The PEST or PESTLE analysis tool has been widely used since it helps firms

understand the different angles in the environment where they are operating; could
be for market growth or decline, business positioning and direction for operations.
This has become a starting point for the analysis of an organizations external forces
at work. It has been used by leaders and managers globally to build their vision of
the future. This tool seems to be an essential element for firms to succeed with their
objectives; it helps them direct the path towards their goals. However, the real
value and the effectiveness of this analysis depend on the way it is used.
The effective use of this tool ensures that the activities of the firm are positively
aligned with the powerful forces of change that are affecting the surrounding
environment and even the world. It has made firms realize that taking advantage of
the changes is more likely to contribute to success than opposing the changes.
Likewise, the proper use of this tool also helps the firm avoids taking actions that
are destined to fail for reasons beyond the firms control. Thus, firms become
cautious of the situations that may contribute to the failure of their business. More
importantly, this type of analysis is most preferably used when firms enter a new
market or country. Firms can avoid hasty and insensible assumptions which may just
ruin the goal especially when assumptions become illusory.
PESTLE analysis is in effect an audit of an organization's environmental influences
with the purpose of using this information to guide strategic decision-making. The
assumption is that if the organization is able to audit its current environment and
assess potential changes, it will be better placed than its competitors to respond to
changes.
PESTLE, as we know it, has come under severe criticism of late as being merely
relevant and appropriate as a tool of macro-environmental analysis. Managers are
considering discarding what appears to be an outdated tabulated textual analysis of
the PESTLE methodology, and rather embracing a new approach of engagement to
foresee trends and be ready for them.
The PESTLE analysis and variants thereof, is a framework used by managers to
analyze structurally the so-called macro-environmental factors used in the
environmental scanning component of strategic planning and management. The
tabulated textual format of this model has aged, however, and variants like social
technological economical environmental political legal and ethical (STEEPLE) and
(STEEPLED), adding Ethics and Demographic factors, have arisen to attempt to
extend its lifetime.
After decades of use, the graphics of this tool have served to convey a conceptual
picture of the environment to management that might not be a true reflection of the
real business environment of today. Through the repetitive use of the tool,
management has subconsciously convinced itself that the environment is a static
dartboard with PESTLE components staggered around the bulls eye, representing

the business organization. In the process, the relation between environmental

components and newness embedded in this relation has been neglected as a pivotal
thought component to strategic planning.
Scanning, scenario and strategy planning remain relevant. However, the way in
which management structures the organization as a platform of implementation in
this sweeping and random business environment is the very process that
determines sustainable competitive growth. To convey the environmental reality
more completely and for what it really is, businesses need to consider expanding
PESTLE as a framework and to reframe it completely. This will enable businesses to
manage their organizations amidst the sweeping randomness of the macroenvironment as well as with a radically advanced customer contingent. This
customer advancement is predominantly caused by the technological reality of the
21st century. PESTLE, in its conventional format, falls far short of providing
management with a methodology that includes the multi-leveled and multidimensional variants necessary for achieving sustainable competitive performance.
Despite its numerous advantages the PESTLE analysis suffers from the following;
The external factors considered during PEST analysis are dynamic and they change
at a very fast pace. At times, these changes may occur in less than a days time,
thus making it tricky to predict why and how these factors may affect the present or
future of the business/ project. On many occasions, environmental changes that
may have an adverse effect on the business/ project may not be noticeable during
their initial stages. All these indicates that a certain amount of uncertainty still
remains even after carrying out a detailed PESTLE analysis, which to some extent
defeats the prime purpose of this analysis cutting down the uncertainty.
Its simple presentation can also be considered a limitation. For PESTLE analysis, the
usual procedure is to present a simple list of the environmental factors that can
affect the business / project. Unless the attributing factors are critically examined in
terms of the degree of impact, the findings of the analysis dont seem to be of much
value.
Collecting enormous amounts of relevant data from the right sources becomes a bit
of a problem, especially since most of the pertinent data must be collected from
external agencies. This makes PESTLE analysis not only time consuming but costly
as well. Also, getting the latest data and keeping the analysis updated with it
becomes a problem.
The lack of easily available updated information, as mentioned in the point above,
leads to one more problem making too many assumptions. Oftentimes, the factors
mentioned in the analysis are based more on assumptions and less on actual facts.
An analysis based on unfounded assumptions can lead to planning disasters. So, its
important to device some method to cross-verify whether the factors mentioned in
the PESTLE analysis are not merely based on tenuous assumptions.

A proper PESTLE analysis requires a lot of information to be collected. But when

handling too much information, the users tend to get confused and lose sight of
what factors are more critical. This ambiguity in prioritizing the affecting factors can
put the entire planning on the wrong track.
PESTLE analysis is insufficient for the purpose of strategic planning, since it scans
only the external environment while completely ignoring the internal environment
and the competitive scenario. Nonetheless, there sure are ways to overcome this
limitation. For PESTLE analysis to make some worthwhile contributions towards
strategic planning it must be used in conjunction with other tools like SWOT analysis
to get a more realistic overall picture.

Evolution of Strategic Management

Several researchers in the field of strategic management have developed models
describing the evolution of strategic management. H. Igor Ansoff analyzed the
changing environmental challenges facing organizations during this century and the
managerial responses, competitive strategies, and entrepreneurial strategies
employed to cope with them.
According to Ansoff, during the twentieth century, two different types of system
have evolved:
* positioning systems (long range planning, strategic planning, strategic position
management) which direct the firm's thrust in the environment;
Long range planning and strategic planning
One basic difference between long range planning (sometimes called corporate
planning) and strategic planning is their respective views of the future.
"In long range planning the future is expected to be predictable through
extrapolation of the historical growth."
Management typically assumes that future performance can and should be better
than in the past. The process typically produces optimistic goals which are not fully
met in reality. The jagged, called the "hockey stick effect," illustrates the typical
goal-setting process that occurs in long range planning
"In strategic planning the future is not necessarily expected to be an improvement
over the past, nor is it assumed to be extrapolable."
The following are the steps of analysis in strategic planning:
* An analysis of the firm's prospects is made which identifies trends, threats,
opportunities and singular "breakthrough" events, which may change the historical

trends. Determination of prospects closes the surveillance gap between

extrapolation and the performance the firm is likely to attain if it follows its historical
strategies.
* The second step, is a competitive analysis which identifies the improvement in the
firm's performance which can be obtained from improvements in the competitive
strategies in the respective business areas of the firm.
* The third step is a process which is called strategic portfolio analysis: the firm's
prospects in the different business areas are compared, priorities are established,
and future strategic resources are allocated among the business areas. The result of
competitive analysis; and of the portfolio balance is shown as the present potential
line. This closes the competitive gap.
* The next step is a diversification analysis which diagnoses the deficiencies in the
present portfolio and identifies new business areas, into which the firm will seek to
move. When the performance expected from the new business areas is added to the
present potential line, the results are the overall goals and objectives of the firm
shown in figure. These are determined by two factors: the ambitions and drive of
the top management and by the strategic resources which will be available for
diversification.
There are differences in the process between long range planning (LRP) and
strategic planning.
In strategic long planning the goals are elaborated into action programs, budgets
and profit plans for each of the key units of the firm. The programs and budgets are
next implemented by these units.
Strategic planning replaces extrapolation by an elaborate strategy analysis, which
balances the prospects against objectives to produce a strategy.
The next step is to establish two sets of goals: for the near term-performance goals
and strategic goals. Operating programs/budgets guide the operating units of the
firm in their continuing profit-making activity, and strategic programs/budgets
generate the firm's future profit potential.
* Real-time systems (strong signal issue management, weak signal issue
management, surprise management) which respond one at a time to rapid and
unpredicted environmental developments.
The ingredients of issue management are the following:
A continuous surveillance is instituted over environmental-business-technologicaleconomic- social-political trends.

The impact and urgency of the trends are estimated and presented as key strategic
issues to top management at frequent meetings and whenever a new major threat
or opportunity is perceived.
Together with the planning staff, top management then sorts issues into one of four
categories:

Highly urgent issues of far-reaching effect which require immediate attention.

Moderately urgent issues of far-reaching effect which can be resolved during
the next planning cycle.
Non-urgent issues of far-reaching effect which require continuous monitoring.
Issues that are "false alarms" and can be dropped from further consideration.

The urgent issues are assigned for study and resolution, either to existing
organizational units, or whenever rapid cross-organizational response is essential, to
special taskforces
The resolution of issues is monitored by top management both for strategic and
tactical implications.
The list of the issues and their priorities is a kept up-to-date through periodic review
by the top management.
Strong signal issues will be sufficiently visible and concrete to permit the firm to
compute their impact and to devise specific plans for response.
Other issues will contain weak signals, imprecise early indications about impending
impactful events. Some issues will slip by the environmental surveyors and become
strategic surprises. Particularly, if the firm expects its environmental turbulence, it
needs to invest a strategic surprise system.

The systems can be grouped into four distinctive stages of evolution; that were
responsive to the progressively decreasing familiarity of events and decreasing
visibility of the future:
1. Management by (after the fact) control of performance, which was adequate
when change was slow.
2. Management by extrapolation, when change accelerated, but the future could be
predicted by extrapolation of the past.
3. Management by anticipation, when discontinuities began to appear but change,
while rapid, was still slow enough to permit timely anticipation and response.

4. Management through flexible/rapid response, which is currently emerging, under

conditions in which many significant challenges develop too rapidly to permit timely
anticipation.