What are the common pitfalls and challenges of using PESTEL analysis for competitive analysis?

1 Choosing the right level of analysis

One of the first challenges of using PESTEL analysis for competitive analysis is deciding how broad or narrow your scope should be. Depending on your industry, market, and objectives, you may need to consider different levels of analysis, such as global, regional, national, or local. For example, if you are a multinational company operating in different countries, you may need to conduct a PESTEL analysis for each market, as well as a global one. On the other hand, if you are a small business serving a niche segment, you may only need to focus on the local factors that affect your customers and competitors. The key is to choose the level of analysis that is relevant and realistic for your situation and avoid overgeneralizing or oversimplifying the external environment.

2 Gathering and evaluating data

Another challenge of using PESTEL analysis for competitive analysis is finding and analyzing reliable and up-to-date data on the external factors that influence your industry. Depending on the type and source of data, you may face issues such as data availability, accuracy, validity, reliability, timeliness, and bias. For example, you may have difficulty accessing data on political or legal factors in some countries, or you may encounter conflicting or outdated data on economic or social factors. To overcome this challenge, you need to use multiple sources of data, such as government reports, industry publications, academic journals, media outlets, and expert opinions. You also need to evaluate the quality and credibility of the data, as well as the assumptions and limitations behind it. Moreover, you need to update your data regularly, as the external environment is constantly changing and evolving.

3 Prioritizing and interpreting factors

A third challenge of using PESTEL analysis for competitive analysis is determining which factors are the most important and relevant for your business and its competitors, and how they affect your industry. Depending on your context, some factors may be more significant or influential than others, and some factors may have positive or negative impacts, or both. For example, a technological factor such as the emergence of a new innovation may create opportunities for some businesses, but threats for others. Similarly, a social factor such as a change in consumer preferences may benefit some businesses, but harm others. To overcome this challenge, you need to prioritize and interpret the factors based on your industry, market, and objectives. You also need to consider the interrelationships and interactions among the factors, as they may have synergistic or antagonistic effects.

4 Applying and communicating results

A final challenge of using PESTEL analysis for competitive analysis is applying and communicating the results of your analysis to your business strategy and decision-making. Depending on your purpose and audience, you may need to present and explain your findings in different ways, such as reports, presentations, or diagrams. For example, you may need to use a SWOT analysis to summarize the strengths, weaknesses, opportunities, and threats that you identified from your PESTEL analysis, or you may need to use a Porter's five forces analysis to assess the competitive intensity and attractiveness of your industry. To overcome this challenge, you need to use clear and concise language, as well as visual aids, such as tables, charts, or graphs, to convey your message. You also need to provide recommendations and action plans based on your analysis, as well as monitor and evaluate the outcomes and feedback.