1.32 Frameworks for Analysis
Business decisions often incorporate both quantitative and qualitative analysis. Qualitative analysis can be in the form of focus group discussions, one-on-one interviews, ethnographic studies, SWOT analysis, or PESTEL analysis. We will provide an overview of the last two frameworks below as these planning methods are used by many companies to assist them in considering the broader market context before deciding on a project:
SWOT
SWOT is an analysis framework typically applied to single companies, through which the firm’s Strengths, Weaknesses, Opportunities, and Threats are assessed. Performed on a company by consultants, industry analysis, competitors, or perhaps the company itself, a SWOT analysis is a strategic planning technique designed to help an organization answer business questions such as: should a pharmaceutical company start a new business division focusing on just one type of vaccine? Should a clothing company respond to an emerging fashion trend?
The “Strength” and “Weakness” components of SWOT emphasize internal factors. When these components are assessed, they should be considered relative to the company’s competition – in other words, strengths are things that the firm does especially well, relative to its competitors; weaknesses, by contrast, are areas in which the company does not perform as well as its peers.
The “Opportunities” and “Threats” components of SWOT are identified by analyzing the firm’s external environment. Opportunities could include partnerships with companies operating in similar fields, or perhaps even mergers and acquisitions with such firms. Threats might come from larger competitors who could exert pricing power over a smaller start-up, new disruptive technologies on the horizon, or anything else that can challenge a company’s existing market share.
A SWOT analysis provides perspective to an organization by concentrating on the most important factors affecting the business. Since the evaluation can be done by anyone with a good understanding of the business, a SWOT analysis is also an affordable first-step to a complex problem. However, while this framework gives clarity to a business, it does not necessarily provide solutions and does not help someone prioritize the issues. Moreover, a SWOT will only retain its meaning for as long as the analysis focuses on real-life scenarios and ignores preconceived ideas. Ultimately, much more research and analysis is needed beyond a SWOT framework before a business can make a call on a potential venture.
PESTEL
The PESTEL framework is often used by a company when assessing whether to enter some particular market, or country because it provides a macro picture of a business environment. The components of PESTEL are the Political, Economic, Social, Technological, Environment, and Legislative factors that could influence such a decision.
Political factors may not seem relevant at first – after all, this is a marketing framework, right? Businesses tend to thrive in places where rule of law, property rights, and political stability are all firmly established. Therefore, companies may choose not to operate inside of countries with unstable regimes.
Economic factors could include national statistics like unemployment and inflation. If a company is looking to set up a consumer-facing operation in another country, it is likely to seek out an environment with a strong consumer base that can engage in discretionary spending.
Social factors could include demographic trends. A company building an amusement park might seek out a metropolitan area with a large population of young families. By contrast, an area with an aging population and a low rate of influx from new residents might be a suboptimal location for such a business.
Technological factors could include new, disruptive inventions with the potential to alter the company’s existing business model.
Environmental factors may include any changes to the physical surroundings that could impact a business. A company that gives tours of wetlands areas could have to rethink its operation if the presence of an invasive species in its area threatened the ecosystem that attracted such tourists.
Finally, a legislative factor could include something like a change in the legal status of a product. In recent years in the United States, there has been a state-by-state wave of new laws to either decriminalize, or legalize, marijuana. These changes have presented many business opportunities to entrepreneurs who have capitalized on the new opportunities to legally harvest and sell this crop.