PESTLE stands for “political, economic, social, technological, legal and environmental" analysis. This business analytical tool identifies and evaluates the factors of change in a business environment. Management uses this model to understand prevailing conditions and prepare itself for the future. This model gives the company an edge over its competitors. Though this is a helpful model, it does have certain flaws.
External factors change rapidly. This acts as a main deterrent to the PESTLE analysis. Management needs to keep reviewing and revising the study on a constant basis. For example, the government may increase taxes. These taxes have a bearing on the profitability scenario of the company. The analyst provides recommendations to help the company prepare itself. Then, within the next month, the government may extend a subsidy to the company. The subsidy impacts the company's position positively. For the analysis to be successful and correct, management needs to keep reviewing the results of the model. It should consider the effects of both the taxes and the subsidies.
Numerous People Needed
Another disadvantage of the PESTLE analysis is that it requires numerous people to be involved in the study. Knowledge from different domains is needed for the results to be accurate. Also, different people have the tendency to view a scenario differently; the PESTLE analysis needs varied perspectives and points of view. The company needs to bear the costs of salaries of all the individuals involved in the analysis. The services of these employees could have been used for other jobs in the company.
Need for Resources
Gaining access to external data often involves a cumbersome process. The company needs to spend a lot of time and effort in obtaining data from external resources. The company may not be able to get full details of its competitors' policies, practices and strategies. If the company needs to comprehend its customers' tastes and preferences, it needs to spend time and money researching. The results of the research must be incorporated with the final product.
The results of the PESTLE analysis are likely to be influenced by the opinions and personal judgment of the person carrying out the evaluation. The results are highly subjective, and the interpretations vary from individual to individual. The company suffers huge losses if the study results are misinterpreted.
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