyze legal factors like import/export, access to resources, quotas if any, rules regulations, and legislation governing the countries like whether the business is protected by intellectual property rights. For example, can you protect your brand name? Can you sue someone who copies your products? How do these laws impact the market opportunities for a company’s products?
Advantages of PEST or PESTLE Analysis
The advantage of this type of analysis is that it allows you to look at your business from different angles. You can get a 360-degree view of your business and find out what you need to change. It provides an integrated approach to the identification of opportunities and risks associated with socio-economic transformation and seeks to influence decision-making at multiple levels.
The advantages of PESTLE analysis are:
- To identify the potential threats to your business and determine how these threats could affect your business.
- To find ways to mitigate potential threats
- To understand the current state of your industry and define the future direction of your industry
- To make informed decisions about your business
- Assesses the internal and external factors affecting the business.
- Identifies the issues and problems that need to be addressed on priority.
- Provides insight into how these issues impact the company’s strategy.
- Helps managers create strategies to address the identified issues.
Limitations of PEST or PESTLE Analysis
PESTLE analysis for business are not based on scientific facts but rather on political and economic views. This means that these factors can change at any time without notice.
The limitations of PESTLE analysis are:
- Economic disadvantages include the fact that it is not based on science but rather on politics and economics. This means that this factor can change at any time.
- Legal disadvantages include the fact that laws are subject to interpretation. This means that different people may interpret them differently.
- PESTLE analysis has to be put through regular practice, it’s not something that can be achieved overnight, and it has its limitations in implementation.
- A lot can change within countries, which is difficult to anticipate. These uninformed developments can affect the growth of organizations in the future.
- There is a huge data collation involved; there is a risk of capturing unwanted data, which is again critical to the business.
- The political environment is influenced by government policies, laws, regulations, and taxes. These policies could change at any time.
For any business to be successful it is not the internal matters that need to be seamless but the external factors too need to be working in their favor. The PESTLE analysis is precious for any business scenario from startups to more prominent organizations. It is an effective tool that can be leveraged in today’s fiercely competitive market to achieve business goals.