How can the PEST analysis be applied for making decisions in the organization
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Share6 Dec 2021PESTLE analysis Discover what PESTLE means, and use our PESTLE analysis template and example to understand the external influences on your organisation On this pageOn this page
IntroductionA PESTLE analysis studies the key external factors (Political, Economic, Sociological, Technological, Legal and Environmental) that influence an organisation. It can be used in a range of different scenarios, and can guide people professionals and senior managers in strategic decision-making. See the full A-Z list of all CIPD factsheets.What is a PESTLE analysis?It is a broad fact-finding activity around the external factors that could affect an organisation’s decisions, helping it to maximise opportunities and minimise threats. It audits six external influences on an organisation:
By analysing those factors, organisations can assess any risks specific to their industry and organisation, and make informed decisions. It can also highlight the potential for additional costs, and prompt further research to be built into future plans. Video: what is a PESTLE analysis and how does it work?Play Video Please scroll to the bottom of the factsheet to view the transcript of this video. PESTLE analysis is part of the core knowledge on enabling change and the core behaviour commercial drive in the CIPD Profession Map. How to do a PESTLE analysisFollow these steps:
To be effective, a PESTLE analysis needs to be done regularly. Doing so can help organisations to spot trends early, and provide a competitive advantage. You can download a PESTLE analysis template below which will help you record PESTLE information. We’ve also created an example based on a fictitious retail sector organisation which shows how PESTLE factors have been analysed and interpreted. Blank PESTLE template PDF – available to download here. Completed PESTLE example PDF – available to download here. PESTLE analysis tipsSome useful tips for carrying out a PESTLE analysis:
What is a PESTLE analysis used for?By auditing the external environment, a PESTLE analysis can detect and understand broad, long-term trends. This can support a range of business planning situations, such as: Strategic business planningA PESTLE analysis provides contextual information about the business direction, its brand positioning, growth targets, and risks (such as another pandemic) to productivity. It can help determine the validity of existing products and services and define new product development. Workforce planningA PESTLE analysis can help to identify disruptive changes to business models that may profoundly affect the future employment landscape. It can identify skills gaps, new job roles, job reductions or displacements. Marketing planningA PESTLE analysis provides the ‘climate’ element in the situation analysis phase of the marketing planning process. It can help prioritise business activities to accomplish specific marketing objectives within a set timeframe. Product developmentBy monitoring external activity, a PESTLE analysis can help inform whether to enter or leave a route to market, determine if a product or service still fulfils a need in the marketplace, or when to launch a new product. Organisational changeA PESTLE analysis helps understand the context for change, and is most effective when used in association with a SWOT analysis to understand opportunities and threats around labour changes, such as skills shortages or current workforce capabilities. People strategies, reports and projectsA PESTLE analysis can be used as a framework to look outside the organisation to hypothesise what may happen in future and what should be further explored. It can ensure that some basic factors are not overlooked or ignored when aligning people strategies to the broader organisation strategy. Advantages and disadvantages of a PESTLE analysisAdvantages:
Disadvantages:
Useful contacts and further readingContactsPEST analysis (Mindtools) Books and reportsMORRISON, M. (2013) Strategic business diagnostic tools: theory and practice. CreateSpace Independent Publishing. (Chapter 3: PESTLE). TURNER, S. (2002) Tools for success: a manager’s guide. London: McGraw Hill. Journal articlesDOBBS, M.E. (2014) Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review. Vol 24, No 1, pp32-45. CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR. Members and People Management subscribers can see articles on the People Management website. Download factsheet This factsheet was last updated by Michelle Battista: Learning Community and Content Curator, CIPD Michelle oversees the CIPD learning communities and the curation and presentation of learning to support professional development. Her primary focusses are the core areas of the CIPD Profession Map and Management Development. Explore our related contentCIPD Learning Courses Discover the fundamentals of Organisation Development, contextualise your challenges and explore a range of Organisation Development approaches to strengthen your practice. Factsheets Learn about the SWOT framework, the process of a SWOT analysis, and its advantages and disadvantages Factsheets Explores what organisation development is, how it has developed, and how it is conducted in today’s organisations. Factsheets Explores the benefits of workforce planning, the activities involved and the stages of the workforce planning process Our curated learning hub, brought to you in partnership with AVADO, is packed full of practical resources to support your CPD Video transcriptA PESTLE analysis is a management framework and diagnostic tool. The outcome of the analysis will help you to understand factors external to your organisation which can impact upon strategy and influence business decisions. The PESTLE tool: PESTLE is an acronym for:
Let’s look at each of these factors more closely, POLITICAL: When looking at Political factors you will need to take into account your countries government policies and political stability. Other factors will include tax implications, industry regulations and global trade agreements and restrictions. ECONOMIC: Economic factors will include exchange rates, economic growth or decline, globalisation, inflation, interest rates and the cost of living, labour costs and consumer spending. SOCIAL: Social factors look at trends such as lifestyle factors, cultural norms and expectations such as career attitudes and work-life balance. It also concerns itself with consumer tastes and buying habits as well as population demographics. TECHNOLOGY: Technology has grown exponentially. How is your business responding to technological innovation in your products and services? Other technological advancements will impact on data storage, disruptive technologies such as smartphones, social networking, automation robotics and the increasing shift towards AI artificial intelligence? LEGAL: Shifts in the Legal landscape are constantly changing especially here in the UK. Employment labour law and employment tribunal decisions impact upon working practices continuously. It is also important to keep up to date with all changes in legislation and of course Health and safety regulations. ENVIRONMENTAL: Does your business have a direct impact on the environment? Political sanctions now govern carbon emissions and a move towards sustainable resources such as wind turbines and recycling. This area also covers CSR corporate social responsibility and ethical sourcing of goods and services which in turn has a direct impact on procurement and your businesses supply chain management. Next steps: Once you are clear on the main overarching factors included in a PESTLE analysis the next challenge is to relate this in real terms into the industry sector you work in. Good luck. Top
People Management PM jobs Copyright © The Chartered Institute of Personnel and Development 2022. Incorporated by Royal Charter, Registered Charity no. 1079797 What is PEST analysis in an organization?Definition: PEST Analysis is a measurement tool which is used to assess markets for a particular product or a business at a given time frame. PEST stands for Political, Economic, Social, and Technological factors. Once these factors are analysed organisations can take better business decisions.
How can SWOT and PEST analysis applied to making decisions about a firm?SWOT and PESTLE analysis together allow companies to get a combined view of the internal and external resources, threats, and opportunities. Since both frameworks analyze the environment based on different factors, companies can get a holistic view of the possibilities and threats that exist for them.
What is PEST analysis and what are the benefits of performing PEST analysis for a company?A PEST analysis helps identify emerging challenges and possible opportunities arising from a changing market. Conducting a PEST analysis involves examining your business environment through a political, economic, social and technological lens.
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