According to Haberberg and Rieple, if an organization has to be an effective economic unit, it must gain such an understanding of the environment in which it operates. To gain understanding, scholars state that organization has to work on environmental analysis which includes PEST, SWOT and Five Forces Analysis to examine the possible areas of environmental changes that may affect a firm inevitably, thus to gain benefits for its operation.
PEST Analysis is a framework which is used to scan the external environment in which a firm operates. PEST is an acronym for Political, Economic, Social and Technological factors. PEST factors play a significant role in the creation of strategies.
SWOT Analysis is an instrumental framework in strategy formulation to identify Strengths, Weaknesses, Opportunities and Threats for a firm. Strengths and Weaknesses are regarded as internal environmental analysis, such as assets, skills and resources a firm has its arrangement to operate comparative to competitors. Opportunities and Threats are regarded as external environmental analysis which a firm is beyond control, but can be emerge from demographic, economic, political, technical, social, legal or cultural factors.
Five Forces is the essence of strategy formulation which copes with competition. Scholars indicate that competition in an industry is rooted in its economics and competitive forces which lead a firm to operate well beyond its competitors in a particular industry. The competitive forces analysis is a strategy tool that used in the analysis of firm’s attractiveness; the forces include threat of new entrants; can be influence by product differentiation, access to distribution channels and etc., bargaining power of suppliers and buyers; can influence margins by exercising their powers, threat of substitutes where there is a danger that substitutes may clash upon firm’s activities and competitive rivalry; strong competition between existing...