Critical Review OF Pestle, swot, and swot PDF

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CRI TI CAL REVI EW OF PESTLE, PORTER FI VE FORCESANDSWOTANALYSI SFRAMEWORKS2 1. 0 I nt r oduct i on The ev er c hangi ngcompl excompet i t i v e busi nes senvi r onmentmak eshuge c hal l engesf ort heor gani z at i onandmanager st opaymuchmor eat t ent i onon t hei rbusi nesss t r at egi cpl an.Ther ef or e,t heymusthav eessent i alanal yt i cal t ool s ofdi ffer entl ev el st o hel p and i dent i f y whatf act or s wi l laffectt he env i r onment ,whi chki ndsofel ement si mpactont hecompet i t i onandhow t o ass esst her esour ceoft hefir mv er ywel l .Thi sessayex pl ai nst hev al ueof v ar i ousst r at egi canal yt i c alt ool si nt hec ont extofcompet i t i v eanal y si satt he macr oenvi r onment al ,i ndust r yl ev elandfir ml ev el .Theessayi nt hef ol l owi ng s ect i onsi sst r uct ur edasf ol l ow.Fi r st l ywewi l ldi s cusst hePESTELAnal y si s Fr amewor kwhi c hi susef ulf orc ompet i t i v eanal y si si nt hemacr oenv i r onment l ev el .Thenwewi l ldi s cusst hePor t er ’ sFi v eFor cesmodelwhi chi susef ult o anal y z ecompet i t i v epos i t i onofacompanyi nt hei ndust r ycont ext .Last l y ,we wi l ldi scuss t he SWOT Anal y si s Modelt o anal yz e and char tt he st r at egi c di r ect i onsofafir mi nt hecompet i t i v ebusi nes senv i r onment .Foreachoft hi s model ,wewi l l di sc us st heor i gi ns,appl i c at i onsandus age,t headv ant agesand l i mi t at i onsoft hemodel .

2. 1I nt r oduct i ont oPESTELAnal ysi s PESTEL modeli st he sel ect ed t oolf oranal y zi ng macr o envi r onment .I ti s wi del yus edandi ti sapopul arconcepti nst r at egi candcompet i t i v eanal y si s. Howev er ,t heor i gi noft hi smodelunknown–i ti shar dt odet er mi newhot he fi r str esear c herwho st ar t ed t he appl i c at i on oft hi s concept .Per haps t he conceptofenvi r onment alanal y si s was al r eady under st ood si nce t he fir st mer chant .Howev er ,t ounder st andhow t heenvi r onment alanal y si sr esear ch had ev ol v edt hr ought hel astf ourdecades ,wecanr evi ew t he wor kofDi l l ( 1958) ,Thompson( 1967) ,St ar buck( 1976) ,andLenzandEngl edow( 1986) . I ti scommonl yagr eedt hatt heconceptofPESTELc omesf r om PESTAnal y si s Model ;i ti samet hodofanal yz i ngt hemacr oenvi r onmentbys t r at egi st s ,whi ch i nv ol v esal lf act or st hati nfluencedi nt hei ndust r yandor gani z at i on.Basi cal l y , t hePESTf r amewor kencompass esf ourf act or sasf ol l ow:Pol i t i c al ,Ec onomi c, Soci aland Technol ogi cal .PESTEL Fr amewor k ev en goes ev en f ur t hert o consi dert heEnvi r onment alandLegalf act or s .

2. 2 Appl i cat i ons and Funct i ons of PESTEL Anal ysi s PESTELf r amewor ki sof t enusedasagener i ct oolt oanal yz et heposi t i onof t he or gani z at i on orpr oducti nt he mar k etpl ace.The modeli ncor por at es v ar i ousf act or si nt hechangi ngext er nalenv i r onmentandhow t hesef act or s affectt he or gani z at i on.Si xf act or s undert he modelar e di s cuss ed i nt he f ol l owi ngpoi nt s . 1. Pol i t i c alf ac t or s concer n aboutt he c hanges i n pol i t i c alcl i mat e ofa nat i on.I n a gl obal i z ed bus i nes s wor l d,t hi si si ncr easi ngl yi mpor t ant .For ex ampl e,anybusi ness eshavi ngsubsi di ar i esi nThai l andmus ts t ayal er twhen t hepol i t i c alc l i mat ei nThai l andhadbecomeuncer t ai nandgl oomy . 2. Economi cf ac t orwhi c h ar er el at ed t ot he economi call ands cape and at mospher ei nt hebusi nessl andscape.Forex ampl e,cont i nuousl yi ncr easi ng i nunempl oymentr at ei ndi cat est heeconomyoft hecount r yi snotopt i mi st i c . 3. Soc i alf act or s whi c h ar e mai nl y aboutwhati s occur r i ng i n soc i et al aspect sandhow t heseas pect si nfluencet hebusi nes senv i r onment alaswel l ast hes t r at egyoft heor gani z at i on.I ti saboutt hec har act er i st i csoft hesoci et al cont exti nwhi cht heor gani z at i onexi st s.Fori nst ance,hi ghpr es sur ewor kand l i f emaki ngpeopl emuchmor econcer nedaboutr el axi nghadhel pedi nt he emer genceofheal t handspai ndus t r y . 4. Technol ogi calf act ormeanshowt het echnol ogi eschangehassi gni fi cant i mpactont heor gani z at i onandmar k et .Forex ampl e,di gi t alcommuni cat i on, bi ot echnol ogy ,chemi cal s ,ener gyr ev ol ut i on,nanot echnol ogyar ej ustsome ex ampl es oft echnol ogy c hanges t hatshoul d be awar e by manager si n f or mul at i ngt hecompanys t r at egi candcompet i t i v eanal ys i s . 5. Env i r onment alf act or sar econcer ni ngwhati soccur r i ngi nenvi r onment aspect s ,and undert hi s cont ex t ,al lt he f act or si n phys i c aland bi ol ogi cal env i r onment s wi t hi n whi ch an or gani z at i ons s houl d be consi der ed by t he manager .Forex ampl e,gl obalcl i mat echangesandt heemer genceofgr een t echnol ogy ar e pr essi ng al lt he busi ness es t o become awar e ofpol l ut i on i ss uesandt oex er ci secor por at esoci alr esponsi bi l i t y ;t heyshoul dpr oact i v el y i mpl ementgr eent echnol ogyi nt hei rbusi nesspr oces ses . 6. Legalf act orhowev er ,i saboutt hechangi ngofl egi s l at i onsandaboutt he waygov er nmenti nt er f er eswi t hormanagest hebusi nes senvi r onment ,such aschangesi nt het axpol i c yandenf or cementoft ar i ffst ocer t ai npr oduct s .

Thes i xf act or sar er eal l ypower f ulandusef ult oolwi del yappl i edf orbusi ness pl anni ng,mar k et i ng pl anni ng,or gani z at i onalchange,pr oductdev el opment

andr esear c hr epor t .I nbusi nessandst r at egi cpl anni ng,i tpr ovi descont ex t back gr ound and i nf or mat i on aboutt ar get s suc h as gr owt h,new pr oduct dev el opmentand br and posi t i oni ng f ort he manager s and or gani z at i ons . Pr ovi di ng ess ent i alel ement st or evi ew t he s i t uat i on and under s t and t he mar k etdur i ngmar k et i ngpl anni ngpr oc es s.AsaPESTELanal y si spr ovi desa v i ew ofwhati soccur r i ngi nt heext er nalwor l d,t hi swi l lhel pwhenmaki ngt he deci si ont oent erorl eav eanar eaofpr oductdev el opment .Foror gani z at i onal c hange,PESTELanal y si scoul dhel pwher et hechangi ngi shappeni ngand whi chi st hepot ent i alar eat of oc uswel li nt hecont ext .APESTELwi l lpr ovi de i nf or mat i on aboutpot ent i aloppor t uni t i esand t hr eat sar ound l aborchanges wi t hbestr es ul tass oc i at i onwi t haSWOTanal y si si nr esear chr epor t .

2. 3Advant agesofPESTELAnal ysi s PESTELAnal y si si spopul arbecauset hemodelhasmanyadv ant ages .Fi r st l y , t hemodeli ssi mpl eandonl ycost sl i t t l et i met odo.Duet ot hesi mpl i c i t yoft he model ,suc haf r amewor ki seas i l yunder s t andabl eandpopul ar .Bes i des,si nce t hemodeldoesnott ak eal ongt i met obeappl i edi nanal y si s,t hef r amewor ki s eas i l y appl i ed i n meet i ng. Peopl e, ev en wi t hout much back gr ound or knowl edgei nt hebusi nessmanagement ,canr el at et ot hemodelandt hus, can t hen cont r i but et hei ri deas i n di scuss i on. Secondl y ,t he modeli s compr ehensi v e enough and abl et o pr ovi de an under st andi ng oft he wi der busi nessenvi r onment .Thi smak est hemodelr emar kabl eus ef ulandpr act i c al , ast hemodeldi r ectandgui demanager st ot hi nki nahol i st i cmanner ,whi l enot t r oubl i ngt hemanager swi t hcompl exi t yandt echni cal i t y .Thi r dl y ,t hemodeli s benefic i ali n managementpr ocess because t he modelencour ages t he dev el opmentofs t r at egi ct hi nki ng.Toexpl ai n,i nt heappl i cat i onoft hemodel , manager sar ef or cedt ot hi nkaboutv ar i ousf act or si nt heenvi r onment ,suchas t he pol i t i c al ,economi c ,soci al ,t echnol ogyf act or sand et c .Thi smak est he t hi nki ngpr oces st obemor eobj ect i v e.Themodelal s opr ov i desapr act i c al gui del i net omanager ss ot hatt hemanger sar ef or cedt oconsi dert hest r at egi c andcompet i t i v eenvi r onmentf r om v ar i ousar eas.Wi t ht hi s ,t hemodeli sal so hel pf uli nt hesenset hati tmayr ai s eawar enessamongmanager sr egar di ng t hr eat st oapr oj ect .Apar tf r om t hat ,t hemodeli sal sousef ulasi ti sf or war d l ooki ng.I tcanhel panor gani z at i on t oant i c i pat ef ut ur e di fficul t i esandt hus pr ov ok et hemanager st ot ak eact i onst oav oi dormi ni mi z et henegat i v eeffect . Ont heot herhand,t hemodeli sal s opower f ulasi tcanhel panor gani z at i ont o s potoppor t uni t i esandexpl oi tt hepot ent i aloppor t uni t i es.

2. 4Di sadvant agesofPESTELAnal ysi s Howev er , as a t heor et i c al t ool , PESTEL i nevi t abl y poss es s sev er al di sadvant ages and l i mi t at i ons .Once t he company adopt ed PESTEL t o do anal y si s, t he dat a col l ect i on and pr ocess must be subj ect t or egul ar

accumul at i onofdat a.Besi des,i ti sal s ocr i t i quedt hatt hepr ocesst ak esi sa l ongt i mef ori dent i f yi ng,gat her i ngi nf or mat i onandev al uat i ngt hefi ndi ngs .I ti s cost l y as many peopl e need t o be i nv ol v ed.Apar tf or mt hat ,due t ot he s i mpl i c i t yoft hemodel ,r esear cher shav ear guedt hatsuc hasi mpl el i stmay notbesuffic i entandcompr ehensi v e.Then,pr act i t i oner sal sof oundt hatt he r esul t sand st r at egi esgener at edf r om t he modelar e notusef uli nt he l ong t er m.Real i s t i c al l ys peaki ng,t he r api d pace ofchange i n soci et ymak esi t i ncr easi ngl ydi fficul tt oant i ci pat edev el opment st hatmayaffectanor gani z at i on i nt hef ut ur e,andt hemodeli snotcapabl et ocopewi t ht hesechanges.Not onl yt hat ,ast hemodelr equi r esl ar gedat aasi nput ,col l ect i ngl ar geamount s ofi nf or mat i onmaymak ei tdi fficul tt os eet hewoodf ort het r eesandl eadt o “ par al y si sbyanal y si s. ”Per hapst hemostcr i t i c aldi s adv ant ageoft hemodeli s t hatt hePESTanal y si sonl ycov er st heext er nalenvi r onmentandt her esul t s al onemaynotbeusef ulorcompl et e.I ti sar guedt hatwes t i l lneedt oconsi der manyot herf act or s,suc hast hei nt er nalf act or saffect i ngt heor gani z at i on,t he act i onsofcompet i t or sandt hei ndust r yi nwhi cht heor gani z at i oni soper at i ng.

3. 0 St r at egi cAnal ysi satI ndust r yLevel 3. 1I nt r oduct i ont oPor t er ’ sFi veFor cesAnal ysi sFr amewor k Theor i gi nofPor t er ’ sfi v ef or cesmodelwasdev el opedi near l y80sbyMi chael Por t er .Si ncet hen,t hi sf r amewor kbecomesi ncr easi ngl ypopul arandi swi del y usedi nbus i nesss t r at egypl anni ngt i l l t oday .I ti susedpr i mar i l yf ort heanal y si s ofcompet i t i v e st r at egyaswel last he compet i t i v e env i r onmentofi ndust r y . Apar tf or mt hat ,i ti sal soar guedt hatt het ooli susef ult or esear chwhet hera

new pr oduct s ,ser v i c esorbusi nesseshav et hepot ent i alt obepr ofit abl e.I n s omecont ext ,t hemodeli sal soaf r equent l yusedmodelt ounder st andt he bal anceofpowerbet weeni ndust r ypl ay er s. Por t er s uggest ed t hat t her e ar e fi v ei mpor t ant f or ces t hat shoul d be consi der edi nt hest r at egi candcompet i t i v eanal ys i sofacompany .Thefiv e f or cesar ebar gai ni ngpowerofs uppl i er s,bar gai ni ngpowerofbuy er s ,t hr eatof new ent r ant s,t hr eat sofsubst i t ut esandr i v al r yamongex i s t i ngcompani es.Al l oft hesef or cesar ei l l us t r at edi nt hefi gur ebel ow.Besi des ,t hesef or ceswi l l al sobedi s cussedi ngr eat erdet ai l si nt hepar agr aphsbeneat h.

Suppl i erPower :Accor di ngt oPor t er ,i nt hi sdi mensi on,weassesshow eas yi ti sf ors uppl i er st oi ncr easepr i ces .Thebar gai ni ngpowerofs uppl i eri s dr i v enbyt hequant i t yofsuppl i er sofeachr aw mat er i alandi nputr esour ces , t heuni quenes soft hesuppl i er ’ spr oductors er vi ce,t hes uppl i erabi l i t yt oex er t cont r olov ert heor gani z at i on,andt hecostofs wi t chi ngf r om onepr oduct st o anot her .Gener al l y ,t he f ewert he s uppl i erc hoi cesan or gani z at i on has,t he mor et heor gani z at i onwi l lbedependentont hes uppl i er s,andt hust hemor e power f ul andi mpact f ult hes uppl i er sar et owar dst heor gani z at i on. Buy erPower :I nt hi sdi mensi on,weanal yz ehow eas yt hebuy erofapr oduct candr i v edownt hes el l i ngpr i ces.Thebar gai ni ngpowerofbuy eri sdr i venby t he number ofbuy er s ,t he i mpor t ance ofeach i ndi v i dualbuy er t ot he or gani z at i on’ sbusi nes sandt hes wi t chi ngcostofbuy er sf r om t hecompany’ s pr oduct s and ser vi ces t ot hose ofs omeone el s e.Of t en,t he st r ongert he bar gai ni ng powert he buy erpossess ,t he l owers el l i ng pr i c est he company abl et oquot e,andt hust hel owerpr ofitmar gi nt hecompanyabl et oac hi ev e. Compet i t i v e Ri v al r y:The di mens i on oft he r i v al r y among compet i t or si s al l aboutt heamountofcompet i t or si nt hesamei ndust r y ,t hecapabi l i t yoft he compet i t or saswel last hei nt ensi t yofcompet i t i oni nt hei ndust r y .Gener al l y , t hemor ecompet i t or sexi s ti nani ndust r y ,andpar t i c ul ar l yt heyabl et ooffer out st andi ngpr oduct sandser vi ceswi t hat t r act i v epr i ci ng,t heni ti ss ai dt hat t hecompet i t i ver i v al r yamongt hei ndust r ypl ay er si sv er yi nt ens e.Thi si sa negat i v esi t uat i on.Ont heot herhand,whent her ear ef ewercompet i t or si na mar k etsegmentori ndust r y ,t hent hecompet i t i onf or cesar enotsoi nt ense amongi ndust r ypl ay er s ,whi c hi sagoodsi gnandsi t uat i onf oracompanyi n t hei ndust r y . Thr eatofSubs t i t ut i on:The s ubst i t ut i on effectof t enr ef er st ot heabi l i t yofa company’ scus t omer st o find a di ffer entwayofdoi ng whatt heydo.I ft he c us t omerabl et o fi nd subst i t ut e pr oduct s easi l y ,t hen i ti s sai dt hatt he s wi t chi ngcost sofsubst i t ut ei sl ow.Subst i t ut i oneffect snotonl yhappenatt he pr oduct sl ev el ,butser vi ces can al so be subs t i t ut ed.Howev er ,ev en t he companysuppl y i ng auni ques of t war e pr oductt hataut omat esani mpor t ant

pr ocess may al so f ace t he t hr eatofsubst i t ut i on because peopl e may s ubst i t ut e bydoi ng t he pr ocessmanual l yorbyout sour ci ng i t .Gener al l y ,i f s ubst i t ut i oni seas yanddoesnotcostmuc h,t het hr eatofsubs t i t ut i onf ora companyi sv er yhi gh. Thr eatofNew Ent r y:Accor di ngt oPor t er ,t hebal anceofpoweri nani ndus t r y i sal so affect ed byt he abi l i t yofpot ent i alcompet i t or st o ent era par t i cul ar mar k ets egmentori ndust r y .Gener al l y ,t het hr eatofnew ent r anti shi ghwhen i tcost sl i t t l ei nt i meormoneyt oent ert hemar k et ,i ti seas yf ornew ent r antt o compet eeffect i v el yi nt hei ndus t r y ,ori ft her ear ef ew economi esofscal eby c ur r enti ndus t r ypl ay er s ,ori ft heex i st i ngcompani esi nt hei ndus t r yhav el i t t l e pr ot ect i on f ort hei rv i t alt echnol ogi es.New ent r ant s wi l lof t en weak en a company’ sposi t i on.Howev er ,i ncont r as t ,i fapar t i cul arcompanyhasst r ong and dur abl e bar r i er st o ent r y ,t hen t he companycan pr eser v ea f av or abl e posi t i onandenj oyahi gherpr ofitmar gi n.

3. 2 Appl i cat i ons and Funct i ons ofPor t er ’ s Fi ve For ces Anal ysi s Fr amewor k Por t er ’ sFi v eFor ceshav emanyusageandf unct i onsi nt hepr act i calwor l d. Fi r st l y ,t hemodelenabl eanunder st andi ngoft henat ur eofeachoft hefiv e f or ceswhi c hi nt ur npr ov i det heor gani zat i onswi t hnecess ar yi nf or mat i oni n t he f or mul at i on ofappr opr i at es t r at egi es and busi ness di r ect i on ( Thur l by , 1998) .Themodeli swi del yusedbecaus eanycompanymustconsi dert he nat ur e oft he compet i t i v e envi r onmenti fi ti st o enhance t he chances of s uccessi nt er msofachi evi ngt hecompany ’ sobj ect i v eswi t ht hef or mat i onof appr opr i at es t r at egi es .The r at i onal ei ss i mpl e–i fa company can f ul l y compr ehendt hechar act er i st i csoft hePor t er ’ sfiv ef or c esi ni t si ndus t r y ,and abl et of er r etoutt hef act or swhi c har emor epower f ulandi mpact f ult owar ds or gani z at i onalper f or mance,t hecompanywi l lbeabl et opr epar ei t s el fi nt oa s t r ongerposi t i ont odef endi t s el fagai nstanymaj ort hr eat s .I not herwor ds ,t he appl i c at i on of t he Por t er ’ s Fi v e For c es model i s cr uci al l y hel pf ul f or or gani z at i onst obui l dl ongt er m busi nes sst r at egyandsust ai ni ngcompet i t i v e adv ant ages. Apar tf r om t hat ,t hemodeli sal s ohel pf ulf ormanager st ocompr ehendt he s t r engt hand weaknessesofa fi r m’ scur r entcompet i t i v e posi t i on,and al so power f uli nass i s t i ngmanager st opl anf orenhancementoft hei rcompani es ’ compet i t i v eadv ant agei nt hef ut ur e.Thr ought heappl i cat i onoft hePor t er ’ s Fi v eFor cesmodel ,manager scanobt ai nacl earunder st andi ngofwher et he powerl i esi nani ndust r y ,andt hi si sv i t al l yi mpor t antassuchknowl edgewi l l enabl eacompanyt ot ak eact i onswhi chcoul dmaxi mi z ei t sst r engt hs ,whi l e mi ni mi z i ngt heweaknesses .I ti sus ef ul becaus et her es ul t sf r om t hemodelwi l l al so pr ev entt he manager sf r om f or mi ng wr ong and danger ous st r at egi c

di r ect i on ormi ssi on f ort he or gani z at i on.Thr ough t he appl i cat i on oft he f r amewor k,andbyi dent i f yi ngt hest r engt handdi r ect i onofeachcompet i t i v e f or ce,i tpr ovi desmanager swi t hanoppor t uni t yt oi dent i f yt hest r engt hofa par t i cul arcompany’ sposi t i on,t hef or mat i onofgener i cs t r at egy( i . e. ,ei t hera di ffer ent i at i on,l ow costoff ocusst r at egy) ,t heshar peni ngoft hecompany’ s s t r engt ht o achi ev e compet i t i v e adv ant ages ,whi ch i s es sent i all at eri nt he pr ocesst oachi ev esust ai nabl epr ofit abi l i t yi nt hei ndust r y .Theappl i cat i onof t hePor t er ’ sFi v eFor cesmodelt owar dst hef or mat i onoft hegener i cst r at egy f oracompanyi sshowni nt abl ebel ow. Generic strategy Focus strategy Focusing develops core competency Barriers to entry that can act as an entry barrier Five forces within industry

Few choices compelled large buyers Bargaining power of buyers have less ability of negotiation Suppliers have power because of low volumes, a differentiation-focused firm is better able to pass on supplier price increases Special products and core Threat of competency could avoid the threat of substitutes substitute Rivalries impossible to satisfy Rivalry in differentiation-focused customer existing industry needs

Bargaining power of suppliers

Differentiation strategy Customer loyalty to beat confidence of potential competitors Large buyers have less power to negotiate because of few close alternatives

Cost leadership strategy Possess bargaining power to back the potential competito

Better able to pass on supplier price increases to customers

Better insulted from powerfu suppliers

Ability with low price for la buyers

Customer used to be one products or Resist the substitute with low services reduce the threat of substitute Brand loyalty prompt customers ignoring the competitors

Better able to compete on pr

3. 3Advant agesofPor t er ’ sFi veFor cesAnal ysi sFr amewor k Fi r stofal l ,t headv ant ageoft hemodell i esi ni t scommonsenseands i mpl et o appl yf r amewor k .The si mpl i c i t y oft hi s appl i c at i on i st he mai nf act ort hat encour agesnumer ouscompani esaswel lasbusi nes ss chool st o adopti t s usage( Wheel enandHunger ,1998) . Secondl y ,t hemodelcanbeus edi nst at i canal y si sanddy nami canal y s i s .To ex pl ai n,whent hemodeli sappl i edi nst at i canal y si s,t hemodelwi l lenabl et he managert o cr af ta r eact i v e posi t i oni ng st r at egy t hatmat ches t he fir m’ s s t r engt hsandweakness eswi t ht hec ur r enti ndust r yst r uct ur e.I ncont r ast ,i n t hedy nami canal y si s ,wi t ht heappl i c at i onoft hemodel ,t her es ear chercan c r af tapr oact i v est r at egydesi gnedt oi nfluencei ndust r y’ scompet i t i v er ul est o a company ’ sf av our .Thi si s made possi bl e because t he modelexpl i ci t l y consi der st he componentofi ndus t r y ev ol ut i onar y and t hus enabl es t he companyt ogr i pt heoppor t uni t yt ocapi t al i z eonc hangesi nanyoft hefiv e f or cesofi ndust r ys t r uct ur e....