management is a key facet of running business in conditions of dynamic economy
and globalization. Therefore, to get a clear picture of organization’s position
in industry and make an advantageous decision towards its improvement, executives
concentrate on environmental scanning allowing to avert threats and reveal opportunities
of operating business.
5 forces and PESTLE are two of many business measurement tools used for
identification of external factors influencing organization.
PESTLE analysis enables the organization to identify the extent of impact that
various factors may have on its position and market growth:
Political – intervention of
government in the economy, degree of political stability, foreign trade policy;
Economic – impact of economic
development or recession (GDP, import export rates, unemployment);
Social – aspects
defining consumers’ demand in organization’s products (education, religion,
– breakthroughs demolishing one industry, creating new opportunities for
Legal – restrictions imposed by
regulations enacted with regard to certain industry, goods or services;
Environmental – environmental regulations setting certain limits on pollution,
green plant construction, oil production etc.
tools are extremely powerful, as could be used for market research before
entering new market, designing organizational changes and developing of new
products. However, irrevocable nature
of external forces leaves no room for resistance, instead requires the
organization to align its strategy and make respondent to dynamic environmental
shifts. Consequently, the ignorance of internal environment and competition makes
it inefficient for strategic planning.
organization’s strategy to external micro-environment and categorization of revealed
findings into opportunities and threats requires the engagement of people with versatile knowledge and professional judgment.
Therefore, the relevance of explored
data and effectiveness of derivations
made as result of PESTLE analysis will always depend on ‘intellectual
capability’ of engaged party. (Joseph Kim 2014) In turn, it questions objectiveness
of decisions made based on such general data.
great variety of analyzing information may bring to ‘paralysis by analysis’ where
organization lose sight of crucial factors and retreat from the main purpose – identification
of red flags so that adequate actions can be taken.
5 Forces (Michael
E Porter, 1979) evaluate segments of economy where competitors or similar
organizations interact. Forces which is theory about, provide organization with
better grasp of industrial capacity, competition intensity, profitability and
rival’s strategic positioning, namely:
that organization depends on supplier and buyer, as well as their role in
determination of prices (buyer and supplier power)
strength of competitors’ position and strategy in market (comparative rivalry)
extent to which new products or services can replace existing and its negative
impact on profitability (substitution threat)
that newcomer may have on organization business (new entry threat)
tool helps organization to reveal weaknesses, foresee threats, prevent mistakes
and focus on opportunities to get higher commercial excellence. Thus, while
PESTLE bears the impact of irrepressible external factors, 5 Forces straggle
against rivalry risks for sustention of its profitability and competitive
of describing tool allows its application to the industry, its part or
individual business product. Worthy to note that such examination does not require
as many people or great range of knowledge, since management being aware of
organization’s industry progress can easily predict threats and highlight
opportunities by having a glance at existing trends and rivals’ achievements.