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. Why is mountain top removal mining is unpopular with some concerned citizens in the inland south?Why is mountain top removal mining is unpopular with some concerned citizens in the Inland South? It is more environmentally damaging than underground mining. What two major tertiary sector industries in the Inland South have experienced major growth in the last half of the twentieth century? The military and tourism.
Which factor is largely responsible for Haiti's status as the poorest nation in the Americas?Studies found that Poverty in Haiti is caused by several factors such as corruption and poor governance, limited employment opportunities, poor infrastructure, inadequate resources usage, wars, and unending conflicts, political instability, poor World Bank and International Monetary Fund (IMF) policies among others.
Which indigenous group negotiated with Occidental Petroleum over its plans to drill for oil in their native lands?A decade-long legal battle over pollution from oil drilling has ended with the announcement of a settlement between Occidental Petroleum and five Achuar communities on the Corrientes River in the northern Peruvian Amazon.
Why have some cities in the old economic core continued to thrive even as others have seen their economies decline?Why have some cities in the Old Economic Core continued to thrive even as others have seen their economies collapse? They have strong service economies that allowed them to stay connected to regional and global economies.
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