Which is the Most Critical Factor in Strategy Analysis

It is important to strive for a good understanding of all macro-environmental factors in order to ensure robust planning.

A PESTEL analysis is a framework or tool used by marketers to analyze and monitor the macro-environmental (external marketing environment) factors that have an impact on an organization. The result of which is used to identify threats and weaknesses which are used in a SWOT analysis. (Professionalacademy.com). P – Political, E – Economic, S – Social, T – Technological, E – Environmental, L – Legal, which factor in the PESTEL is most important in the external environment though?

Based on the contingency theory, it depends on. It means that you should assess in which condition and context you are doing business. In recent days, technological advancement is pressuring the firms more than other factors. The economic factor is significant because an organization needs to understand the market in which it will be selling its product and service. The political factor also plays an important role in the external environment. It needs to understand what the demand is for its product or service, and what its competitors are doing. 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. Secondly, on the question of which is the most important factor in PESTEL is dependant on 1) The industry or sector the company is operating in. 2) The country where it's operating. 3) In which stage of the boom-bust cycle, the industry is at. 4) The most important external factor is competition.

The PESTLE is a basic footprint for investigative action to be taken. It is applicable to any organization to a greater or to a lesser extent, pending organizational line of business, client needs, demographic regions, competitors, availability of resources, global presence, etc. Due to variation in organizational composition within the global economic arena, one may find that the application of the PESTLE may be differently interpreted from organization to organization, influenced by the latter factors. Hence, it is a tool that highlights or reminds of areas of importance to consider during strategic planning in the organization. There are some limitations of PESTEL: 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.

It is important to strive for a good understanding of all macro-environmental factors in order to ensure robust planning. There is no single most important factor in the PESTEL framework. Depending on the subject to be analyzed, different factors may be supportive or detrimental. There is something that is most important in strategy formulation - knowing your company, knowing your competition, and knowing your customer. If you know these things well, you'll be successful. The other factors must be considered to ensure wise decisions are made when conditions change. Organizations often restrict who is involved due to time and cost considerations. This limits the technique's effectiveness as a key perspective may be missing from the discussions. The "people" piece is a necessity in analyzing your customer and market segmentation. If you talk to your customers, it's pretty easy to glean what they are looking for in your products/services. It is then that decides how your strategy, in light of all the other factors - especially competition, is to be implemented to differentiate one's organization from your competition.

After all, the PESTLE may just be one of a number of stepping stones serving management to make informed strategic decisions in view of optimization of the organization to create a superiority of product through ambiguity in the arena of competition. This should ideally result in establishing a sustainable differentiation from market rivals, something that may be easier said than done.

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