Other common tools for evaluating a business include the PESTLE analysis, which looks at the political, economic, social, technological, legal, and environmental factors that can impact a company, and the Five Forces analysis, which examines the competitive forces within an industry. These tools can help you identify areas for improvement and develop strategies for growth.
PESTLE analysis and Porter’s Five Forces analysis are both commonly used tools for analyzing a company’s external environment.
PESTLE analysis is a framework for analyzing the external factors that can impact a business. These factors are:
- Political: This refers to the impact of government policies, laws, and regulations on the business.
- Economic: This refers to the impact of economic factors, such as interest rates, inflation, and unemployment, on the business.
- Social: This refers to the impact of social trends and changes in consumer behavior on the business.
- Technological: This refers to the impact of technological developments and innovations on the business.
- Legal: This refers to the impact of legal changes and regulations on the business.
- Environmental: This refers to the impact of environmental factors, such as climate change and natural disasters, on the business.
Porter’s Five Forces analysis is a framework for analyzing the competitive forces in an industry. These forces are:
- Threat of new entrants: This refers to the ease with which new competitors can enter the market.
- Threat of substitute products or services: This refers to the availability of alternative products or services that customers can switch to.
- Bargaining power of suppliers: This refers to the power of suppliers to influence the prices of the products or services that the business sells.
- Bargaining power of buyers: This refers to the power of customers to influence the prices of the products or services that the business sells.
- Intensity of competitive rivalry: This refers to the level of competition within the industry.
For example, if a company is considering entering the online retail market, a PESTLE analysis might consider the political impact of government regulations on e-commerce, the economic impact of consumer spending habits, the social impact of changes in consumer behavior, the technological impact of advancements in e-commerce technology, and the environmental impact of packaging and shipping.
A Porter’s Five Forces analysis of the same market might consider the threat of new entrants, such as Amazon and Walmart, the threat of substitute products or services, such as brick-and-mortar stores, the bargaining power of suppliers, such as manufacturers and distributors, the bargaining power of buyers, such as consumers, and the intensity of competitive rivalries, such as price wars and advertising campaigns.
