Key environmental influences on business
External analysis
PESTEL scans macro-environmental factors: political, economic, social, technological, environmental and legal. Porter's Five Forces assesses industry attractiveness through rivalry, threat of new entrants, threat of substitutes, supplier power and buyer power. SWOT summarises internal strengths and weaknesses and external opportunities and threats. Stakeholder analysis (Mendelow's power/interest matrix) helps prioritise engagement. Competitive strategy choices include cost leadership, differentiation and focus.
Traps and application
Do not confuse PESTEL with Five Forces: PESTEL looks outside the industry, while Five Forces examines the industry's competitive structure. Five Forces assesses an industry, not a single firm's profitability. In SWOT, opportunities and threats are external; strengths and weaknesses are internal. A new government tariff is political/legal macro; few suppliers is supplier power. Avoid claiming a firm can be both cost leader and differentiator without clear segmentation - Porter warns of being stuck in the middle.
Worked example: a rise in interest rates is economic (PESTEL). A merger of two rivals reducing rivalry is a Five Forces change. The firm's strong brand is a strength (SWOT). Rule of thumb: PESTEL = macro, Five Forces = industry, SWOT = firm.