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SWOT & PESTLE Analysis SWOT and Pestle analysis is a strategic analysis tool that feeds important information into the business strategy formulation process. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. SWOT is used to determine the current position of an organization. The first two components pertain to internal factors and the latter two concern external issues. Pestle (or PEST) is an acronym for Political, Economic, Social, Technical, Legal and Environmental analysis. Pestle is a tool for assessing the external context of an organization (Bee, 1998). Sequence Pestle can be used alone or in combination with SWOT. If combined, Pestle analysis is done first to provide a context for SWOT analysis (Basu, 2004). Pestle analysis delineates the broad environmental context that affects the business and the changes that occur in this context. SWOT analysis then interprets these findings to determine organizations' strengths and weaknesses, and opportunities and threats (Needham et al., 1999). Significance of Pestle Classical management theories failed to consider the environment vis-à-vis the organization and viewed organizations as closed, mechanical systems. Modern theory regards organizations as open systems. Organizations, like individuals, have needs. These needs are satisfied through contacts with the wider environment. The open-systems view stresses the importance of organizations' interactions with customers, competitors, suppliers, labor unions, government agencies, and the contextual or general environment (Morgan, 2006). Pestle is a tool that helps scan the broader environmental context. Significance of SWOT SWOT analysis is a focusing device or framework in the process of formulating a business strategy. A strategy helps the organization build upon its achievements, plan for the future and monitor progress. An effective strategy should utilize unique strengths to distinguish the business from competitors. It should exploit links with the environment to fulfill organizational needs and be in harmony with the environmental changes. A strategy should strive to achieve a vision that defines the long term success of the business. This may entail addressing weaknesses (Needham et al., 1999). Synergy All management tools suffer from shortcomings. A combined SWOT and Pestle analysis can overcome some of the limitations they suffer as a standalone tool. SWOT analysis focuses on the immediate business context and can lead to ignoring important broader environmental changes that can redefined a business. Pestle can highlight long-term environmental shifts and cover this weakness. Pestle is more outside focused while SWOT considers implications for the bottom-line (Davies, 2007; Dess et al., 2004). Considerations Conducting SWOT and Pestle analysis is not an end in itself. The output should be fed into a strategy formulation process. These tools may produce a long list of important issues. Weighing them correctly is important in their effective incorporation into the strategy formulation process. Moreover, strengths may not translate into competitive advantage because of mismatch with organizational goals. SWOT analysis tends to give a static view of the competitive landscape. It is important to consider how things develop over time. Also, it is important to avoid focusing on a single strength (Henry, 2008; Dess et al., 2004). How to do a SWOT and PESTLE Analysis Some business analysis is a waste of time particularly when you work for yourself because you’ve no manager to impress or colleagues to show your 50 slide Powerpoint presentation on the affect rainfall has on the volumes of washing machines being sold. However, some business analysis tools are extremely worthwhile. Even if you just scribble down a SWOT and PESTLE analysis it can help to remove you from the daily slog of running your business and appreciate the bigger picture. What exactly are SWOT and PESTLE? Both are age-old business analysis tools and both are acronyms. They can be used to assess and evaluate a current business or project as well as any new business ventures you have in the pipeline. The beauty of SWOT and PESTLE are their simplicity and the fact that they are applicable in every market. Let’s talk about SWOT Strengths These are the strengths within your organisation. What exactly is it about you and your business that is better than the competition? Examples might include quality products, advanced technology, advanced knowledge and a long established business. Identifying the strengths of your current business or a new venture can improve the efficiency of your sales and marketing efforts – it helps you to visualise the unique selling point of your business which helps you write better sales copy, create better sales letters, make more successful sales calls and develop smarter marketing campaigns. Weaknesses Be realistic about what is weak about your business. Are you less advanced than the competition or do you produce lesser quality products? Understanding what is weak about your business can help you to negate these shortfalls, you might produce lesser quality products BUT you are cheaper. Having an awareness of your weaknesses allows you to be smarter with your marketing messages, it helps you to determine which promotional battles to fight and which ones to avoid. For example, the British supermarket chain Morrissons doesn’t profess to being the cheapest supermarket, but instead it chooses to compete on produce quality and freshness. Only pick fights your business can win. Opportunities Consider the external opportunities that exist in your market. Has a new law been introduced making your service compulsory? Has there been renewed interest in products like yours? Is a big event coming to town (London 2012 Olympics for example)? Threats Consider the external threats that might have an impact on your business. Is bank funding in short supply? Will the recession affect your sales? Will the shop next door to you closing affect your business? Will clients need less consultants in the recession or more? Having completed a SWOT analysis. Ask yourself the following questions: How can you capitalise on your strengths? How can you improve your weaknesses? How can you exploit the opportunities available to you? How can you negate the risks? Now you have a tangible plan or a set of objectives that you can influence and improve your sales and marketing. Let’s talk about PESTLE When it comes to a PESTLE analysis, you will need to consider the external opportunities and external threats to your business in the following 6 categories. Political Does the Government intervention in your market offer you opportunities or threats? How might the different political parties affect your business? Are there opportunities to supply to your local Government? Are there opportunities for your business to supply the central Government? Economic How will the recession affect your business? How will an upturn in the economy affect your business? How will interest rates impact on your business? Social Changes in society might affect your business; if you sell maternity clothing, a rise in pregnancies will obviously be good for business. An ageing population might present opportunities for funeral directors, a young population might present opportunities for driving schools and so on. Technological How do advancements in technology affect your business? How will your business hold up if technology shifts dramatically forwards? Will your business become obsolete? If so, how might you combat this? Legal Does a change in law offer you opportunity or threaten your business? Compulsory car insurance is good for the insurers but a smoking ban is bad for pubs and cigarette manufacturers? How might changes of law in your marketplace affect your business and how can you ensure the stability of your business when they do? Environmental This factor is playing an increasing role in strategic decision making, particularly in large companies. How can your business profit from weather changes? If you are a retailer how might you mitigate the risks of a wet summer? Also, how do you business activites affect climate change? What are you doing to negate this damage? Are you effectively promoting the good your business does for the environment? Having completed a PESTLE analysis you should now have a few notes on how the external environment can affect your business and the ways you can capitalise on the opportunities and mitigate some of the risks. Taking time out to think about factors that really have an impact on your business can be time well spent, particularly when it comes to making decisions relating to your sales and marketing efforts.
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