SWOT vs PESTEL Analysis
Both, SWOT and PESTEL, being tools to analyse the business environment, knowing the difference between SWOT and PESTEL is very important in deciding on the suitable tool to be used. In the organizational perspective, in order to make important strategic decisions, the management is always concerned about internal and external environmental factors (micro and macro factors) that affect their business operations. SWOT Analysis can be used to identify the current market position of the company while PESTEL is used to identify the impact of external environmental factors which may affect in business expansions. This article describes both tools and analyses the difference between SWOT and PESTEL analysis.
What is SWOT?
SWOT represents Strengths, Weaknesses, Opportunities and Threats. SWOT is used to evaluate a company’s internal environment by identifying the strengths and weaknesses and also to evaluate the external environment by identifying the opportunities and threats. A company can be developed by identifying its internal strengths and focusing on those areas while minimizing the impact of the weaknesses. Similarly, the company’s associated risks can be mitigated by identifying the external threats and company can be expanded by considering the opportunities that arise in the external market.
What is PESTEL Analysis?
PESTEL factors are useful in evaluating the external environment (macro environment) of the organization. PESTEL stands for political, economical, social, technological, ecological and legal factors.
Political factors express that the impact of the political parties and their various policies and procedures may directly influence the normal business operations. If a particular country faces a crisis or a war situation, then sudden decisions taken by the political parties may have an impact on the businesses in many ways.
When considering about the economical factors, changes in the inflation rates, interest rates, trading blocs, international competitiveness, commodity prices, taxation regimes, global financial stability can have an influence on the companies in many ways. Changes in the foreign currency rates may directly influence the businesses involved in international businesses i.e. imports and exports.
Social factors like demographic, cultural and varying perceptions of customers may have a positive or a negative influence towards the organization. The customer preferences change with time, according to their cultural values, beliefs and attitudes. Demographic features like age, gender and occupational levels also affect social factors.
Technological factors express the ways in which the technology influences the operations within the organization. The use of advanced technologies increases the productivity and the efficiency levels of the company performances. Ecological factors express the influences of the climate and the geographical factors towards the organization. Legal factors explain the impact of the legislation and law practices that need to be followed by the organizations. These laws are imposed by the government and regulatory bodies in order to make sure that all the companies are operating at the same level and therefore the companies need to adhere to them.
What is the difference between SWOT and PESTEL Analysis?
• The major difference between SWOT and PESTEL analysis is that PESTEL is used to analyse a company’s external environment while SWOT can be used for both internal as well as external evaluations.
• SWOT Analyses can be used to identify the current market position of the company while PESTEL is used to identify the impact of external environmental factors which may affect the business operations, especially when expanding the business operations into various other regions.
Hubbard. (2007). Macroeconomics. New Delhi : Pearson Education India.
Kotler P ( 2013) Marketing Management – 13th Edition, Pearson Education India.