When assessing the performance of an organization in the global context, one must not underestimate the impact that environmental factors have on a company’s functioning. Ranging in their type power, and implications, environmental factors determining the success of a company in the target market need to be evaluated accordingly so that appropriate actions and risk management techniques could be applied. For this reason, different frameworks for assessing environment-related risks are utilized. Traditionally, Porter’s Five Forces assessment is utilized to gauge the extent of hostility and rivalry in the target environment. However, the PESTLE framework is also typically rendered as one of the major tools for evaluating the market conditions in which an organization will have to operate in the target economic setting. Since each of the tools offers a unique advantage, neither of them should be consider as superior; instead, each should be applied accordingly based on the circumstances in which a company finds itself.
Porter’s Five Forces
The framework designed by Michael E. Porter, a renowned American economist and academic, the analytical framework in question seeks to evaluate the extent of competition within a specific economic setting. Specifically, Porter’s Five Forces Analysis does so by assessing the extent of the bargaining power of buyers and suppliers, as well as the level of threat that new entrants and substitutes pose to an organization (Mugo, 2020). The described approach allows gauging the range and intensity of risks that a company may face in a specific economic environment.
The opportunity to represent the target context in a concise and clear manner is one of the main advantages of Porter’s Five Forces tool. The model helps to delineate the key relationships between the stakeholders within the selected market and outline the prospects of advancing in the chosen economic setting (Wogwu & Hamilton, 2018). By outlining the role of the key stakeholders, namely, suppliers, buyers, and new entrants, as well as the impact of substitutes on the performance of a company and its product, the specified approach helps to assess the target environment and the associated factors quite accurately. However, the ere are several legitimate criticisms of the model, the main one being its superficial nature (Wogwu & Hamilton, 2018). Indeed, due to its briefness and the focus on four main competition components only, the model suffers from being undefined.
PESTLE
In turn, the PESTLE approach implies a detailed overview of the essential factors related to the political, economic, sociocultural, technological, environmental, and legal domains., as the acronym suggests. The specified tool has the advantage of establishing the links between the key factors in their influence on a company’s performance (Bismark et al., 2018). Therefore, the PESTLE framework provides a comprehensive assessment of the key issues that may have any tangible impact on a company’s performance. The opportunity to introduce a multifaceted analysis and connect the influence of economics politics, technology, and other seemingly unrelated areas in a single framework to embrace the nature of and dynamics within the target market is truly priceless. However, the PESTLE tool also has several problems that reduce its utility as an assessment technique.
Similarly to Porter’s Five Forces, PESTLE offers an overly simplified model of the target market. Although PESTLE does have greater variety in the types of influence to which a company is subjected within the target economic setting, the six-factor framework that PESTLE provides still represents a rather superficial model of the relationships between the key entities within the selected economic setting (Saudi, 2021). As a result, the application of the PESTLE tool can only be utilized as a general overview of the target market. In order to make more detailed financial projections and develop a plan for entering the market, one will need a much more nuanced and complex analysis that will represent the key forces within the chosen market setting. For instance, in the context of the food and beverage industry, the application of porter’s Five Forces and the PESTLE analysis will only provide a general overview of major factors and competition rates. In turn, in order to understand the nature of the target setting better, a more profound analysis of the local food industry, including its financial performance, the resources available for building a sustainable business, and the opportunities for partnerships and investments must be researched.
Since PESTLE and Porter’s Five forces represent two entirely different systems of economic environment assessment, neither of them can be seen as a superior tool; instead, they need to be applied to specific settings where their advantages can shine and assist one in evaluating the key risks and opportunities. In fact, Porter’s analysis and PESTLE can be applied in tandem for a better overview of the target economic environment. And the overview of sustainability management opportunities.
References
Bismark, O., Kofi, O. A., Frank, A. G., & Eric, H. (2018). of organizational strategy. Evidence from the community hospital group – Ghana Limited. International Journal of Research in Business, Economics and Management, 2(3), 94-113. Web.
Mugo, P. (2020). Porter’s Five Forces influence on competitive advantage in telecommunication industry in Kenya. European Journal of Business and Strategic Management, 5(2), 30-49. Web.
Saudi, M. H. (2021). Risk management analysis for ICT strategic plan by using PESTLE: A case study. Turkish Journal of Computer and Mathematics Education (TURCOMAT), 12(8), 1732-1737. Web.
Wogwu, V. E., & Hamilton, D. I. (2018). Reconfiguration capability and competitive advantage: A study of Port Harcourt public health sector. Management, 8(2), 47-53. Web.