Porter's 5 Forces vs. PESTLE Analysis: An OverviewPorter's 5 Forces and PESTLE are tools companies can use to improve their competitive positions in the market. Porter's 5 Forces examines where power lies in a competitive situation. PESTLE identifies how various macro-environmental factors may affect an organization and its competitive standing. Show
Key Takeaways
Porter's 5 ForcesPorter's 5 Forces is an analytical model used to help identify the structure of an industry and to help companies determine their competitive strategies. The model was developed by Harvard Business School professor Michael E. Porter as part of his book "Competitive Strategy: Techniques for Analyzing Industries and Competitors," published in 1980. The model can be applied to any segment of the economy. It helps explain why various industries maintain different degrees of profitability. As the name suggests, there are five factors that make up Porter's 5 Forces. They are all external, so they have little to do with the internal structure of a corporation:
When a company's management uses the five forces, it can create ways to take better advantage of a situation of strength, overcome a situation of weakness, and avoid making mistakes that would provide someone else a competitive edge. Managers can brainstorm various factors associated with each of the five forces. For example, they may examine the number of suppliers, the use of suppliers, the uniqueness of service, the ability to substitute suppliers, and the cost of changing suppliers. This, in turn, can lead to a boost in profits, thereby increasing earnings for a company's investors. Porter's 5 Forces ExampleLet's use Porter's 5 Forces to quickly analyze the competitive environment of athletic apparel giant Nike (NKE).
PESTLE AnalysisPESTLE stands for political, economic, sociocultural, technological, legal, and environmental. It is an analytical tool available to companies to determine how external factors influence their operations and make them more competitive in the market. PESTLE is a variation of PEST, which takes only the first four factors into account. This method looks at the factors in a nation or marketplace, and examines how those factors affect the consumer:
PESTLE analysis allows managers, marketing, and financial experts to examine specific factors (outside of money) when making decisions about the company's services or products. So the manager of a company that uses PESTLE analysis may focus on the social aspects of consumer behavior. This may include examining customer demographics, culture, and buying patterns. Or they may choose to look at the environment and how it plays into consumer reach. Adverse weather conditions, how the customer views sustainability, and even environmental policies at the local or national level can affect the future of the brand. Results from PESTLE analysis allow the company to make specific choices when planning the company's future, from how the brand should be presented, to any changes within the structure of the company's organization, to the development of new products. PESTLE Analysis ExampleLet's take another look at Nike, but this time through the lens of PESTLE:
PESTLE vs. Porter's 5 Forces FAQsWhat Is PESTLE Analysis and What Is Its Purpose?PESTLE analysis is a tool to analyze an organization's business environment. It's primarily used to identify both threats and opportunities due to external influences. What Are the Six Elements of PESTLE Analysis?The six elements of PESTLE analysis are:
What Are Porter's 5 Forces?Porter's 5 Forces is a tool to analyze an organization's competitive environment. The five forces are:
Who Invented Porter's 5 Forces and PESTLE Analysis?Michael E Porter of Harvard Business School developed Porter's 5 Forces in 1979. Francis Aguilar of Harvard Business school is often credited as the founder of PESTLE analysis, which initially started out as ETPS, in 1967. What are examples of external threats?Examples of external threats include new and existing regulations, new and existing competitors, new technologies that may make your products or services obsolete, unstable political and legal systems in foreign markets, and economic downturns.
Which of the following involves an assessment that considers the resources capabilities and competencies of a business?a SWOT analysis. SWOT analysis is a simple but powerful tool for: sizing up a company's resources and capabilities, strengths and deficiencies, its market opportunities, and the external threats to its future well-being.
Which of the following is not a component of evaluating a company's competitive strength and cost structure?Environmental scanning is not a component of evaluating a company's competitive strength and cost structure.
Which two tests of a resource's competitive power determine whether a company's competitive advantage can be sustained in the face of active competition?Which two tests of a resource's competitive power determine whether a company's competitive advantage can be sustained in the face of active competition? Whether the resource or capability is hard to copy and/or can be trumped by different types of resources and capabilities.
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