Scribd
Upload
31 views

PEST Analysis

This document discusses and compares three strategic analysis tools: SWOT analysis, PEST analysis, and Porter's five forces analysis. It provides guidance on how to properly conduct a SWOT analysis and describes the various political, economic, social and technological factors considered in a PEST analysis. Finally, it outlines Porter's five forces framework for assessing competitive strength, including the five key forces of supplier power, buyer power, threat of substitution, threat of new entry, and competitive rivalry.

Uploaded by

Joe Small
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
31 views

PEST Analysis

This document discusses and compares three strategic analysis tools: SWOT analysis, PEST analysis, and Porter's five forces analysis. It provides guidance on how to properly conduct a SWOT analysis and describes the various political, economic, social and technological factors considered in a PEST analysis. Finally, it outlines Porter's five forces framework for assessing competitive strength, including the five key forces of supplier power, buyer power, threat of substitution, threat of new entry, and competitive rivalry.

Uploaded by

Joe Small
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Topic Gateway Series Strategic Analysis Tools

When using SWOT analysis, it should be ensured that:

• Only specific, verifiable statements are used. An example might be ‘price


is £1.50 per unit lower than competition’ rather than ‘good value for
money’.

• Internal and external factors are prioritised so that time is spent


concentrating on the most significant factors. This should include a risk
assessment to ensure that high risk or high impact threats and
opportunities are clearly identified and are dealt with in priority order.

• Issues identified are retained for later in the strategy formation process.

• The analysis is pitched at the project or business activity level rather than
at a total company level, which may be less actionable.

• It is not used in exclusivity. No one tool is likely to be completely


comprehensive, so a mixture of option-generating tools should be used.

PEST analysis
PEST analysis is a scan of the external macro-environment in which an
organisation exists. It is a useful tool for understanding the political, economic,
socio-cultural and technological environment that an organisation operates in. It
can be used for evaluating market growth or decline, and as such the position,
potential and direction for a business.

Political factors. These include government regulations such as employment


laws, environmental regulations and tax policy. Other political factors are trade
restrictions and political stability.

Economic factors. These affect the cost of capital and purchasing power of an
organisation. Economic factors include economic growth, interest rates, inflation
and currency exchange rates.

Social factors. These impact on the consumer’s need and the potential market
size for an organisation’s goods and services. Social factors include population
growth, age demographics and attitudes towards health.

Technological factors. These influence barriers to entry, make or buy decisions


and investment in innovation, such as automation, investment incentives and the
rate of technological change.

PEST factors can be classified as opportunities or threats in a SWOT analysis. It is


often useful to complete a PEST analysis before completing a SWOT analysis.

6
Topic Gateway Series Strategic Analysis Tools

It is also worth noting that the four paradigms of PEST vary in significance
depending on the type of business. For example, social factors are more
obviously relevant to consumer businesses or a B2B business near the consumer
end of the supply chain. Conversely, political factors are more obviously relevant
to a defence contractor or aerospace manufacturer.

Porter’s five forces


Porter's five forces of competitive position analysis was developed in 1979 by
Michael E. Porter of Harvard Business School as a simple framework for assessing
and evaluating the competitive strength and position of a business organisation.

This theory is based on the concept that there are five forces which determine
the competitive intensity and attractiveness of a market. Porter’s five forces helps
to identify where power lies in a business situation. This is useful both in
understanding the strength of an organisation’s current competitive position, and
the strength of a position that an organisation may look to move into.

Strategic analysts often use Porter’s five forces to understand whether new
products or services are potentially profitable. By understanding where power
lies, the theory can also be used to identify areas of strength, to improve
weaknesses and to avoid mistakes.

The five forces are:

1. Supplier power. An assessment of how easy it is for suppliers to drive up


prices. This is driven by:

• the number of suppliers of each essential input

• the uniqueness of their product or service

• the relative size and strength of the supplier

• the cost of switching from one supplier to another.

2. Buyer power. An assessment of how easy it is for buyers to drive prices


down. This is driven by:

• the number of buyers in the market

• the importance of each individual buyer to the organisation

• the cost to the buyer of switching from one supplier to another.

You might also like