Business Environment

Unit 2

SWOT AND PESTLE

ANALYSIS
 Business Environmental analysis

Business Environmental analysis is a strategic tool. It is a

process to identify all the external and internal elements,
which can affect the organization’s performance. The
analysis entails assessing the level of threat or opportunity
the factors might present. These evaluations are later
translated into the decision-making process. The analysis
helps align strategies with the firm’s environment.
Businesses are greatly influenced by their environment. All
the situational factors which determine day to day
circumstances impact firms. So, businesses must constantly
analyze the trade environment and the market.
There are many strategic analysis tools that a firm can use, but some
are more common. The most used detailed analysis of the
environment is the PESTLE analysis. This is a bird’s eye view of the
business conduct. Managers and strategy builders use this analysis to
find where their market currently. It also helps foresee where the
organization will be in the future.
PESTLE analysis consists of various factors that affect the business
environment. Each letter in the acronym signifies a set of factors.
These factors can affect every industry directly or indirectly.
The letters in PESTLE, also called PESTEL, denote the following
things:
Political factors
Economic factors
Social factors
Technological factors
Legal factors
Environmental factor
Simple reading material

https://www.totalassignmenthelp.com/free-sample/5-best-examples-of-pestle-
analysis

https://www.mbaskool.com/pestle-analysis/companies/18220-indian-oil-
corporation-
iocl.html#:~:text=PESTLE%20Analysis%20of%20Indian%20Oil,along%20with%20legal
%20%26%20environmental%20factors.
 SWOT Analysis

SWOT is an acronym for Strengths, Weaknesses, Opportunities and

Threats. By definition, Strengths (S) and Weaknesses (W) are
considered to be internal factors over which you have some measure
of control. Also, by definition, Opportunities (O) and Threats (T)
are considered to be external factors over which you have
essentially no control.
SWOT Analysis is the most renowned tool for audit and analysis of
the overall strategic position of the business and its environment. Its
key purpose is to identify the strategies that will create a firm
specific business model that will best align an organization’s
resources and capabilities to the requirements of the environment in
which the firm operates.
‘SWOT’ or ‘TOWS’ analysis It is widely accepted that corporate performance is
influenced by a combination of internal and external factors. These factors can be
characterised as the organisation’s internal ‘strengths’ and ‘weaknesses’ and its
external ‘opportunities’ and ‘threats’. Systematically analysing these factors as an
aid to strategic decision making represents a form of situational analysis known
commonly by the acronym ‘SWOT’ (or ‘TOWS’). The starting-point for a SWOT
analysis is usually a review of the organisation’s internal strengths and weaknesses,
which may be undertaken by management or by external consultants brought in to
provide a more objective view. The identified factors which have been listed may
then be given scores to indicate their importance, with the more significant issues
receiving a larger score. This process is then repeated for the firm’s external
opportunities and threats in order to highlight those external factors which are
likely to occur and which are expected to have an impact on the organisation’s
future position. The resultant SWOT grid can then be used to focus attention on
the key environmental influences faced by the organisation and to consider how
far current strategy is relevant to the changes taking place in the business
environment.
It is worth pointing out that the analysis of opportunities and threats cannot be absolute,
since what might at first appear to be an opportunity may not be so when viewed against
the organisation’s resources or its culture or the expectations of its stake holders.
Moreover, the true value of the SWOT approach lies not in the listing of influences but in
their contribution to the formulation of appropriate organisation strategies. One means of
focusing attention on the latter is to produce a SWOT (TOWS) matrix which matches the
firm’s opportunities and threats against its internal strengths and weaknesses. The result is
four sets of possible strategic alternatives – termed SO, ST, WO and WT strategies – which
range from the positive exploitation of strengths in order to take advantage of
opportunities to the essentially defensive strategy of minimising weaknesses and avoiding
anticipated threats
Source: Ian Wirthington and Chris Burton, 2006
An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats)
is given below-

1. Strengths - Strengths are the qualities that enable us to accomplish the

organization’s mission. These are the basis on which continued success can be
made and continued/sustained.

2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing

our mission and achieving our full potential. These weaknesses deteriorate
influences on the organizational success and growth. Weaknesses are the factors
which do not meet the standards we feel they should meet.

3. Opportunities - Opportunities are presented by the environment within which

our organization operates. These arise when an organization can take benefit of
conditions in its environment to plan and execute strategies that enable it to
become more profitable. Organizations can gain competitive advantage by
making use of opportunities.

4. Threats - Threats arise when conditions in external environment jeopardize the

reliability and profitability of the organization’s business. They compound the
vulnerability when they relate to the weaknesses. Threats are uncontrollable
Suggested viewing

SWOT Analysis- Starbucks

https://www.youtube.com/watch?v=mR9eICQJLXA

SWOT Analysis – Tesla

https://www.youtube.com/watch?v=I7CT8Ox_Gcg
SWOT ANALYSIS FRAMEWORK
 Environmental analysis

Environmental analysis is a strategic tool. It is a process

to identify all the external and internal elements, which
can affect the organization’s performance. The analysis
entails assessing the level of threat or opportunity the
factors might present. These evaluations are later
translated into the decision-making process. The analysis
helps align strategies with the firm’s environment.
 Importance of Environmental Analysis

• Continuous process
• Exploratory process
• Useful exercise
• Utilize opportunities
• Social acceptance
• Adopt forecasting
• Adopt monitoring
• Facilitate assessment
 Techniques of Environmental Analysis

• Scanning
• Monitoring
• Forecasting
• Assessment
• PESTLE
• SWOT Analysis
 Limitations of Environmental Analysis

• Does not foretell future

• not a sufficient guarantor of organisational
effectiveness
• may not be used purposefully by managers
• Too much reliance on information
 Factors affecting environmental analysis
• Services of skilled personnels
• Political stability
• Economic reforms
• FDI
• Technological upgradation
• IT
• R&D activities
• Work culture
• Shift in population
• Natural resources