Use this tool to uncover the macro external factors that influence your company and understand how those factors could create opportunities or threats.
In the world of academia or business, we typically learn about a new framework, understand its purpose, and then find a business case or real-world opportunity to utilize it. In my own case with PESTLE, I ended up doing just the opposite: One of my former CEOs asked me to develop something to support him with leading a strategic planning process. It was a critical moment to approach the firm’s strategic planning effort in an innovative way (it was May 2020), and, after a brainstorming session, I realized that a framework not only already existed, but it matched exactly what I was looking for: the PESTLE analysis.
PESTLE is an acronym that stands for Political, Economic, Social, Technological, Legal, and Environmental. Widely used as a key part of the strategic growth planning process, PESTLE is a framework that focuses on the big picture and impacts on the overall business, the market, or an important business decision. The main purpose of a PESTLE analysis is to understand what macro external factors may influence a company and how those factors could create opportunities or threats to the company.
May 2020 was just two months into the unprecedented COVID-19 pandemic; coincidently, it was also the time to create a new strategic plan for the firm. How could I best help the CEO tackle the upcoming strategic planning process differently so that the firm could survive and even thrive under this seemingly black swan event?
The firm needed a series of strategic brainstorming sessions to engage with leadership to frame and solve short- and mid-term strategic issues while laying a strong foundation for organizational resiliency and a growth mindset to thrive in the new normal for the long run.
PESTLE vs. SWOT. What does this mean for strategic planning? Where should you start with these brainstorming sessions? A thorough environmental scan through a PESTLE lens was a must as the first step.
You might argue that a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis could do the trick, but a PESTLE analysis was ultimately the better choice. While the “opportunities” and “threats” in a SWOT analysis allow firm leaders to think about external factors such as clients, competitors, partners, contractors, suppliers, and distributors who typically have direct impact on their firm (a two-way relationship), PESTLE analyses are more about evaluating the general macro-environment a company operates in.
These macro environment factors can have massive impacts on the company, but not the other way around (a one-way effect rather than a two-way relationship). Additionally, if you’re somewhat SWOT-savvy, your brain is most likely already well-trained to identify some macro trends sporadically in the “opportunities” and “threats” quadrants of a SWOT analysis; however, without an intentional deep-dive into an all-inclusive PESTLE framework that can provide a holistic macro context for the SWOT analysis, it is unlikely that your SWOT will be developed with a maximum focus on leveraging “strengths” and “opportunities” to overcome “weaknesses” and “threats.”
The six factors. I will briefly describe each of the six PESTLE factors below:
- Political. This can include changes in government and resulting policies. For example:
- How has government spending changed at the local and state level that directly impacted your firm’s current backlog and future pipeline?
- How will the passage of the $1.2 trillion Infrastructure Bill affect your firm’s current and future strategies?
- Economic. This could include changes in public spending, interests or exchange rates, inflation, and the climate for business investment. For example:
- What are the negative (or positive) economic trends?
- How can you more proactively integrate the possible impacts of a recession when developing your firm’s strategic plan?
- Social. This may include changes in lifestyle, attitudes, buying habits, cultural aspects, or demographics. For example:
- How has your firm’s policies and expectations changed in response to a higher demand for a more flexible working model in a post-COVID world?
- How is the DEI effort being addressed and incorporated as a part of your firm’s corporate strategy and culture?
- Technological. This could be new products and services requested by your clients or new approaches/inventions to R&D activities such as IT/internet, AI, transportation, energy uses, etc. For example:
- What are the new and emerging technological breakthroughs, innovations, or automation that will shape the future landscapes of your business?
- Do you also foster a corporate culture where employees are encouraged to think of innovation as a confidence-building exercise? What is the risk of doing nothing today?
- Legal. This may include new legislations, legal regulations, or changes in standards at the local, state, or federal level. For example:
- How would changes in building codes or zoning laws impact the design and construction of buildings in your vertical sectors?
- With an ever-increasing demand for the use of alternative delivery contracts (P3, DBFOM), what is your firm’s strategies in accepting or rejecting legal risks or limitations before signing and executing a contract?
- Environmental. This includes the impacts of green policies or environmental regulations to minimize the effect of climate change. For example:
- Now that many states have board-approved zero-emission transition plans and have established clean and renewable energy goals, what is your firm’s near- and long-term strategies in partnering with your clients to address these critical topics?
- What commitments and efforts has your firm demonstrated in not only working to transform how buildings, infrastructure and communities are designed and built to address resiliency, sustainability, health, and wellbeing, but also continually improving your business practices to reduce impacts as a corporate responsibility?
Together, the six factors of PESTLE make up an exhaustive list of the general market environment. If you evaluate all of these factors combined, it is extremely unlikely you will miss out on any external factors at the macro-level.
Wondering where and how to start your strategic planning? Zweig Group is here to help.
Ying Liu, MBA, LEED AP BD+C is a strategy advisor at Zweig Group. Contact her at email@example.com.
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