PESTLE and
SWOT analysis give internal and external insight about a topic. This is
beneficial for people of all walks of life. Without it, you may never discover
your true strengths and weaknesses. Or realize how much the macro-environmental
factors of PESTLE analysis truly influence everything around us.
PESTLE and SWOT are highly effective analysis tools
to help you during the process of developing a strategic plan for your
business. They can be used in isolation, however become significantly more
effective when used in combination.
- PESTLE analysis considers the broad environmental context that affects the
business and the changes that occur in this context.
- SWOT analysis then interprets these findings for the business to determine the
strengths and weaknesses, and opportunities and threats.
If combined, PESTLE analysis is usually completed
first to provide a context for the SWOT analysis.
PESTLE Analysis
PESTLE analysis is, in effect, an audit or external
scan of an organisation’s environmental influences that helps guide the
planning and strategic decision making. It is often referred to as
providing a ‘big picture’ of the environment in which a business operates.
The assumption is that, if a business is able to
audit its current environment and assess potential changes, it will be better
placed than its competitors to respond to changes. Often, the analysis will
determine likely issues/events that will impact the business – these are
generally considered to be outside the control of the business.
The diagram below shows how all these different
factors can influence the business or organisation and how it operates.
Let’s consider the individual factors and how they
may impact your business plan:
Political
This factor represents the way and extent to which
the government influences the economy, and certain businesses. This could be at
the federal, state or local level. Current considerations in the market that
may impact planning include factors, e.g. a potential change of government,
unstable government due to the balance of power, tax law, changing
superannuation policies, labour laws, and trade restrictions.
Economic
This factor refers to the areas unique to the
economy and directly influence it. Factors that may influence your business
plan include inflation rates, interest rates, economic growth, exchange rates,
and property prices.
Economic also refers to local economic factors
within your geographic area, e.g. Newcastle, the second most populated area in
NSW, is famous for its coal exports. In comparison, Port Lincoln in South
Australia is known as the Seafood Capital of Australia. Economic factors differ
for each town or city and must be analysed for their impact on your business.
Social
This factor refers to demographic factors,
including population growth rates, cultural aspects, age distribution of
population, and changing social behaviours; e.g. people using social media
applications to discuss products and services. Many of these factors may impact
the way you do business with your clients and the methods of interaction you
may have.
Technological
This refers to the rate of technological changes
and Research and Development (R & D) activities, automation, and
incentives. These factors influence outsourcing decisions, quality, and
efficiency considerations. Some examples include mobile internet, smart phones,
Skype appointments, location based searching, emergence of Artificial Intelligence
etc. Over the last 10 years, changes in technology have massively impacted
every industry and the degree and speed that this will occur in the future is
only going to increase.
Legal
This factor refers to all the laws directly
connected to a business or company and its area of activity. E.G. WHS, Consumer
Law, Privacy and Discrimination Law.
Environmental
This refers to all the factors directly related to,
influenced, or determined by the surrounding environment. This could include
weather and natural disasters, geographical position, climate changes, and
sustainability. Think about the apparent increased frequency of natural
disasters (floods, drought etc.) and their impact on the business and future
planning of many affected businesses.
The traditional use of PESTLE in change management
is as follows:
Step 1 – List external PESTLE factors for the
business
You may need to brainstorm and have an expert
knowledge of the business and/or the world outside the business for this.
Step 2 – Identify the implications of each PESTLE
factor on the business
Decide the implications of the external factors –
rank or rate them. Normally, this involves assessing their impact over
time (short, medium and long-term), impact by type (positive or negative
affects), and impact by dynamics; i.e. the significance/importance of the
implication increasing, decreasing, or remaining unchanged.
Step 3 – Rate the impact and likelihood
Rate the potential impact on the business, high –
low, and the likelihood of it happening, low – high.
Step 4 – Further action
You can then undertake further analysis in the form
of a SWOT Analysis or scenario building. Developing ‘what if’ scenarios enables
you to visualise different alternative futures for the business, focusing on
the high frequency, high impact combinations of influences.
SWOT analysis
As discussed earlier, SWOT analysis helps to
interpret the findings of the PESTLE analysis to determine the business’s
strengths and weaknesses, and opportunities and threats. It is important, as a
part of the internal focus, to conduct the SWOT analysis prior to completing
your business plan. It is a critical part of the risk management process.
It helps to understand SWOT analysis by classifying
the strengths and weaknesses as an internal assessment of a
business, so looking within a business at controllable factors. The
opportunities and threats are therefore classified as an external
assessment of the business, so looking at outside forces and
influences that are beyond the businesses control.
What are some of the questions you could ask
yourself, which would also assist with the business planning process?
Strengths
- What advantages does your business have?
- What do you do better than anyone else?
- What unique or lowest-cost resources can you draw
upon, that others can’t?
- What do the people in your market perceive as your
strengths?
- What factors indicate that you “win business”?
- What is your Unique Selling Proposition (USP)?
Weaknesses
- What could you improve?
- What should you avoid?
- What are the people in your market likely to
perceive as your weaknesses?
- What factors cause you to lose business?
Opportunities
- What good opportunities can you spot?
- What interesting trends are you aware of?
Useful opportunities can come from such things as:
- Changes in technology and markets on both, broad
and narrow scales.
- Changes in government policies related to your
field.
- Changes in social patterns, population profiles,
lifestyle changes, and so on.
- Local events.
Threats
- What obstacles do you face?
- What are your competitors doing?
- Are quality standard, compliance requirements, or the specifications for your job, products, or service changing?
- Is changing technology
threatening your position?
- Do you have bad debts or
cash-flow problems?
- Could any of your weaknesses seriously threaten your
business?
- Think about some of these
considerations when conducting a SWOT analysis.
- The completed SWOT analysis
image provides an example of the issues that a business owner may face.
PESTLE can be rightly called a thorough view on the external
environment in which an organization is operating in. On the contrary though, SWOT analysis is the analysis on the internal
environment of the company based on its products etc. SWOT tends to be more product/service specific as
an individual or an entity conducts this analysis based on that product/service.
