What is PESTLE Analysis?
Originally known as PEST Analysis, this is a macro environmental framework used to understand the impact of the external factors on the organization and is used as strategic analytical technique. PEST stands for "Political, Economic, Social, and Technological” factors. Francis Aguilar is referred to as the originator of this tool. He talked about ETPS – Economic, Technological, Political, and Social– as the four important factors for Scanning the Business Environment. Later Legal and Environmental factors were also added by some analysts and thus evolved the term PESTLE Analysis.
Let us examine these factor in a bit more detail.
Political Factors affects the organizations in terms of government regulations and legal issues and define both formal and informal rules under which the firm must operate. Examples are: * Political stability
* Tax policy
* Employment and labor law
* Environmental regulations
* Trade restrictions
* Tariffs etc
Economic factors affect the business operations and decision making of the organization. For example the predicted recession is preventing the organizations from increasing the workforce . Other examples are: * Economic growth
* Interest rates
* Inflation rate
Social factors refer to the cultural and demographic aspects of the environment. For example increase in the health consciousness may affect the demand of the company’s product. Other factor includes: * Age distribution
* Population growth rate
* Emphasis on safety
* Career attitudes
Technological factors affect the cost and quality of the outputs. These also determine the barriers to entry and minimum efficient production level. Factors include: * Automation
* Technology incentives
* Rate of technological change
* R&D activity
Legal factors influence the company’s operation, its costs, and the demand for its products. Factors include: * Consumer law
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