Human Resources PESTLE Analysis: How Does PESTLE Affect HR

Any major business decision must take a variety of factors into consideration. Human Resources (HR) plays a vital part in making these decisions. Setting a goal and working toward it is not enough; you must also consider market fluctuations, your workforce, competition, environmental and situational factors, and any external factors that will have an internal impact on your organization.

In this scenario, a PESTLE analysis is frequently used to provide decision-makers with critical data to help outline and influence those decisions.

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What does PESTLE mean?

Frances Aguilar, a Harvard professor with expertise in business and organizational strategic planning, coined the term PESTLE analysis. The acronym PESTLE was first used in Professor Aguilar’s 1967 book, Scanning the Business Environment, and has since been embraced by organizations of all sizes around the world.

The acronym PESTLE stands for the following:

• Political
• Economic
• Sociological
• Technological
• Legal
• Environmental

The factors of PESTLE analysis

Political factors

These are influenced by government policies, and the magnitude to which these and any changes implemented have an impact on an organization or a business. Examples in HR include changes to tax rules or employment laws, as well as the implementation of new rules to which a business must adhere.

Economic factors

These are relevant to broader national and, in some cases, international economic conditions. A recent example is BREXIT, which has had a greater impact on some businesses than others. These could involve the cost of raw materials or the logistics of cross-border trade. Staffing is an obvious example in HR, particularly in industries such as hospitality and agriculture that rely heavily on employees from other countries.

Sociological factors

Sociological factors consider the perceptions, changing views, and needs of a company’s employees. This facet of a PESTLE analysis is all about getting to know people and identifying trends that may influence their outlook toward an employer and their engagement.

Technological factors

More companies than ever before are integrating technology as a productivity enabler, providing a competitive advantage. As opposed to time-consuming manual procedures and methods.

Understanding the benefits of technology and how they enable people to work efficiently and to the best of their abilities has never been more important from an HR standpoint. Analyzing what technical tools are available or in development is now a priority for both HR and IT.

Legal factors

There is some overlap here with political factors in the context of people management. Employment law changes over time, and HR professionals must understand how these changes will impact their policies and practices.

Environmental factors

These are concerned with a company’s environmental impact and ecological footprint, both locally and globally. Sustainability and Corporate Social Responsibility (CSR) are becoming increasingly important to businesses of all sizes, and there is mounting evidence that this is also a top priority for employees.

People want to work for organizations that are socially responsible, and HR must communicate evidence of strong social and environmental values to a company’s workforce and to new candidates who are considering joining the company.

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How to conduct a PESTLE analysis in the business

It is essential that the PESTLE analysis be performed by multiple people to ensure a diverse range of perspectives and a more subjective overall approach. Similarly, depending on the decisions your organization is facing, each area can have input from different disciplines. For example, if you are considering major organizational restructuring, a PESTLE analysis for human resource planning can be performed as a separate entity, with questions tailored to the information you seek.

When used in conjunction with other business assessment tools such as SWOT analysis, competitor analysis, and scenario planning tools, the information gathered must be analyzed and assessed in terms of its impact on your organization and the options identified to address those issues. All analyses are provided solely for information and discussion. Based on the information, all stakeholders and decision-makers must reach conclusions and then decide what final actions to take.

What is the PESTLE analysis used for?

A sharper and more comprehensive understanding of how external factors affect your business now and in the long run will play a crucial role in your long-term strategic planning in many various areas.

Workforce planning

Acknowledging external movements and trends, policy changes, and the implications of minimum wage, education, and immigration policies will all have an influence on skill gap planning, internal HR recruitment strategies, and payroll.

Marketing planning

Knowledge of how to approach environmental and sociological factors will have a significant impact on your company’s marketing strategy.

Strategic business planning and organizational transformation

Considering business strategy, brand positioning, growth targets, and operational issues, as well as skill shortages and workforce potential.

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Examples of a PESTLE analysis

To gain a better understanding of how PESTLE works, consider looking at a couple of elements of a simple PESTLE analysis performed by a large electronics manufacturing company that manufactures extensively in China.

POLITICAL FACTOR: China is the world’s largest manufacturing powerhouse. Manufacturing in China faces significant political risks, which may have an impact on output.

ECONOMIC FACTOR: Exchange rates and labor rates can have an impact on outgoings and overall pricing and profitability.

SOCIAL FACTOR: As people become more aware of labor exploitation issues, brand perceptions change.

TECHNOLOGICAL FACTOR: Advances in technology have resulted in lower-cost substitutes.

LEGAL FACTOR: There is a risk that the political system will change legislation to restrict the transportation of goods or investments, as well as local employment policies.

ENVIRONMENTAL FACTOR: Lithium battery disposal is a growing environmental issue that has an impact on green credentials.

These are simplified examples, but they provide a foundation for the company to plan ahead in terms of establishing other manufacturing centers in other countries, taking into account variations in exchange rates and future HR resource planning.

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Closing Thoughts

PESTLE analysis can be simple or complex, depending on the nature of the business, its complexity, and the size and demographics of its workforce. The model’s main advantage is the simplicity of its framework for comprehending the impact of external factors on a business.

A PESTLE analysis isn’t meant to help businesses understand internal factors within their organizations, but it can help them navigate changes over which they may have little influence but which nonetheless have an impact on HR policy and practices.

This analysis can be a very useful tool for both short and long-term future-proofing a business and developing the skills of people within an organization in terms of how they respond to changing environments and manage their implications.

[To share your insights with us, please write to sghosh@martechseries.com]