Introduction to the PESTLE analysis
A manufacturer may want to know why the demand for certain products keeps going down. The PESTLE analysis helps him to understand what is happening in the external environment. The factors in the external environment are political, economic, social, technological, legal, or environmental which form the acronym PESTLE. The political factors include the policies created by the government. All businesses need to recognize the different political structures and their implications. These political structures can be led to the fall down of businesses or promote the growth of businesses. When the government sets low interest rates on borrowings many people will be encouraged to borrow and spend more on goods especially luxury goods. This will lead to a higher profit margin for the manufacturers and the retailers of these luxury goods. An example of how the government can affect the businesses is the introduction of the National lottery which led to the decline of the profits of the Ladbrokes betting shops and many people lost their jobs. Unstable political systems in a country may lead to businesses losses and a decline in the economy. Government policies often result in the development of the economy of a country. For example, if the government announces in the annual budget that the beer duty is reduced, the demand for this beer will rise and this will increase the profit margins for those in the brewing business.
However, some economic developments are outside the control of the government. For example, the destruction of the New York world trade center worsened the economy and many businesses and companies were destroyed. The 2008 economic downturn in the USA resulted in the dollar being weak against the stronger pound and the USA travelers avoided the holiday destinations to the UK as it was a very expensive choice (Griffin 2007).
The social factors in a population affect the development of different businesses in a country. Earlier, businessmen had concentrated on providing goods and entertainment for the youth. This has since changed as the older population has increased and many businesses are now concentrating on providing their needs. The travel companies have expanded their operations and are now offering luxury cruises targeting those who have retired with good pensions and have lots of leisure time. The increase of vegetarians has resulted in a demand for organic foods. The youth have an increased demand for iced beers and sweet canned drinks containing alcohol. For those concerned with their health, the number of gyms has risen and the demand for foods with low fat, low salt, and low sugar have increased leading to many businesses opportunities. The developments in leisure have led to the growth of interest in worldwide travel and the demand for holiday places with computer games and the internet is high.
For businesses to succeed today, there is a need to keep up with the latest technology. Businesses are using computers to control the manufacturing processes, to keep records, to make financial transactions faster, and to speed up communication via the internet or through emails. The technology has also affected consumer behaviors and they are now buying their products online. However, the technology is very expensive to install and implement (Böhm 2009).
All organizations have to abide by the laws and regulations of the country. There is a growing demand for conservation of the environment and this has led to internal implications for the businesses. For example, with the introduction of the Environmental Protection Act, the organizations had to redesign their processes and purchase new pieces of equipment for waste disposal to reduce pollution. This allowed some businesses that were selling the new non-polluting technologies to the organizations. The climatic changes have a major impact in a country and on others who visit the country for holidays. The laws protect the businesses and the consumers from poor practices by some organizations thereby ensuring the standard of safety. Some legislation prevents some organizations from buying or merging with others and restricts operations in certain countries resulting in a lack of competition (Harris 2006).
The increasing concern for the environment has led many businesses to use natural renewable ingredients only. Many supermarkets nowadays have an organic section for the organic products which reflect the increasing demand for the environment and good health concern. Recyclable plastic is also used to produce carrier bags. There are many benefits from an environmental analysis and this includes resource effectiveness where the business can increase or reduce them according to the changes in the environment. Where there is an understanding of the market conditions there is a platform for change created. The PESTLE analysis can be used for Public relations and when assessing business development. The decision-making using this analysis involves proactive thinking rather than reacting on instincts. An analysis that is not clear and focused will lead to the production of a blurred picture of the particular business. The analysis involves data collection methods that might be expensive and time-consuming (Institute of Leadership & Management 2007).
Introduction to a SWOT analysis
The SWOT acronym stands for strengths and weaknesses as they relate to our opportunities and threats in the marketplace. A company can find itself in a critical situation where it needs to develop some strategies for its successful development. This is the best tool to analyze the internal and external information with significant value to the company’s strategic development. The SWOT analysis will be more informed if the marketing intelligence is good. When analyzing the external market environment the identified economic factors will influence the marketing decisions made afterward. Analysis from the competitors, the market, and the environment is also presented and compacted and the dependency between the company and its environment is clearly understood. The SWOT analysis provides helpful information which shows the firm’s resources and capacities against the competitive environment in which it is operating (Kaufman 2003). This helps the organization to make informed decisions and allocate its resources appropriately. Business people either existing or new use the SWOT analysis to gain a competitive advantage over the others. This also gives the firm a direction for the future by using its strengths to capitalize on the opportunities available while at the same time reducing its exposure to threats. For example, a company in the cosmetic industry may want to sell its beauty products through the internet. Its strengths will include the creativity and the morale of the employees and their skills and competencies in applying the technology.
The weaknesses may include a lack of retail outlets worldwide or certain skills lacking in the organization. The opportunities are the potential markets for the products and other related products and the demand for online services in foreign countries. This can be exploited to develop the market to the advantage of the company. The threats include the competitors who can create similar online businesses to provide the same services to the consumers. The business needs some strategies to overcome the threats and avoid losing its market shares to the competitors (Milošević 2003). The SWOT analysis requires an organization to be honest when listing its strengths and weaknesses. Dishonesty results in an unclear picture of the organization. The organizations should understand that one thing could be a strength in one way and weakness in the other way. The weaknesses found after the analysis need to be addressed and an appropriate course of action taken.
An understanding of the competitor’s strategies and position creates a platform for change in the organization. When the organization understands its strengths and weakness it can effectively position itself in the market by planning its resources efficiently by benchmarking. The analysis assists the business in effectively formulating strategies that support its mission. In evaluating the weaknesses some organization members are reluctant to admit that they do not possess all the skills and capabilities. This may lead to difficulty in implementing the strategies as a false picture will be used in accomplishing the mission of the company. It is expensive to analyze the strengths and weaknesses of competitors. The analysis helps in making valuable applications for product development and the research reports. The major barriers to achieving the objectives of the company are identified and a response is given. The methods currently in use are audited to establish their effectiveness and identification of new solutions is done to achieve the required results ( Pahl & Richter 2009).
The analysis depends on personal cognition and subjective judgment which will lead to the use of incorrect information in the definition of the goals and the strategies. For example, an executor without knowledge of the market could oversimplify the data collection and draw false consequences about the strengths and weaknesses of a business. The executor can also be forced to overcomplicate the data collection leading to the analysis being overloaded and will lose its significance as inaccurate results will lead to false strategy formulation. A company can focus on the strengths to take advantage of the opportunities while ignoring the weaknesses. The analysis includes a range of data collection methods that might be expensive to collect and time-consuming (Robinson 2009).
The Pestle analysis is a useful tool for understanding business concerning the market growth or decline while the SWOT analysis is the best tool to analyze the internal and external information with significant value to the company’s strategic development (Westwood 2002).
Böhm, A. (2009) The SWOT Analysis. New York, GRIN Verlag.
Griffin, R. (2007) Fundamentals of Management. Chicago, Cengage Learning.
Harris, D. (2006) CIMA Learning System 2007 Integrated Management, Chicago. Butterworth Heinemann.
Institute of Leadership & Management. (2007) Marketing for Managers. New York, Elsevier.
Kaufman, R. (2003) Strategic planning for success: Aligning people, performance, and payoffs. New York, John Wiley, and Sons.
Milošević, D. (2003) Project management toolbox: tools and techniques for the practicing project manager. New York, John Wiley, and Sons.
Pahl, N., & Richter, A. (2009) SWOT Analysis – Idea, Methodology, And A Practical Approach. New York, GRIN Verlag.
Robinson, P. (2009) Operations Management in the Travel Industry. Chicago, CABI.
Westwood, J. (2002) The marketing plan: a step-by-step guide. Chicago, Kogan Page Publishers.