You are on page 1of 26

A PESTEL analysis is a framework or tool

used by marketers to analyse and monitor


the macro-environmental
(external marketing environment) factors
that have an impact on an organisation. The
result of which is used to identify threats
and weaknesses which is used in aSWOT
Analysis.
Political Factors
These are all about how and to what degree a
government intervenes in the economy. This can
include government policy, political stability or
instability in overseas markets, foreign trade policy,
tax policy, labour law, environmental law, trade
restrictions and so on.

Economic Factors
Economic factors have a significant impact on how
an organisation does business and also how
profitable they are. Factors include economic
growth, interest rates, exchange rates, inflation,
disposable income of consumers and businesses and
so on.
Social Factors
Also known as socio-cultural factors, are the areas
that involve the shared belief and attitudes of the
population.
These factors include population growth, age
distribution, health consciousness, career attitudes
and so on. They have a direct effect on how
marketers understand customers and what drives
them.

Technological Factors
Technological factors affect marketing and the
management thereof in three distinct ways:
New ways of producing goods and services
New ways of distributing goods and services
New ways of communicating with target markets
Legal Factors
These factors include health and safety, equal
opportunities, advertising standards, consumer
rights and laws, product labeling and product safety.

Environmental Factors
These factors have become important due to the
increasing scarcity of raw materials, pollution
targets, doing business as an ethical and sustainable
company, carbon footprint targets set by
governments (this is a good example were one factor
could be classes as political and environmental at
the same time.
FOUNDER
Harvard
professorFrancis
Aguilaris thought to be
the creator of PEST
Analysis. He included a
scanning tool called ETPS in
his 1967 book, "Scanning
the Business Environment."
The name was later
tweaked to create the
current acronym.
Advantages
Provides a simple and easy-to-use framework for
your analysis.
Involves cross-functional skills and expertise.
Helps to reduce the impact and effects of potential
threats to your organization.
Aids and encourages the development of strategic
thinking within your organization.
Provides a mechanism that enables your
organization to identify and exploit new
opportunities.
Enables you to assess implications of entering new
markets both nationally and globally.
Disadvantages
Users can oversimplify the information that is used for
making decisions.
The process has to be conducted regularly to be effective
and often organizations do not make this investment.
Users must not succumb to 'paralysis by analysis' where
they gather too much information and forget that the
objective of this tool is the identification of issues so that
action can be taken.
Organizations often restrict who is involved due to time and
cost considerations.

Ref:
http://www.free-management-ebooks.com/faqst/pestle-09.htm#ixzz4X
Disadvantag

es
This limits the technique's effectiveness as a
key perspective may be missing from the
discussions.
Users' access to quality external information
is often restricted because of the cost and
time needed to collate it.
Assumptions often form the basis for most of
the data used, making any decision made
based on such data subjective.

Ref:
IFE and EFE Matrices
Internal Factor Evaluation (IFE)
Matrix
is a strategy tool used to evaluate firms internal
environment and to reveal its strengths as well as
weaknesses.

External Factor Evaluation (EFE)


Matrix
is a strategy tool used to examine companys
external environment and to identify the available
opportunities and threats.
Both tools are used to summarize the information
gained from companys external and internal
environment analyses.

The summarized information is evaluated and


used for further purposes, such as, to build
SWOT analysisor IE matrix. Even though, the
tools are quite simplistic, they do the best job
possible in identifying and evaluating the key
affecting factors
Key External and Internal
Factors
EFE Matrix.

When using the EFE matrix we identify the key


external opportunities and threats that are
affecting or might affect a company. Where do
we get these factors from? Simply by analyzing
the external environment with the tools like
PEST analysis,Porters Five Forcesor
Competitive Profile Matrix.
Key External and Internal Factors

IFE Matrix.
Strengths and weaknesses are used as the key
internal factors in the evaluation. When looking
for the strengths, ask what do you do better or
have more valuable than your competitors have?
In case of the weaknesses, ask which areas of
your company you could improve and at least
catch up with your competitors?

The general rule is to identify 10-20 key external


factors and additional 10-20 key internal factors,
but you should identify as many factors as possible.
Weights
Each key factor should be assigned a weight ranging
from
0.0 (low importance) to 1.0 (high importance).
The number indicates how important the factor is if a
company wants to succeed in an industry.
If there were no weights assigned, all the factors would
be equally important, which is an impossible scenario in
the real world. The sum of all the weights must equal 1.0.
Separate factors should not be given too much emphasis
(assigning a weight of 0.30 or more) because the success
in an industry is rarely determined by one or few factors.
Ratings
EFE Matrix.
The ratings in external matrix refer to how
effectively companys current strategy responds
to the opportunities and threats. The numbers
range from 4 to 1 where
4 means a superior response,
3 above average response,
2 average response and
1 poor response.
Ratings, as well as weights, are assigned
subjectively to each factor
IFE Matrix.
The ratings in internal matrix refer to how strong or
weak each factor is in a firm. The numbers range
from 4 to 1 where
4 means a major strength
3 minor strength
2 minor weakness
1 major weakness.
Strengths can only receive ratings 3 & 4, weaknesses
2 & 1. The process of assigning ratings in IFE matrix
can be done easier using benchmarking tool.
Weighted Scores & Total Weighted
Score
Total weighted score is simply the sum of all
individual weighted scores. The firm can receive
the same total score from 1 to 4 in both
matrices. The total score of 2.5 is an average
score.
In external evaluation a low total score indicates
that companys strategies arent well designed
to meet the opportunities and defend against
threats.
In internal evaluation a low score indicates that
the company is weak against its competitors.
Benefits
Both matrices have the following benefits:
Easy to understand. The input factors have
a clear meaning to everyone inside or
outside the company. Theres no confusion
over the terms used or the implications of
the matrices.
Easy to use. The matrices do not require
extensive expertise, many personnel or
lots of time to build.
Focuses on the key internal and external
factors. Unlike some other analyses (e.g.
value chain analysis, which identifies all the
activities in the companys value chain,
despite their importance), the IFE and EFE
only highlight the key factors that are
affecting a company or its strategy.
Multi-purpose. The tools can be used to
build SWOT analysis, IE matrix, GE-McKinsey
matrix or for benchmarking.
Limitations
Easily replaced. IFE and EFE matrices can be
replaced almost completely by PEST analysis,
SWOT analysis, competitive profile matrix and
partly some other analysis.

Doesnt directly help in strategy formation.


Both analyses only identify and evaluate the
factors but do not help the company directly in
determining the next strategic move or the
best strategy. Other strategy tools have to be
used for that.
Limitations
Too broad factors. SWOT matrix has the same
limitation and it means that some factors that
are not specific enough can be confused with
each other. Some strengths can be
weaknesses as well, e.g. brand reputation,
which can be a strong and valuable brand
reputation or a poor brand reputation.
The same situation is with opportunities and
threats. Therefore, each factor has to be as
specific as possible to avoid confusion over
where the factor should be assigned.
Ife matrix: GOOGLE
(internal factor evaluation)
Ife MATRIX
Weight
Weight ed
Strengths s Rates average

Attention grabbing initial public offering 0.02 3 0.06


Payment of higher returns to investors (than any Co.
in S&P 500) 0.03 3 0.09
Strong brand image among search engines 0.12 4 0.48
global leader in technology 0.06 4 0.24
BOD and Executive members experienced and are
from Various tech organizations 0.05 4 0.2
increase in Google's revenue internationally 0.07 4 0.28
use of censors according to locations in searches e.g.
google.com.pk, google.com.fr 0.06 4 0.24
"TechTalks" and "TGIF" meetings to conveys
information to employees keeping them satisfied 0.03 3 0.09
most relevant results of searches 0.12 4 0.48
Ife MATRIX
Weaknesses

97% of revenue comes from advertisers 0.09 1 0.09


Google lacking advanced financial strategies 0.05 1 0.05
users may navigate directly to other well-known
databases like amazon, etc. 0.02 2 0.04
Other companies have filed claimes against Google
for copyrights infringement 0.03 2 0.06
has to refund fees charged for fraudulent clicks 0.06 1 0.06
IT and communication systems of Google can hinder
availability of its products and services 0.04 2 0.08
Excess spendings of Brin and Page and its
nomination by Bloomberg Business week as
"Executive Excess" 0.04 2 0.08
rejection of acquisition offers by other companies
due to chances of loss of personal identity 0.06 2 0.12
No significant additional revenues generated by
YouTube 0.05 1 0.05

TOTAL 1 2.79
EFE MATRIX: GOOGLE
(External factor evaluation matrix)
Sr. Details Rating Weight Weighted
No. average
score
OPPORTUNITIES:
1 Forming of policies to remove cultural barriers for 2 0.07 0.14
employees
2 Controlling of religious abuses on websites can 1 0.03 0.03
increase views and clicks to specific sits i.e.,
YouTube
3 Secure browsing with least chances of viruses and 4 0.1 0.4
hacks
4 Development of Strong corporate culture for 3 0.09 0.27
attracting expert employees of industry
5 Mobile computing is an open, unchartered area 4 0.3 1.2

THREATS:
1 Fast pace of innovation and continued growth 4 0.2 0.8
required in industry
2 Acceptance of internet in colleges and cultural 3 0.04 0.12
adaptation behavior
3 regulatory issues related to monopolistic power 3 0.07 0.21
4 copyrights and material filtration laws for children 2 0.03 0.06
5 Exchange rate risk, negative tax consequences, 3 0.06 0.18
foreign exchange controls
6 Due to global recession, it's difficult to maintain and 1 0.01 0.01
attract talented employees