Advantages And Disadvantages Of PESTLE Analysis

As we all know, today’s world is social-media-dominated and after the pandemic, we get to know even better how crucial the internet and social media networks are for us to help us out in a situation when we could not even go out of our home. Small start-ups, shops, and small businesses suffered a lot but they tried their level best to leverage customers using different tools. Even reputed brands and organizations try to attract customers using different strategies and marketing tools. Let us know more detail about ‘Advantages And Disadvantages Of PESTLE Analysis’.

Advantages And Disadvantages Of PESTLE Analysis

Competition has grown so much that even a small decision can result in dynamic changes that can be positive or negative. To make sure that the results are positive, they need to keep a check on every single factor (internal or external) affecting the firm in any way.

We currently are living in a “global village” where everything happening around us has an impact on us too. The same goes for firms and organizations. Generally, in the business environment, two factors are affecting the company.

1. Internal factors: – industry is affected by stakeholders, stocks, and competitors present in the market.
2. External factors:- factors that cannot be controlled by the firm or organizations. For example:- environmental factors, social and economic factors.

It is not only the internal factors that affect the business but the external factors that have an equal impact too. Companies which are well-aware of this fact use a tool known as: – PESTLE analysis.

What is PESTLE analysis?

PESTLE stands for Political, Economic, Social, Technological, Legal, and Environmental. These six factors make up a PESTLE analysis and are done by analyzing the political, economic, social, political, and technological environment of an industry. The terms’ PESTLE’ and PESTLE analysis were first used by the World Economic Forum in 1996 by a group of economists and business leaders who created the Global Competitiveness Report in 1990.

An analysis of a business’s PESTLE is a strategic tool for predicting where an industry is heading. Analyzing these factors can help a business understand what the future holds, and how to best position themselves to succeed in that future. PESTLE analysis can help a business understand what are the major obstacles and advantages that the industry is facing. The PESTLE analysis is a method by which a business can identify, and plan for, the potential threats and opportunities that the industry may face. The PESTLE analysis is a method by which a business can identify, and plan for, the potential threats and opportunities that the industry may face. Analyzing the above-mentioned factors can help a business understand what the future holds, and how to best position themselves to succeed in that future. PESTLE analysis can help a business understand what are the major obstacles and advantages that the industry is facing.           

This is especially important in the tech business, as the growth of new technologies in the next few years will alter the way that people buy products and interact with businesses. It is also important in the tech business to realize that the same trends that are happening in the current market are also occurring in other countries, both big and small. Because of this, businesses need to know how other companies are dealing with these trends, and how to best position themselves to succeed in this future.

Why is PESTLE analysis used?

Nowadays, trends come and go, and to leverage customers, to attract them, entrepreneurs and businessmen often use analysis tools to keep updated which would help them make suitable decisions and come up with different strategies depending on the analysis made. PESTLE analysis is used for the following reasons:- 

1. To learn about how to address the challenge of a competitive market. It uses PESTLE analysis to help it understand what it is up against.
2. To understand the political, environmental, and economic situation of the country and what are its effects on the markets.
3. Learning how cultural practices affect the markets and their determinants.
4. To understand the competitor’s strengths and weaknesses,
5. To learn about the technological advances in the country and their future possibilities and to keep up with the trends.

Analysts cover up all these reasons through PESTLE analysis. This helps the particular firm or industry to have better knowledge of the market and come up with a suitable framework.

What are the factors of PESTLE analysis:-

• Political Factors- This includes tax policies, tariffs, restrictions on trade, and political instability. These factors determine the extent to which the government can affect the company or a firm.

For example: – if the government introduces new tax reforms, it will change the whole revenue-generating follow-up of the companies.

• Economic Factors- Economic conditions of the country play a vital role in determining the economic performance of the company too. This includes economic growth/decline, employment rate, minimum wage, and interest rate.

• Social Factors- Social factors include cultural practices performed in the country, age distribution, population rate, and death rate. This is most beneficial if you are targeting a certain unit of people.

• Technological factors- Simply include the technological advancements in the country. This factor influences the company’s operations. Many new technologies are introduced and if a company fails to follow up with trends, then it may lose its position in the market.

• Legal factors- Legal factors comprise legal modifications in terms of market policies, restrictions on export/import, and changes in the tax system. Apart from these factors, organizations have their own set of rules and regulations which need to be followed by everyone.

• Environmental factors- It comprises ecological aspects of the surrounding environment including energy-related laws, waste disposals rules, and environment-related laws.

These factors affect certain fields particularly like agriculture, energy, tourism, etc.

However, the increasing rate of global warming has made every company abide by the rules and consider environmental factors seriously.

Uses of PESTLE analysis:-

It is a tool that can be used to understand the complex environment a business operates in and the ways that the business is affected by its surroundings. PESTLE can be used to analyze a current business or the potential environment of a new business proposal. It can be used to analyze a current business to diagnose the causes of a problem or the reasons for success, or it can be used as a diagnostic tool for a new business proposal to assess the strengths and weaknesses of the proposed business environment.

1. Business Planning- PESTLE analysis can help you plan the strategic planning of your business. It provides you with detailed information of which direction your business is heading towards and what are the steps to make it better
2. Marketing Planning- With all the technological advancements, it has become necessary to have all the analytics by your side to determine what is appreciated and loved by the customers in current times and PESTLE reports helps you with the same.
3. Development of products and services- As mentioned, PESTLE analysis has deep insight. It tells whether to modify the particular product or services based on the reviews and responses of the customers and if it is the right time to launch a new product or service.
4. Organizational Changes- Based on the PESTLE analysis, a company can determine if there is a shortage of human resources or if they need to modify the labor laws and what are the thoughts of the people in the organization itself.

Advantages and Disadvantages of PESTLE analysis:-

Everything has its pros and cons and so does PESTLE analysis.

Advantages:-

• The main advantage of PESTLE analysis is that it allows strategic analysis to help companies to find external pressures that are affecting them and to understand how they can best respond.
• It helps you to better understand your business environment, find potential opportunities, and to predict possible threats.
• It has a simple framework and is easy to use and understandable.
• It is a comprehensive strategy that helps managers and owners understand what’s going on in their business and where they should go next and have a better understanding of business.
• It helps organizations to be prepared beforehand and keep up with the current time’s technologies and trends.

 Disadvantages:-

• The main disadvantage of PESTLE analysis is that it may make you lose focus. It helps you to understand the external pressures at play, but you may find it difficult to identify what your strategy should be.
• As it is based on assumptions, there is a factor of risk.
• It can lead to a lack of creativity. PESTLE analysis is a useful tool for business owners, but if they do not have sufficient creativity they may miss out on new opportunities.
• It does not help you to establish an individual strategy for your business.
• It helps you to find the main external pressures that your business is facing, but it is not a comprehensive tool. You will need to supplement PESTLE analysis with other tools to obtain the specific information you need about your business environment.

Now we have learnt ‘Advantages And Disadvantages Of PESTLE analysis’, It can be said that PESTLE analysis is beneficial for business owners and has its limits but can help you to identify, analyze, and evaluate external events that could affect your business, and to help you formulate strategies that can best respond to them.