What is PESTEL Analysis and how is it used in Business?
PESTEL analysis is one of the strategy development tools which is used to monitor and analyze the external marketing environment (macro-environment) factors that have an impact on an organization. This tool is used to get an overview of the different external factors that impacts an organization and the outcome of the analysis is used to identify weakness and threats which are used in a SWOT analysis. PESTEL stands for political, economic, social, technological, environment and Legal(Academy, 2019).
Political Factor: Political factors have a significant impact on an organization where the degree to which the government intervenes in the economy and how they involve. Some of these include, foreign trade policy, tax policy, labor law, freedom of the press, bilateral relationships, trade control, government stability and so on. At the time of assessing a potential market, these factors need to be taken into considerations(B2U – Business-to-you.com, 2019).
Economical factor: These factors are all about the ways a company does business and how profitable they are. It includes factors like growth rate, interest rate, inflation rate, exchange rate, price fluctuation and many more. All these factors directly may have an indirect or direct impact on a company because these factors would affect the purchasing power of the customers and could affect the supply/demand model of the organization. Which would further lead to a change in prices of the products and services(Academy, 2019).
Social factor: Social factor is otherwise known as socio-cultural factor that involves attitude and beliefs of the population within which the organization operates. This includes factors like population growth rate, age distribution and so on. It is important for an organization when they target certain customers(Academy, 2019).
Technological factor: with the fast changing environment, the technological factors plays a key role in the success of an organization. This includes the new ways for producing and distributing goods.
Environmental factor: in recent times, these factors have become very important due to the amount of pollution, scarcity of raw material, government norms and so on. These factors play vital role in sustainability of an organization.
Legal factor: These includes – health and safety, equal opportunity, product safety and so on. For an organization to trade successfully it so very crucial to keep legal aspects. Even it is highly recommended to maintain the legal aspects when an organization expands globally(Academy, 2019).
What is SWOT Analysis and how is it used in Business?
SWOT analysis is considered as planning to in developing a business strategy which identifies strengths, weaknesses, opportunities, and threats in a workplace (Fine, 2009). The primary objective of this analysis is to state the objectives of the organization and identifying different factors that would lead to the success or failure of the objective.
Strengths: These are the factors that give an advantage for an organization over others. Many times, these strengths are also referred to as unique selling points, competitive advantages. The key source of these strengths are capabilities, resources which are valuable and supported by the organization
Weakness: The weakness of a company characterizes the place where the company has disadvantages over others. In simple these are the areas where a company lags behind. Knowing the weakness would help in taking the necessary steps for an organization to succeed(Academy, 2019).
Opportunities: opportunities provides a positive push to the company’s performance. These are external actors however looking to these factors would lead an organization to exploit its own advantages.
Threats: Threats is basically external which would say the possible causes that would trouble a company in the future.
Strengths and weakness are internal to the organization, whereas the opportunities and threats are external to the organization ((Academy, 2019).
What is Porters 5 forces Analysis and how is it used in Business?
Porters 5 forces are one of the strategic tools which are to evaluate the level of competitive intensity within an organization. This concept is named after Michael E. Porter. He believed that in order to determine the attractiveness of an industry, it is very much important to understand the levels of competitive intensity. When it is talked about attractiveness, it indicates the profitability of the industry. The theory states that to measure the intensity, it is important to look at the factors that are competitive rivalry, supplier power, buyer power, the threat of substitution and threat of new entrants (Academy, 2019).
Competitive rivalry: one of the key factor to competitive intensity is competitive rivalry and the marketer has to consider few things like how many competitors, are the customers loyal, is there any change in the quality of the product and so on(Academy, 2019).
Threat of new entrants: when an organization perceived as attractive, it comes quite obvious to see to new entrants entering the segment. With the increase in the number of entrants, the profitability margin declines. So the marketer needs to consider while designing the strategy(Academy, 2019).
Threat of substitution: The customer has the freedom to choose their product, therefore, with the increase in the number of varieties of the same product, there is a higher change for the customer to switch and that will decline the profitability margin(Academy, 2019).
Supplier power: suppliers play a crucial role in the profitability margin as with the increase in supplier power may lead to monopoly(Academy, 2019).
Buyer power: this comes to picture when the buyer holds the power to pressure the companies (E. Dobbs, 2014).
What is Resource based view Analysis and how is it used in Business?
The resource-based view analysis is defined to be a managerial tool that is used to determine the potential strategic resource to deliver a competitive advantage to an organization. In simple words, it’s perceptive to examine the link between an organization’s internal strength and its performance. This theory also tells about the ways to have a sustainable competitive advantage and that is possible by summing up the resources into the VRIO framework. Where, VRIO stands for valuable, rare, inimitable and organization-wide supported (Wernerfelt, 1984).
Valuable: As per resource-based analysis, it is said that a resource can be defined as valuable if enables the organization to implement strategies that lead to the betterment of the organization efficiency by exploiting opportunities(Wernerfelt, 1984).
Rare: it says that if certain resources can be acquired by one or a few companies, then it would be categorized as rare(Wernerfelt, 1984).
Inimitable: for an organization to achieve long term objective it is highly required for an organization to hold inimitable resources(Wernerfelt, 1984).
Organization-wide supported: all the resources within an organization are able to make an advantage for the organization if all the resources are assembled and coordinated effectively(Wernerfelt, 1984).
REFERENCE
1. E. Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.
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