Both PESTLE and SWOT are used to analyze the environment in which the product will make its place. PESTLE analyzes external environment whereas SWOT focuses on both external and internal analysis. These methods have their advantages and disadvantages, importance of both cannot be denied and they provide detailed situation analysis of a business covering important factors.
It analyzes the Political events and the role government in determining the fate of industry like giving tax holidays, giving import relaxations and export benefits, liberalization of economy, investment in R&D and many other similar issues. Economic factors include interest rate determination which then translates into determining inflation of the country, credit terms and purchasing power parity, tax laws etc. S stands for social concerns that the business might be facing like minimum wage laws, underage employment, equal opportunity in employment, changes in lifestyle and values of people according to the demographic and psychographic profiles of people. Technological advancements dictate the pace of the progress in an industry like in Smartphone manufacturing either innovate every six months or die like Blackberry. In such industries new products and processes are evolving everyday and a company has to keep pace with it and invest in R&D. The other two factors are environmental and law which defines the legal boundaries and frameworks within which a business has to operate and cannot out step those even there is more profit. (Nishadha, 2012)
It is an abbreviation for strength, weakness, opportunities and threat. Strength and weakness reflect the internal situation for a business whereas opportunities and threat portray the external conditions that a firm has to face while competing in the industry. This analysis reveals the strong suits on which the firm can capitalize on and leverage from those positive characteristics whereas the weaknesses tells where the firm needs to improve if it wants to increase its sales and beat the competition and be the market leader. Opportunities are actually untapped areas where the firm can increase its business and hence be more successful and threats are from which the firm has to be careful because they can make the firm’s business more difficult for example threat of new entrants because the industry profit margins have increased considerably, this means that the firm has to invest more on building its brand and partner relationships to give new entrants a tough time.
Advantages and Disadvantages of PESTLE
There are some plus and minuses attached with both analysis, both aren’t answering all the questions that need to be answered through an analysis. PESTLE analysis simplifies the situation through major macro environment factors, it helps in identifying the threats through external factors that can develop in future and hence helps in forecasting the situation, it enables an organization to develop strategies in order to counter the broader business problems and it equips an organization to enter a market both nationally and internationally.
However the analysis done through this is so simple that people tend to simplify the real world situations as well, it is a continuous and ongoing process that needs to be updated frequently as the situation changes but organization fail to realize this and consider it one time operation only, the information collected through this analysis is too subjective and need further improvement and quantitative work done on it and it does not cover any internal evaluation which is kind of incomplete analysis as one cannot determine the course of action without knowing one’s abilities and skills, for example if PESTLE analysis indicates that future global market for Smartphone will quadruple and hence investment in technology now will reap the fruits later but a company’s financial position does not allow it to invest then this analysis will not help in making an informed decision. Almost all of the data collected for this analysis is from external source which puts a question mark on its authenticity as well as makes its time consuming and costly activity. (Advantages and Disadvantages)
Advantages And Disadvantages Of SWOT
SWOT analysis presents the information in the most simplest and easy to comprehend manner while covering important areas like company’s ability to outperform its competitors and its weaknesses to be addressed, highlighted in unambiguous manner. It can be used to assess a new project or an existing project; it will outlay the stretch scope and future difficulties in conducting business.
It lacks the prioritization of the key problem areas it highlights for example it has highlighted that because of its technological superiority the company has the opportunity to extend its market locally or globally, but it will not indicate when and in business world timing is everything. It highlights the possible threats to a business but does not define the course of action that a firm must take to address that problem like the business is bombarded with counterfeit products that are almost similar in function and benefits, but does not indicate or notify what a firm must do in order to differentiate itself from Me-too products. It generates a lot of data through the analysis of a firm’s situation but not all the data is useful to the firm. So many external factors are missed as a result of this analysis because it does not include every external factor that affects the business. The data collected needs to be updated or the quick pace of the changing world makes it irrelevant. (PEST Chart and SWOT Analysis)
To use and rely on any one kind of analysis is not wise. These analyses complement each as what is missing in one is present in the other. Both of them should be used together to make the most out of them and actually benefit from the exercise otherwise it will be waste of resources as the information collected won’t be updated and valuable and might be possible, incomplete. As a result of this whatever decision is taken in the light of these analyses might backfire and harm the company in the long run.
Advantages and Disadvantages. (n.d.). Retrieved January 7, 2016, from free-management-ebooks: http://www.free-management-ebooks.com/faqst/pestle-09.htm
Nishadha. (2012, March 27). SWOT Analysis Vs PEST Analysis and When to Use Them. Retrieved January 6, 2016, from creately: http://creately.com/blog/diagrams/swot-analysis-vs-pest-analysis/
PEST Chart and SWOT Analysis. (n.d.). Retrieved January 7, 2016, from Edraw Visualization solutions: https://www.edrawsoft.com/pest-chart-swot-analysis.php