PESTEL analysis and Porter's five forces model;By Fathi Salem Mohammed

PESTEL analysis is a useful tool for understanding the “big picture” of the environment, in which you are operating, and the opportunities and threats that lie within it. By understanding the environment in which you operate (external to your company or department), you can take advantage of the opportunities and minimize the threats.

Specifically the PEST or PESTLE analysis is a useful tool for understanding risks associated with market growth or decline, and as such the position, potential and direction for a business or organization.

For the purposes of this page we will focus on the PESTLE variation of the acronym.

The PESTLE Analysis is often used as a generic 'orientation' tool, finding out where an organization or product is in the context of what is happening out side that will at some point effect what is happening inside an organization.

A PESTLE analysis is a business measurement tool, looking at factors external to the organization. It is often used within a strategic SWOT analysis (Strengths, Weaknesses, Opportunities and Threats analysis).

The PESTLE analysis headings are a framework for reviewing a situation, and can also be used to review a strategy or position, direction of a company, a marketing proposition, or idea. There are many variants on this model including PEST analysis and STEEPLE analysis.Completing a PESTLE analysis can be a simple or complex process. It all depends how thorough you need to be.  It is a good subject for workshop sessions, as undertaking this activity with only one perspective (i.e. only one persons view) can be time consuming and miss critical factors.Use PESTLE analysis for business and strategic planning, marketing planning, business and product development and research reports.  The PESTLE template below includes sample questions or prompts, whose answers are can be inserted into the relevant section of the table.The questions are examples of discussion points, and should be altered depending on the subject of the analysis, and how you want to use it. Make up your own PESTLE questions and prompts to suit the issue being analyzed and the situation (i.e. the people doing the work and the expectations of them). It is important to clearly identify the subject of a PESTLE analysis (that is a clear goal or output requirement), because an analysis of this type is multi faceted in relation to a particular business unit or proposition - if you dilute the focus you will produce an unclear picture - so be clear about the situation and perspective that you use PESTLE to analyze.

A market is defined by what is addressing it, be it a product, company, organization, brand, business unit, proposition, idea, etc, so be clear about how you define the market being analyzed, particularly if you use PESTLE analysis in workshops, team exercises or as a delegated task. The PESTLE subject should be a clear definition of the market being addressed, which might be from any of the following standpoints:

A company looking at its market A product looking at its market A brand in relation to its market A local business unit or function in a business A strategic option, such as entering a new market or launching a new product A potential acquisition A potential partnership An investment opportunity

Be sure to describe the subject for the PESTLE analysis clearly so that people contributing to the analysis, and those seeing the finished PESTLE analysis, properly understand the purpose of the PESTLE assessment and implications.

Porter’s Five Forces model, The nature of competition in an industry in large part determines the content of strategy, especially business-level strategy. Based as it is on the fundamental economics of the industry, the very profit potential of an industry is determined by competitive interactions. Where these interactions are intense, profits tend to be whittled away by the activities of competing. Where they are mild and competitors appear docile, profit potential tends to be high. Yet a full understanding of the elements of competition within an industry is easy to overlook and often difficult to comprehend.

Porter has identified five basic forces that collectively describe the state of competition in an industry:

1. The intensity of rivalry among competitors2. The threat of new entrants to the market3. The amount of bargaining power possessed by the firm's/industry's

suppliers4. The amount of bargaining power possessed by the firm's/industry's

customers5. The extent that substitute products present a threat to a firm's/industry's

products

These forces assist in identifying the presence or absence of potential high returns. The weaker are Porter's five forces, the greater is the opportunity for firms in an industry to experience superior profitability. More generally, understanding how these forces affect competition within an industry allows the strategist to identify the most advantageous strategic position.

The actors within an industry on whom these forces exert pressure are, respectively, the industry's competing firms themselves, potential new entrants to the industry's markets, suppliers (vendors), customers, and makers of substitute products.

Obviously, the starting point for conducting an analysis of the five forces of competition is to identify all the competitors, potential new entrants, major suppliers, the demographics of customers, and makers of and nature of substitute products. Competitors would not only have to be identified, but various distinguishing data about the industry would also have to be specified. For each competitor this data would include market share, product line differences/similarities, market segments served, price/quality relationships represented by products, growth/decline trends, financial strength differences, and any other information that will help describe the industry.

Arranging the five forces and the major actors within an industry produces the "five forces model" as follows:

.

Suppliers

Potential Entrants

Competitive Rivalry

Substitutes

Buyers