Tools for analysis
PESTLE is an analytics tool that is similar to the SWOT but deals exclusively with the external business environment to understand the external factors that might hinder or help the company growth and development. The Political, Economic, Social, Technological, Legal, and Environmental factors defining the business environment are outlined in the techniques that might help the company understand the strategic requirements better. As the different factors are outlined affect the performance of a company operating in the different industry or location (Rana et al., 2017). This helps in the formation of the operational strategy that would ensure the company success by considering all the different external factors uncovered in this analysis tool. Therefore, the use of the tool is vital in the strategic management of any company.
Porter’s five forces is a tool that concentrates on understanding and then using the competitive analysis of the specific industry and market in developing the operational strategies and plan for using the knowledge in a way that allows the company to compete in the market. These factors are referred to a microenvironment as opposed to the broader analysis used in the initial strategic planning stages that are used for development of the future strategy for a company. This addressed the company and its environment that affects its ability to serve its customers better (Gunawan, Fiarni and Lawalata, 2015). This addresses the broader nature of the SWOT analysis and modifies them to be more specific and closer to the operations of the specific company depending on the factors like the industry, product or services offered, Size and location. The different aspects of the competitive environment of the company that is considered in Porter’s five forces analysis are
• The threat of new entrants
• Threat of substitutes
• Bargaining power of customers
• Bargaining power of suppliers
• Industry rivalry
Disadvantages and advantages of the tools
For the SWOT analysis, the main advantages are little or no effort in forming the analysis that can be done by anyone with knowledge of the business operations. Its basic nature makes it the primary task for any business in a specific environment. It also outlines the threats and opportunities so that company can have an understanding of the possible goal in the broader context. The main weakness is the lack of specific nature of the analysis that provides an idea of the problems while providing little no understanding of the solution. This tool is essential for identification of the issues but evaluation or prioritization cannot be devices based on the solution of the SWOT analysis alone (Pandya, 2017). This while being the ultimate tool in providing ideas, is lacking in the formation of the solution or evaluation of the solutions. Thus, the analysis tool is limited in the implementation decision making for strategic steps.
The main strength of the PESTLE analysis is the simplicity of the tool and the ease of use that helps in guiding the identification of the possible opportunities and threats that might affect the business in the market level. The analysis covers all the aspects of the external environment that has the highest potential to affect the business to a high degree (Ansah and Sorooshian, 2017). Therefore, this analysis allows a company to analyze the possible business position to judge the expansion of business establishment decision on a national or international level.
While the PESTLE is a tool that is easy to use, the various nature of the information makes the possibility of oversimplification of the information from another domain vague and result in the incorrect decisions. The information gathered in the analysis is time specific as the nature of the business environment is mutable and gradual change is inevitable. Consequently, the results of the analysis are useful only for short time so the analysis has to be conducted regularly to be effective (Ansah and Sorooshian, 2017). As the information is general in nature, how that affects the business is based on the insight that can be limited based on the person using the information. The information quality is low because of restriction of the government on the sensitive information on the legal and political aspects of the environment.
The Porter’s five forces analysis is similarly limited despite its specific nature in the business analysis as it considers only the market forces and the non-market forces that can have broader impact on the performance are ignored, however, for simple market structures this can be the most effective as the key factors regarding competitive positioning is outlined (Grant, 2016). The time-specific nature of the information is also a limitation that makes the information useless in market structure that is fluid and for tracking rapid changes, a periodic analysis is necessary.
Conclusion and recommendation
Brooks, G., Heffner, A. and Henderson, D., 2014. A SWOT analysis of competitive knowledge from social media for a small start-up business. The Review of Business Information Systems (Online), 18(1), p.23.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Gunawan, A., Fiarni, C. and Lawalata, G., 2015. Business Process Learning System With Real-time Simulation Approach.
Jarzabkowski, P. and Kaplan, S., 2015. Strategy tools?in?use: A framework for understanding “technologies of rationality” in practice. Strategic Management Journal, 36(4), pp.537-558.
Pandya, S., 2017. Improving the learning and developmental potential of SWOT analysis: introducing the LISA framework. Strategic Direction, 33(3), pp.12-14.
Rana, P., Short, S.W., Evans, S., Granados, M.H. and Valkokari, K., 2017. Toolset for Sustainable Business Modelling. In Value Networks in Manufacturing (pp. 123-153). Springer, Cham.