If you’re a business owner, analyst or marketer, chances are that you’ve run across the PESTLE and Du Pont models at some point in your career.
These two tools have been around for decades, and they’re still as useful today as ever before. What makes them so effective?
Here’s an overview of the pros and cons of using the PESTLE or Du Pont model for analysis:
Pros of Using the PESTLE or Du Pont Model for Analysis
1. Takes into account external factors
PESTLE and Du Pont models give you a good idea of how to consider both internal and external factors in your analysis.
Internal factors are things that affect the company from within, like management or employees’ decision-making processes.
External factors are forces outside the company’s control, such as competitors entering the market or changes to regulations.
When you’re using these models for analysis:
- Consider both internal and external factors when evaluating your business plan.
- Don’t just focus on what could go wrong with an idea; also think about how it could be improved by changing parts of your business model or product line up in order to adapt to market trends.
2. Considers a broad range of factors
The PESTLE analysis is a great example of this approach. It contains seven factors to consider: political, economic, social, technological, legal, and environmental.
By considering a wide range of factors you can get a more complete picture of the industry and its impact on your business.
3. Helps to create a more comprehensive picture of the industry you’re analyzing
The PESTLE or Du Pont Model is an excellent way to create a more comprehensive picture of the industry you’re analyzing.
- Identify external factors that could affect your business
- Identify internal factors that could affect your business
- Identify the strengths and weaknesses of your competitors
- Identify the strengths and weaknesses of your own business
4. Helps you to gain a better understanding of your competitors’ strategies and tactics
As a business person, you need to understand what your competitors are doing.
You need to know how they’re positioning themselves, who their target market is and what the strengths and weaknesses of each one are.
The PESTLE and Du Pont models help you gain this insight into your competitors’ strategies and tactics.
When using the PESTLE model for analysis, it’s important that you don’t just look at their strengths without also looking at their weaknesses.
This will show you where opportunities lie within the marketplace or industry as a whole so that you can best take advantage of them in order to grow your own business!
5. Helps you to create a more complete plan for your own business, including how to respond to environmental changes
Helps you to create a more complete plan for your own business, including how to respond to environmental changes
In this day and age, it’s very important that we’re constantly keeping up with the latest trends in our industry and analyzing them so that we can plan for the future.
In addition to this, it’s also essential that we know who our competitors are and how they’re doing so that we can determine if they pose any threat to us or whether or not they might be in danger of failing themselves. This is where PESTLE analysis comes into play.
6. Helps you to identify competitors that might not be obvious at first glance (or even second or third)
The sixth and final advantage is that it helps you to identify competitors that might not be obvious at first glance (or even second or third) and helps you to understand the impact of a new competitor on your business.
For example, if you are in the manufacturing industry, then a quick scan of your industry may show that there are two major competitors: Company A and Company B.
However, if you use this model for analysis, then it would reveal that there are other companies who share similar market segments but do not compete directly with you.
In this case, Company C may provide a good example of what happens when someone enters into a market segment that has little or no competition from other players.
Cons of Using the PESTLE or Du Pont Model for Analysis
Here are a few disadvantages you should keep in mind when using these tools.
1. Causes Company to be Overly Reliant on External Data
If you’re using the PESTLE model or Du Pont Model, you should be aware of your business environment.
You need to know what’s going on in the market and your competitors, as well as any economic factors that may affect your company.
It’s also important to be aware of political issues that could have an impact on your industry, such as changes to tariffs or trade agreements.
2. Can Take a Long Time to Gather Information
Although the PESTLE and Du Pont models are not difficult to use, they can take a long time to gather all the information you need for analysis.
Researching and categorizing your industry’s external environment can be time-consuming if you don’t have a good database of relevant data readily available.
You may also find that it takes some time for your team members to agree on what is most important within each category in order for them to prioritize their work accordingly.
This might seem like a minor point, but it can actually be quite costly to the company if they don’t get this right on the first try!
3. Can Be Costly for the Company
The costs of using the PESTLE or Du Pont model are quite high, especially for small and medium businesses.
- The time that it takes to conduct a comprehensive analysis of your company’s environment is costly in itself. It can take a lot of time to complete all of the steps outlined above and there may be some steps that you don’t want to spend money on (such as hiring consultants).
- If a company chooses to hire consultants or external personnel, they will have additional costs associated with this option. This can include paying hourly wages as well as travel costs if outside help is needed but not readily available in-house (e.g., if you had someone come in from another country).
4. May be Difficult to Prioritize
The PESTLE model is probably more useful for longer-term planning and prioritization, as it doesn’t give you a specific order of actions to take.
In the DuPont model, there is an order of actions: Do not compete with number one.
This kind of specificity can be helpful in providing direction when it comes to prioritizing what needs to be done first.
The difficulty with this is that sometimes there are trade-offs between different categories of risk factors (for example, if we have limited resources and are trying to prioritize action items). It would be difficult for someone without experience in prioritization or project management techniques.
5. Can Lead to a ‘Do Nothing’ Mentality
The PESTLE model can also lead to a “do nothing” mentality. If a company is already doing well, then there is no need to change.
However, in order to stay competitive, they must look at how they can improve their business model and operations.
The external factors in this case are the ones that are changing faster than others or affecting the market more than others.
If a company wants to stay competitive and relevant in an ever-changing business world, then they should embrace change by analyzing these external factors on a regular basis using the PESTLE or Du Pont Model as an analytical tool.
I hope that this post has helped you to better understand why the PESTLE or Du Pont models are helpful tools for analyzing your industry and competitors.
As we discussed at the beginning of this article, there are many different types of analysis models out there—but these two stand above all others because they allow you to create a more complete picture by combining multiple factors into one cohesive framework.