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).
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
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
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.,
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).
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
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
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.
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.
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)?
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
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.
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?
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?
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.
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?
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?
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.