A new year is starting and most of us are making balances and setting new goals for our teams. So, it’s a great opportunity to conduct a deep analysis to understand where you’re standing now, and which are your challenges and opportunities to grow. But with so many external factors at play, it can be tough to stay ahead of the game. That’s where a PESTLE analysis comes in.
By understanding the various factors that may impact your organisation, you can better plan for your workforce needs, such as recruitment, training, and development, and ensure that you have the right people on board to support your growth plan.
In today’s guide, we explore:
- What is a PESTLE analysis?
- What is PESTLE analysis used for?
- Free PESTLE analysis template
- Factors to consider in your analysis
- How to do a PESTLE analysis (step-by-step)
- PESTLE Analysis Examples
- ✅ Elevate Your Strategy with Factorial’s Reporting and Analytics Software
A PESTLE analysis is a strategic planning tool you can use to evaluate the potential impacts of external factors on an organisation. With a complete analysis, you can analyse the political, economic, sociocultural, technological, legal, and environmental factors that can impact the teams, performance, and operations of your company to mitigate risks and make better decisions.
These factors, also known as the “macroenvironment,” can present both opportunities and threats. But by conducting a detailed analysis, organisations can better understand the current and future state of the external environment in which they operate. Based on this, they can develop strategies to mitigate potential risks and capitalise on emerging opportunities.
This analysis can be particularly useful for HR as it helps to understand the factors that may influence the workforce. It allows professionals to identify potential challenges related to changing economic conditions, social trends, or technological advancements, and develop strategies to address these challenges. It can also help to identify opportunities to attract and retain top talent, or to implement new talent development plans.
In addition, a PESTLE analysis can be used in conjunction with other planning tools, such as a SWOT analysis, to provide a comprehensive overview. This is useful for both long-term planning and short-term decision-making. It can be applied to various levels of analysis, including the industry, the company, and specific teams, projects or initiatives.
By identifying and analysing the political, economic, sociocultural, technological, legal, and environmental factors that can influence an organisation, a PESTLE analysis can help you:
- Develop Long-Term and Short-Term Strategic Plans
If you consider the current and future state of the external environment, your organisation can make informed decisions about their overall direction and specific actions.
- Identify Opportunities and Threats
By analysing the potential impacts of the PESTLE factors, companies can identify new opportunities for growth and development, as well as threats to the teams’ performance and operations.
- Mitigate Risk
This evaluation can help you proactively identify and assess potential risks, rather than reacting to risks after they have already occurred. For example, if the organisation identifies a potential economic downturn as a potential risk, it may decide to diversify its revenue streams or increase its cash reserves to prepare for the possibility of a downturn.
- Enhance Decision-Making
PESTLE analysis can help companies make more informed, data-driven decisions because it provides a broad, holistic view of the external environment. This, in turn, allows managers to better plan for the workforce needs, such as recruitment, training and development. This framework ensures the organisation has the right people in the right roles to succeed.
Download our free PESTLE analysis template and have a go yourself.
Before getting started with your PESTLE analysis, it’s important to understand each of the factors involved and the potential impacts you must address. Here’s an overview of the factors to include in your report:
By understanding the policies and actions of governments, people teams can anticipate how these may impact the workforce and evaluate policy changes.
On the other hand, understanding these political factors can also influence the attractiveness of different locations for business operations. For example, countries with stable political environments and favourable employment policies may be more attractive for expansion or relocation. Your team can consider these factors when evaluating potential locations for new offices or facilities.
Depending on the country you’re operating in, the political factors you should consider can include a wide range of concerns, such as:I
- Tax policies: These have a direct impact on costs, profits, and overall financial performance. For example, an organisation operating in a country with high corporate tax rates may have lower profits than a similar company operating in a country with lower tax rates.
- Trade regulations: Trade regulations, such as tariffs and quotas, can influence the cost and availability of goods and materials needed to produce. For example, a company that imports raw materials may face higher costs if the government imposes tariffs on those materials.
- Government policies and interventions: Government policies and interventions, such as subsidies and regulations, can impact operations and performance. For example, a government policy to promote renewable energy may benefit a company producing solar panels, while a policy to restrict certain types of supplies may negatively impact the production of goods in that industry.
Economic conditions and trends can significantly impact the performance and operations of an organisation. By understanding the economic factors that may affect their business, people teams can anticipate how these could impact the workforce. Some of the economic factors that you should consider are:
- Inflation: High inflation negatively impacts costs and profitability. The cost of goods and materials may increase while the prices the organisation can charge may not increase at the same rate. This can lead to reduced profits and competitiveness.
- Exchange rates: Changes in exchange rates can impact the cost of imported supplies, as well as the competitiveness of exports.
- Interest rates: Interest rates can impact financing costs and overall financial performance.
- Employment and unemployment rates: Employment and unemployment rates can influence the availability and demand for labour, as well as the overall economic conditions in a particular region or country. For people teams, analysing these factors is key because it’s directly related to talent turnover rates.
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Today, organisations must consider several social factors that can affect the workforce and determine whether a product or service has a market fit. On the other hand, these factors are also important to identify the values that matter most for your customers and help you develop brand guidelines aligned with those values.
There are several social factors you should consider in your PESTLE analysis, including:
- Population demographics: Age, gender, education levels, and income of a target population can affect the availability and demand for talent, as well as the preferences and needs of potential customers.
- Lifestyle trends: Lifestyle trends, such as strong habits related to health and well-being, environmental sustainability, and social responsibility, can impact the preferences and values of customers and employees. These are also important factors to consider when planning employment benefits.
- Cultural values and norms: Cultural values and norms can change the expectations and preferences of team members and customers, as well as the acceptability of products and services in different markets.
- Attitudes towards work: Attitudes towards work, such as work-life balance and job security, can impact employee satisfaction and retention, and are key to planning and developing effective employee recognition programmes.
As we continue to experience rapid advancements in technology, it is important to consider how these changes can influence operations, products, and services. Therefore, the technological factors that impact organisations can present both opportunities and challenges so it’s key to include them in a PESTLE analysis to take advantage and effectively navigate any issues that may arise and compete in the market.
From implementing new software and systems to training employees on the latest technologies, it is crucial to stay up-to-date on the technological developments that may affect your industry.
Some of the technological factors you can include in your analysis are:
- Market trends: We are constantly facing new changes in the way we work, and organisations must implement those changes to keep attracting top talent. For example, the rise of artificial intelligence and automation may lead to changes in the skills and competencies required for certain roles within an organisation.
- Cybersecurity: As the reliance on technology increases, so does the risk of cyber-attacks. People teams must ensure that the organisation has strong cybersecurity measures in place to protect sensitive team members and customer data and remain compliant with local laws. Considering that just 54% of businesses have acted in the past 12 months to identify cyber security risks, this is an important factor to consider when conducting an analysis on this particular area.
The legal factors of a PESTLE analysis refer to the laws, regulations, and policies that affect an organisation. These factors can have significant implications for hiring teams, especially if your company has offices abroad.
Some legal factors that should be considered in a complete analysis include:
- Employment laws: Companies must ensure that they comply with employment laws, such as those related to wages, working hours, and health and safety.
- Data protection laws: In today’s digital age, it is important to protect sensitive employee and customer data. You must ensure that the organisation complies with data protection laws, such as the UK’s General Data Protection Regulation (GDPR).
Using trusted software to manage staff records and access to information can ensure the privacy of your workforce. Factorial’s all-in-one HR software allows you to share and refresh information while keeping your company compliant with GDPR.
As concerns about the natural environment continue to rise, it is increasingly important to consider the impact on the planet. From climate change to pollution and waste, environmental factors can significantly impact an organisation’s operations, products, and services, as well as the working place for team members.
This should be a significant concern in your company. Not only because it’s good practice and benefits your brand reputation, but also to invest in your employees’ happiness and well-being. In fact, a recent report revealed that 61% of employees feel company climate action is important to their job satisfaction, so taking the environment seriously is also good to improve talent retention rates.
So, to include the environment in your analysis, you should consider the following factors:
- Pollution and waste: Consider the impact of the operations on air, water, and land pollution, as well as the generation of waste. This may include implementing waste reduction and recycling programs or investing in technology to reduce the company footprint.
- Natural resources: Analyse the availability and sustainability of your resources, such as water and timber, that are used to produce. This may include implementing sustainable resource management practices or finding alternatives to resource-intensive processes.
- Local environmental regulations: After Brexit, the environmental laws that came from Brussels shifted to The Environment Act, which became law in 2021. Therefore, in your PESTLE analysis, you must consider these laws to ensure compliance.
Now that you’ve studied all the external factors to include in your analysis, it’s time to get to work. Put your knowledge into practise with this step-by-step process for conducting a PESTLE analysis.
- Define the scope of the analysis: The first step is to define the scope of the analysis. This may include identifying the specific business unit or market that the analysis will focus on, as well as the timeframe.
- Identify external factors: The next step is to identify the external factors that may impact the organisation. These may include political, economic, social, technological, legal, and environmental factors.
- Assess impact: Once the external factors have been identified, the next step is to assess the potential impact of each factor and write it in the second column.
- Develop strategies to address those impacts: Based on the assessment of the impact of each factor, the next step is to develop strategies to address the potential impacts. This may involve identifying opportunities to take advantage of the positive and developing plans for the negative impacts.
- Monitor and review: It is important to regularly review and update the PESTLE analysis as external factors can change over time. You must monitor the external environment and update the analysis as needed to ensure that the organisation is prepared for any changes or shifts.
If you follow these steps, you can do a comprehensive and effective analysis that will help you understand the larger context in which the organisation operates and devise strategies to benefit from opportunities and address potential issues.
To help you get started with your analysis, we curated a list of PESTLE analysis examples from world-class companies you can use as a model:
As we’ve seen, a PESTLE analysis is an effective way to evaluate the potential impacts of various external factors on an organisation. By understanding the political, economic, sociocultural, technological, legal, and environmental factors that can affect your company, you can develop strategies to mitigate risks and capitalise on opportunities.
Factorial HR software makes it easy to conduct a PESTLE analysis because you can access high-quality data about your company and workforce and get a comprehensive view of the external environment.
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