Introduction
Businesses and companies conduct pestle analysis in order to have a deeper understanding of the external environment. Today, we’ll discuss the importance of pestle analysis, its uses, advantages, and disadvantages in detail.
Acronym & What is Pestle Analysis?
Pestle analysis also goes by the name of pest analysis, and companies use it to study the external factors that are impacting them. The acronym comprises P for political, E for economical, S for social, T for technological, L for legal, and E for environmental factors.
If you compare it with SWOT analysis, then P.E.S.T.L.E analysis offers comprehensive and thorough details. However, the focus of swot analysis is on analyzing the company’s internal strengths and weaknesses. If you want to learn about the company’s external environment, then pest analysis is the solution for you.
Importance of Pestle Analysis
When it comes to decision-making or business growth, entrepreneurs and business owners employ and rely on the tool of pest analysis. Often, they’re doubtful of its results and how others would perceive it. The goal of pest analysis is to find the answer to the questions.
It plays a significant role in the growth and development of the business, it could be the launching of the new product or expansion of the existing one. Let’s discuss the importance of pestle analysis in the following ways;
- It allows business owners to recognize the potential change in the political, economical, social, technological, legal, and environmental factors, whether it’s a well-established company or a young startup.
- The strategic planning stage helps them to expand their business
- You can control the business units like marketing, sales, and accounts internally by allocating more resources to them in order to amplify sales. The outcome of a company’s progress depends on its internal work. The external factor would be there and keep on impacting your business.
Uses of Pestle Analysis
As we know that pest analysis allows you to study external environmental factors that impact the business. Now, the question is how such information could be beneficial to the company. Some of the main uses of a pestle analysis are as follows;
Organizational Change
If you want to make the change of your company successful, then pest studies are a very useful tool allowing you to see the change of the context. Both studies swot and pest offer you a comprehensive picture of the company. However, they help you see the potential threats and available opportunities in the environment like capabilities of the workforce, shortage of skill, and change in labor.
Product Development
When it comes to a product development decision, then pest study offers you a deep market insight in terms of customers’ responses to the changes in the product. Therefore, it helps business management to decide whether to launch a new product, modify or upgrade the existing product, or leave the current product line.
Marketing Planning
When you precisely study a particular market from various angles, then it offers you a unique insight into the market trends. When a company has the information, then it can prioritize its various operational activities in order to meet the company’s marketing objectives within a limited time period.
Workforce Planning
One of the important elements of business processes is planning workforce, it means aligning resources with the company’s strategies. The analytical tool (pest) helps you to recognize the upcoming change in the workforce market that would impact the company. Such changes have a huge impact on the company and the market.
For instance, there were no jobs like Software engineering, IT Specialist, or Social Media Marketing, or digital marketing for 20 years. How the company should utilize the latest tech skills and fill the gap.
Strategic Business Planning
When you’re launching a new business, then you should have the report of pest business study report along with you. It offers you a lot of useful information in terms of market insight and other contextual information. It would help the company in many ways like managing declining productivity, meeting growth targets, positioning the brand, and changing the company’s direction.
Advantages of Pestle Analysis
Some of the main advantages of a pestle analysis are as follows;
Exploiting Opportunities
The external market environment offers you a lot of market opportunities that you can use to your advantage. For instance, the real estate industry has a lower interest rate; it means the housing demand is high because it’s cheap to get a housing loan.
Alertness
Businesses are vulnerable to external threats, and they come and impact the company now and then. For instance, a smartphone company has to keep an eye on the latest innovation and technology. If the company doesn’t accept new changes in technology, then it would lose its market share.
Comprehensive Understanding
The analytical tool makes it easier for businesses to comprehend external factors. Whether you’re developing a new product or a new strategy, it allows you to develop a deeper comprehension of studying various factors.
Cost-Effectiveness
The cost of conducting the pest study is your time and energy, and that’s it. You won’t have to spend any financial resources on it. If you do allocate some resources, then you can collect better feedback and input.
Disadvantages of Pestle Analysis
Some of the main disadvantages of a pestle analysis are as follows;
- You conduct the analytical study with limited data, and the users oversimplify things while making decisions
- If there is more data available, then the users would become confused about the details
- The focus of the study is on the assumptions rather than the actual risks and threats
- You have to keep conducting the study regularly, not just once in a while
- It is difficult to predict the upcoming development and that would impact the company
Conclusion: Importance of Pestle Analysis, Uses, Advantages & Disadvantages
After an in-depth study of the importance of pestle analysis, its uses, advantages, and disadvantages; we’ve realized that it’s a very important tool for the growth and development of the business. If you’re conducting it for your company, then keep its disadvantages and do so with sufficient information; external political, economical, social, technological, legal, and environmental factors impacting the company.
Ahsan Ali Shaw is an accomplished Business Writer, Analyst, and Public Speaker. Other than that, he’s a fun loving person.
