Strategic Analysis: SWOT & PESTLE

Strategic Analysis

Strategic analysis is the process of conducting research into a business to aid in forming future strategies.

SWOT Analysis

SWOT analysis involves examining a business's Strengths, Weaknesses, Opportunities, and Threats.

Purpose of SWOT

• To gain a better understanding of a business's situation to make informed decisions.
• To match the organization's resources and strengths to its competitive environment.
• A way to analyse a business.
• Used to make both tactical plans and strategic plans for your business.

SWOT Factors

• Internal Factors:
  • Strengths
  • Weaknesses
• External Factors:
  • Opportunities
  • Threats

Strengths

• Definition: Internal factors that give the organization an edge over competitors.
• Examples:
  • Excellent reputation for high-quality products.
  • Highly skilled staff selected through a well-organized recruitment process.
  • Good working environment.
  • Highly profitable compared to similar organizations.
  • New, innovative product or service
  • Location of your business
  • Quality products and processes
  • Any other aspect of your business that adds value to your product or service

Weaknesses

• Definition: Internal factors that an organization could improve.
• Examples:
  • Reputation of being a poor employer.
  • Product portfolio has too many products in decline stages or a shortage of products in maturity.
  • Limited training for staff.
  • High levels of staff turnover and absenteeism.
  • Poor quality products.
  • Lack of marketing expertise
  • Undifferentiated products or services (i.e. in relation to your competitors)
  • Poor-quality goods or services
  • Damaged reputation

Opportunities

• Definition: External openings or chances for something positive for organizations to exploit.
• Examples:
  • Main competitor experiencing financial difficulties.
  • Low wages and high unemployment levels among local people with appropriate skills.
  • New markets opening up in other parts of the world.
  • Social trends encouraging consumers to purchase more of certain products.
  • A developing market such as the internet
  • Mergers, joint ventures or strategic alliances
  • Moving into new market segments that offer improved profits
  • A new international market.
  • A market vacated by an ineffective competitor

Threats

• Definition: External factors that can negatively affect the organization.
• Examples:
  • New competitor in the market.
  • Pressure group activity against the opening of a new factory.
  • Downturn predicted in the business cycle.
  • New products being released by competitors.
  • Price wars with competition
  • UK leaving the European Union.
  • A new competitor in your home market
  • Price wars with competitors
  • A competitor has a new, innovative product or service
  • Competitors have superior access to channels of distribution
  • Taxation of your product or service

Advantages of SWOT Analysis

• Highlight current and potential changes in the market.
• Relate the present position and future potential of a business to the market to make decisions.
• Influence strategies in order to achieve the organization’s aims and objectives.

Disadvantages of SWOT Analysis

• Can be time-consuming, and the situation may change rapidly.
• Subjectivity as no two managers would necessarily arrive at the same assessment of the organization.
• Opportunities and threats are about the future and can change.

SWOT Conclusion

• The value lies in the clarification and mutual understanding gained through focus.
• Should be used as a management guide, not a prescription.
• Not a quantitative form of assessment.

PESTEL Analysis

PESTEL analysis involves examining the Political, Economic, Social, Technological, Environmental, and Legal factors in a firm’s macro-environment.

PESTEL Factors

• P: Political (Global, national, regional, local)

  • Tax policy, labor laws, environmental laws, trade restrictions, tariffs, and political stability.
  • Includes goods and services which the government wants to provide or are providing (merit goods) such as the education and Healthcare.

• E: Economic (World, national and local trends, changes, events)

  • Related to the wealth of the country and to consumer’s ability to buy goods and services.
  • The labour market, employment and unemployment.
  • Interest rates and the cost of credit
  • Competitive pressures at home and abroad
  • Globalisation of markets
  • Changes in supply and demand

• S: Social (Development in society, culture)

  • Social attitudes, behaviours, and trends that impact organizations.
  • Such as the characteristics of the population.
  • Social ‘class’ i.e. changing socio–economic groupings which can affect the demand for an organization's products and how that it operates.
  • Changes in the spending - habits of consumers are constantly changing making it important for businesses to respond to these changes.
  • Changing tastes – concern for ‘green’ production, attitudes to fur, wine versus beer, vegetarians (long term or short term?).
  • Changing lifestyles – convenience and fast foods, people becoming more health conscious, use of cars, amount of leisure time and how it is used, etc.
  • Culture and immigration - The enlargement of the EU has continued the trend for immigrants to seek a home and employment in the UK.

• T: Technological (Developments in technology)

  • Advanced technology has affected the way organizations make, distribute, and market their goods and services.
  • The pace of change in technology is becoming more rapid and can impact the market in a variety of ways.
  • The rapid growth in networking capabilities both in terms of being more reliable and having extensive coverage internationally has allowed organisations to operate more efficiently.

• E: Environmental (in some books Ethical).

  • Includes pollution, global warming/climate change, sustainable development and other elements of the ‘green’ agenda.
  • The growing awareness to climate change is affecting how companies operate and the products they offer.

• L: Legal (Legislative)

  • Includes current and impending legislation that can affect organizations is areas such as competition and health and safety.
  • Legal factors also affect how organizations operate costs, facilitate business, and handle product demands.

Advantages of PESTEL Analysis

• The framework for the analysis is simple and easy to use.
• Helps to reduce the impact of potential threats to the organization.
• Enables assessment of the impact of entering new markets (nationally or globally).
• It can also help organizations to identify and exploit new opportunities.

Disadvantages of PESTEL Analysis

• The process has to be done regularly to be effective.
• Often organizations do not make the necessary investment identified.
• Information collected is based on assumptions which can be subjective.
• Costs may restrict who is involved in the process therefore key perspectives could be missed.

PESTEL Analysis Evaluation

• The objective is to ensure that organizations do not overlook the important factors that can affect them.
• To be effective organizations should use these techniques regularly.
• They should also be used in conjunction with other strategic tools.