In running business operations, business owners must do some important things. One of them is to analyze the place where business operations are conducted. By doing this analysis, business owners will find out the condition of their business place. So, business owners can anticipate any potential situations that can threaten operational activities. This analysis is familiar with the term PESTLE. What are the components? Check out the following explanation!
PESTLE Analysis Definition
PESTLE analysis is a strategic management concept that is used as a tool to monitor a company’s operational place. In other words, PESTLE analysis is a method that companies use to evaluate the external environment of the business. PESTLE is an acronym for several factors or components, such as political, economic, social, technological, environmental, and legal. This analysis method can provide the perspective of external factors that can affect a company.
PESTLE Analysis Purposes
As a strategic management concept, PESTLE analysis has several purposes. With PESTLE analysis, a company gets an overview of external impact. Not only that, but this analysis can also help the decision-makers in making the best decisions. Furthermore, PESTLE analysis can help the company evaluate its business strategy. So, the implemented business strategy can be following the company’s operational place.
PESTLE Analysis Components
There are several important components in this analysis, ranging from political to legal. So, what is the full explanation of these components? Let’s take a look at the following explanation!
Political, in this case, is how the government can influence a certain economy or industry. Not only that, but politics can also be fiscal policy, trade tariffs, and tax policy. An example of this political component is that companies should pay attention to policies and laws in the country or region in which they operate. So, the company can create products for consumers by not violating the existing policies or regulations.
The economics component, in this case, refers to economic growth, exchange rates, inflation rates, interest rates, consumer income, and unemployment rates. So, things like this will have an impact directly or indirectly on the company. Not only that, but economic components can affect the consumers purchasing behavior for products and affect the demand/supply model of products.
Demographic characteristics, population values, and norms are part of this component. Population trends such as population growth rates, age distribution, income distribution, lifestyle attitudes, and cultural barriers are also part of this component. The social component is very important if the business wants to target products sold to specific customer characteristics.
In today’s era, technology is familiar in our society. Technology, in this case, is related to innovation and development, technological change, automation, and the amount of technological awareness that the target market has. Furthermore, this component can assist the company in improving the efficiency of the company’s cash flow management for the technology development related to production activities.
The scarcity of raw materials is one of the reasons why environmental components become important. Environmental components consist of ecological and environmental aspects, including climate, weather, and climate change that can affect companies. In addition, increasing awareness about the potential impacts of climate change can affect how companies conduct their operations.
This component emphasizes the laws that apply in a country or region where the company operates, such as consumer protection laws, copyright and patent laws, and health & safety laws. It will be a challenge if the product is distributed to other countries. This is because the regulations of each country are different.
PESTLE Analysis and PEST Analysis Distinction
PESTLE analysis is a development of PEST analysis. The main distinction between these two analyses is in the legal and environmental components. Currently, there is a recent development in PESTLE analysis, namely PESTELE. In PESTELE, there is one more component, namely ethics. The ethics component includes ethical principles and moral issues that can arise in the running of business operations.
PESTLE Analysis Examples
After knowing the definition of the explanation of each component in PESTLE analysis, it is incomplete if you do not know its examples. So, according to Get Lucidity, here is an example of the PESTLE analysis of an International Beauty Brand, The Body Shop:
- Implementation of new procedures for trade with the EU to the UK
- Additional costs will arise from importing products and raw materials from EU countries – possibly decrease in profitability
- The ethical standards could decline to create concern about the quality of British cosmetics
- Change in disposable income due to strong or weak economic performance
- Inflation changes
- Strength of pound internationally
- Expenditure on skincare products is expected to rise
- Average expenditure per capita
- Rising variable costs as The Body Shop has approximately 2,000 employees in the UK
- The aging population, reaching 68.8 million in 2023
- Changing lifestyles, with greater environmental awareness and stronger emphasis on long-term physical, mental and emotional wellbeing
- Increased consumption as skin health becomes more important with age
- Increased brand awareness, it’s perceived as a well-being partner as it provides job security to economically vulnerable people
- The rise in popularity of AI software that tailors beauty recommendations for every individual by analyzing their requirements
- Rise of product personalization
- Increased consumer willingness to try new products as perceived risk reduces
- Rising online expectations
- Increased demand for personalized beauty and grooming products
- Decreased brand loyalty.
- UK will not be legally bound by EU laws, such as the ban on using 1,328 chemicals in cosmetics
- Health & safety laws
- Employment laws
- International trade laws
- 47% of consumers consider plastic pollution the most important environmental issue
- Animal welfare remains a top priority environmental concern
- Strong push towards a green, sustainable and clean beauty industry with increasing demand for plastic-free and packaging-free stores
With PESTLE analysis, the company can find out the operational place conditions. Not only that but PESTLE analysis can also be used as a consideration of strategic decision-making. Furthermore, this analysis consists of several components, namely political, economic, social, technological, legal, and environmental. Speaking of company operations, you can easily improve the efficiency and operational effectiveness of the company using HashMicro’s ERP Software with a variety of leading features.