When it comes to analyzing the external factors that can impact an organization, two commonly used frameworks are PEST analysis and PESTLE analysis.
While they share similarities in their purpose and structure, there are key differences between the two.
Here we will explore the dissimilarities between PEST analysis and PESTLE analysis to provide a clear understanding of each framework’s scope and components.
PEST Analysis: An Overview
PEST analysis, as discussed in the previous article, examines four key external factors:
- Political
- Economic
- Social, and
- Technological
It focuses on the immediate and specific aspects of the external environment that can influence an organization’s strategies, operations, and decision-making.
PEST analysis provides insights into the opportunities and threats that arise from these four factors.
PESTLE Analysis: An Expanded View
PESTLE analysis, on the other hand, encompasses a broader range of external factors.
It incorporates the four elements of PEST analysis—Political, Economic, Social, and Technological—and expands the analysis to include Legal and Environmental factors.
Thus, the acronym PESTLE stands for Political, Economic, Social, Technological, Legal, and Environmental.
By including Legal and Environmental factors, PESTLE analysis provides a more comprehensive understanding of the external landscape and its potential impact on an organization.
It recognizes that legal frameworks and environmental considerations have become increasingly significant in shaping business strategies and operations.
PESTEL Analysis EXPLAINED
Legal Factors in PESTLE Analysis
Legal factors involve the examination of laws, regulations, and legal frameworks that affect an organization’s industry or market.
These factors can encompass areas such as employment laws, consumer protection regulations, intellectual property rights, contracts, health and safety standards, and compliance requirements.
Analyzing legal factors in a PESTLE analysis helps organizations identify legal risks, compliance obligations, and opportunities for leveraging legal frameworks to their advantage.
Environmental Factors in PESTLE Analysis
Environmental factors focus on assessing the ecological and environmental aspects that impact an organization.
This includes analyzing factors related to sustainability, climate change, environmental regulations, resource availability, waste management, energy consumption, and carbon footprint.
Incorporating environmental factors into a PESTLE analysis enables organizations to understand the potential environmental risks, identify eco-friendly opportunities, and respond to the increasing demand for sustainable practices.
Key Differences and Considerations
The main difference between PEST analysis and PESTLE analysis lies in the inclusion of Legal and Environmental factors in the latter.
While PEST analysis offers a focused examination of the immediate external factors, PESTLE analysis provides a more holistic view by incorporating the legal and environmental dimensions.
When deciding which framework to use, organizations should consider the relevance and impact of legal and environmental factors on their industry and operations.
If legal compliance and environmental sustainability are critical considerations, PESTLE analysis provides a more comprehensive assessment.
However, if the immediate external factors of politics, economy, society, and technology are the primary drivers, PEST analysis may be sufficient.
Both frameworks can be valuable tools for strategic planning, risk management, and decision-making.
Organizations should choose the framework that aligns with their specific needs and industry dynamics.
Conclusion
PEST analysis and PESTLE analysis are strategic frameworks used to analyze the external factors that can affect an organization’s success.
While PEST analysis focuses on the four factors of Political, Economic, Social, and Technological, PESTLE analysis expands the scope to include Legal and Environmental factors.
By understanding the differences between these frameworks, organizations can choose the most appropriate approach to gain insights into the external landscape and make informed decisions accordingly.
