PESTEL Analysis
Question:
Discuss about the Analysis Of Strategic Tools.
PESTEL Analysis is a framework which is used for the purpose of external environment analysis of an organization based on six different factors including, political, economic, legal, social, technological, environmental and legal. This framework provides a view of the entire environment in which the organizations operate. The different aspects of PESTLE Analysis are important for understanding the environment of the industry. The importance of these are different with respect to the industry in which the organization operates (Moutinho and Phillips 2018). The five factors of PESTLE analysis are as discussed by,
Political factors are mainly related to the extent up to which the government is able to influence the operations of an organization. The effects of the policies formulated by the government on the economy of the country and the industry is important for the organization and the regulations that are formulated by them. The trade tariffs, fiscal policies of the government affect the ways by which the organizations plan their operations. These factors affect the business and the economic environment of the various countries (López-Gamero and Molina-Azorín 2016).
Economic factors are the determinants of the performance of the economy of a particular country. The economy of the country in which the organization operates has major effects on the regulations that are formed by them. A rise in the inflation rate of the economy can affect the prices of the services and products that are offered by the company. The buying power of the customers will also be affected by the economy of the country. This will affect the revenues of the organization in the specific area.
Social factors are used to scrutinize the social condition of the particular country. The major determinants of social factors include, demographics, cultural trends and the analytics of the population.
Technological factors are related to the innovations that are made in the various technologies related to operations of organizations in the industry. These changes mainly refer to the automation related activities, the awareness related to technology among the citizens (Ho 2014).
Legal factors include the internal and external sides of the organization. The various laws that affect the operations of the organization are analysed in the legal factors of the Pestle analysis.
Environmental factors are related to the changes in the surrounding environment of the organizations. This aspect is crucial for the various industries as the effects of organizational operations on the environment are important to be analyses.
Example – The PESTLE analysis of Apple is related to the discussion of the political, economic, legal, social, technological and environmental that affect the operations and profitability of the organization. The government policies affect the various costs related labour, manufacturing and taxes to be paid. The economy of the country affects the buying power of the various customers of the countries. The spending of the consumers in the country and the number of young people affect the sales of Apple. The technological awareness of the citizens of the country will also affect the ways which Apple offers its products to the various customers. The rules and regulations of the country affect the policy formation of Apple (Khan, Alam and Alam 2015). The environmental issues that are facing Apple is related to the disposal of the used products which further affect its operations in the various countries.
Political factors
Porter’s Five Forces Framework is considered to be a simple and powerful tool which can be used for understanding the competitive environment of the business organizations. The five forces of Porter’s Framework are discussed as follows,
Competitive rivalry – This force is related to the strength that the competitors of the organization have in the industry. The intense rivalry in the industry affects the prices of the services and products offered by the organization.
Supplier power – This power is related to the number of suppliers that the organization has in the particular country of region. The larger number of suppliers decreases their power and lower number of suppliers increases their power in the industry (E. Dobbs, M., 2014).
Buyer power – This power deals with the number of buyers present in the business environment. The more number of buyers implies that the prices of products will be decided by the buyers and not the organization.
Threat related to substitution – This force mainly relates to the number options that the available for the customers in the particular business environment. The more number of options further exerts more pressure on the prices of the services and products of the company (Wang and Zhang 2015).
Threat related to new entrants in the market – This force is mainly related to the ability of the new organizations to enter the market where an organization already has its operations. The high ability of new organizations to enter the industry, has negative effects on the operations of organizations that is already present in the industry. On the other hand, the high costs related to the entry in the market can be easier for the organizations to operate in the environment (Porter and Kramer 2018).
Example – The Porter’s Five Forces analysis of Nestle has proved that the threats of new entrants is high for the industry in which it operates. The substitutes of the products that are offered by Nestle are readily available in the market and this depicts that the threat is high for Nestle. The power of buyers of this company is high and power of suppliers is low. The rivalry levels are also quite high (Obeidat et al. 2015).
SWOT analysis is well-known in the industry for providing detailed analysis of the internal environment of the organizations. The analysis consists of different parts like, strengths, weaknesses, opportunities and threats. This framework is important for the strategic planning related activities of the various organizations.
Strengths – The strengths of the organization include, the various factors like, marketing mix of the company, the USP of the organization and the market share of the organization. The management style of the company, the demands of the services and products of the company and the brand value of the organization are also a major part of the strengths of the organization (Paul, Yeates and Cadle 2014).
Weaknesses – The weaknesses are related to the utilization of resources in a proper manner and the financial position of the organization. The ways by which the company loses to its competition and weak distribution channels are major weaknesses. The lack of loyalty of the stakeholders can also act as a major weakness.
Opportunities – The possibility of innovation and the expansion related opportunities of the organization are also important for the proper functioning of the organization in the industry. The niche markets of the company are also important opportunities (Blockeel et al. 2016).
Threats – The increase in the competition of the organization and the changes in the pricing of other organizations are huge threats to the operations. The weak control of credits of the company can also impact the successful operations of the organizations. The outdated technologies that are used by the organizations can be threat to the operations.
Example – The SWOT analysis of Google can be helpful in analysing the internal environment of the company. The strengths will include the leading position of the company in the industry and the huge revenues gained from the various advertising. The weaknesses will include, the falling rates of advertisements and the excessive levels of secrecy maintained by the company. Opportunities will include the diversification related plans of the organization in the near future. The cloud computing related opportunities will also be discussed under this factor. The competition that is provided to the organization from social media companies like Facebook can also act as an important threat for the operations of Google (Obeidat et al. 2015).
References
Blockeel, C., Drakopoulos, P., Santos-Ribeiro, S., Polyzos, N.P. and Tournaye, H., 2016. A fresh look at the freeze-all protocol: a SWOT analysis. Human reproduction, 31(3), pp.491-49
Dobbs, M., 2014. Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.
Ho, J.K.K., 2014. Formulation of a systemic PEST analysis for strategic analysis. European academic research, 2(5), pp.6478-6492.
Khan, U.A., Alam, M.N. and Alam, S., 2015. A critical analysis of internal and external environment of Apple Inc. International Journal of Economics, Commerce and Management, 3(6), pp.955-961.
López-Gamero, M.D. and Molina-Azorín, J.F., 2016. Environmental management and firm competitiveness: the joint analysis of external and internal elements. Long Range Planning, 49(6), pp.746-763.
Moutinho, L. and Phillips, P., 2018. Strategic analysis. In Contemporary Issues in Strategic Management (pp. 46-79). Routledge.
Obeidat, M., North, M., Richardson, R., Rattanak, V. and North, S., 2015. Business intelligence technology, applications, and trends. International Management Review, 11(2), p.47.
Paul, D., Yeates, D. and Cadle, J. eds., 2014. Business analysis. British Computer Society.
Porter, M.E. and Kramer, M.R., 2018. Creating shared value. In Managing Sustainable Business (pp. 327-350). Springer, Dordrecht.
Wang, F. and Zhang, X.P.S., 2015. The role of the Internet in changing industry competition. Information & Management, 52(1), pp.71-81.
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