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How and when to use SWOT and PESTLE analysis

How and when to use SWOT and PESTLE analysis

Harry Clark

22/04/2020

One of the most well-known ways to apply all of the information you’ve consumed to fuel your commercial awareness is through a SWOT and PESTLE analysis. This article provides an overview of what the SWOT and PESTLE pairing is and how to use it. It also aims to cover why it shouldn’t be the only thing you rely on when evaluating the merits of a hypothetical business decision or scenario.

What is it?

Whether at an interview, during your studies or when you’re in practice, you’ll almost certainly need to introduce a commercial element to your answers as a lawyer. This is perhaps most prevalent if you want to work within the realms of commercial law and less so in, say, family law. However, while how your approach to commerciality (or perhaps ‘thinking beyond the remits of your letter of the law knowledge’ to be more accommodating to the latter types of practice) might be different depending on where you’re working, it is still important to account for your client’s legal problems in the wider context of their problem.

SWOT and PESTLE analyses aim to account for this element of commerciality/supplementary model of thinking necessary beyond whether something is ‘legally’ possible. They both aim to generate key questions and insights to consider before going ahead with a certain business decision. As I covered in my previous article in demonstrating commercial awareness, good lawyers will nearly always conduct a two-part test before advising clients:

  • Legally, can we do X, Y or Z?
  • Commercially (or alternatively, ‘accounting for the circumstances and needs of my client’), out of X, Y or Z, what are the appropriate options and what are their respective pros and cons?

In short, the SWOT acronym can be broken down as follows (I’ve included an assessment of Facebook in brackets to give you an example of what factors a SWOT analysis might cover):

  • Strengths – what does the company or party do well? What unique characteristics, resources, selling points and assets do they have? (eg, inimitable brand, globally recognised, historically consistent revenue streams and momentous user base).
  • Weaknesses – where could they improve? In what areas are they lacking resources, expertise and/or assets? (eg, recent data breaches have reduced user trust, ads worsen user experience and can fuel public distrust and only one real form of revenue stream via ads).
  • Opportunities – what trends, markets, events or consumer behaviours can be taken advantage of? Where can they capitalise on their strengths? (eg, vast user base allows for targeted ads for marketers, potential diversification of business model with virtual reality, and crypto and other non-social ventures).
  • Threats – what have they failed to adequately prepare for? What are competitors doing? What changes to the market, industry or customer behaviours may impact their approach to business? Where might their weaknesses leave them exposed? (eg, more users + data Facebook must hold raises data storage and cybercrime concerns, coronavirus, and large user base + increased levels of distrust may see a rise of spam/fake content/user).

‘Strengths’ and ‘Weaknesses’ relate to an internal assessment of the company or party being analysed. For example, relevant factors might include:

  • finances – income, revenue, profit margins, capital expenditures and cost-by-department (eg, research and development, marketing and legal);
  • physical assets – offices, factories, specialist equipment and high traffic locations;
  • human assets – notable staff members, headcount and consumer base; and
  • digital assets – copyrights, patents, branding, trademarks, designs and social media.

On the other hand, ‘Opportunities’ and ‘Strengths’ consider the external environment. Relevant external factors may include:

  • trends – consumer/client habits, economic growth/contractions and local versus national versus international patterns;
  • supply chain – relationship with suppliers, distributors and other partners; and
  • frameworks – politics, legal, economic, environmental and tax (see PESTLE below).

As for PESTLE, its acronym breaks down as follows (again, with some Facebook examples in brackets to help):

  • Political factors – elections, parties, attitudes towards policies/voting, regulations, local versus national versus international patterns (eg, pressures facing privacy and censorship, election interference scandals and claims, and no adoption in certain countries due to government restrictions). 
  • Economic factors – company valuation, revenue streams, expenditures (eg, fluctuation in stocks due to political changes above, shifting consumer habits/behaviours and the economic impact of covid-19).
  • Socio-cultural factors – the party’s role in society, perception by public, values and ethics (eg, key part of fabric of society + drives connectivity for many, provides marketplaces and groups for like-minded individuals and negative culture of screen time > facetime?).
  • Technological factors – improvements in technology, hardware versus software changes, cultural adoptions of such tech (eg, accessible on almost any platform, and investment in new areas – for example, crypto, chatbots and virtual reality, data target for hackers).
  • Legal factors – notable developments, for example, GDPR, types of deal the party is frequently involved in, differences between jurisdiction eg, data handling/controller, data ownership + consent, and expansion of business into new models).
  • Environmental factors – carbon footprint, ‘green’ ethics of the company, taxation ramifications of their business (eg, need to demonstrate corporate social responsibility and requires lots of energy for data storage).

Limitations of SWOT and PESTLE

While heavily popularised, SWOT and PESTLE are far from perfect as an approach and model of thinking to solely rely on when analysing legal problems. There are several potential problems that can arise if it is used unquestioningly.

They’re prone to your own biases and presumptions

When trying to analyse or predict a given scenario, it's quite easy to fall victim to seeing a problem how we’d like it to look versus how it actually looks. SWOT and PESTLE are no different. It can be quite easy to finish your analysis with a long list of ‘Strengths’ and ‘Opportunities’ and a much shorter list of ‘Weaknesses’ and ‘Threats’. Doing so leads to misleading (and potentially costly) statements, such as: “Well, we only need to worry about getting our proposal approved by regulators and we’re good to go!”

It’s important to attribute some form of weight to each of your written points when conducting your research. They’re not always as simple as they first seem and they’re certainly not all created equal in terms of their significance. You shouldn’t take the face-value view that a list of ‘Weaknesses’ that’s a third the size of your ‘Strengths’ means there’s comparatively ‘not much to worry about’. It takes only one of those weaknesses to be unaccounted for, or to be pushed to the forefront of your problems by an unforeseen event (any ideas?) to cause significant disruption down the line.

They’re glossed over

If you’re going to conduct a SWOT or PESTLE analysis, then you must take it seriously. Avoid skipping over areas you might believe are insignificant or too difficult and instead invest more time in those areas. Ensure there’s a high level of detail in the analysis and evidence is used wherever possible – preferably quantitative over qualitative to try and remove personal bias.

They’re not always that clear

Drawing a clear distinction between whether something is a ‘Threat’ or an ‘Opportunity’, for example, can be quite difficult. Consider the following example:

“Global warming will lead to greater taxes on environmentally unhealthy practices, such as relying on fossil fuels.” = Threat

“Greater levels of taxation on non-renewable sources of energy will greatly incentivise the development and use of renewable energy, potentially through grants and tax reliefs.” = Opportunity 

As the above illustrates, news and business developments are much more complex than their initial headline. There are often a multitude of stakeholders, factors and trends occurring at any one time, for any given story. SWOT and PESTLE are inherently simple forms of analysis and as such can lead to oversimplified decision making. It’s important to keep in mind the limitations of your own methods before attempting to deliver a bona fide, authoritative piece of advice.

SWOT and PESTLE are useful and the above will hopefully serve well as a guide for using these techniques in future. However, do so with the above cautions in mind and remember to keep track of how you come to any conclusions along the way.