Following on from last week’s blog on strategy tools you can use, this week we’re going to look at PEST analysis. This is used to evaluate the political, socio-economic and technological factors that might affect your business. It’s often linked quite closely to SWOT analysis – some people even think it’s the same thing, but it’s not! PEST analysis allows you to look at the bigger picture. It analyses your business in an entirely different way. However, the two tools complement each other perfectly and can be a great way for you to analyse the whole of your business.
Why is PEST analysis useful? Used correctly, PEST analysis can:
• help you spot both business and personal opportunities
• allow you to see threats and prepare for them
• enable you to see the direction of change in your particular business environment so you can work with them, not against them
• show you what projects you should avoid, or which might fail, due to reasons beyond your control
• help you avoid making incorrect and often unconscious assumptions about new market places you’d like to move into by allowing you to form an objective view of the market
How do you use PEST analysis?
The main aim of using the tool is to get you thinking about local, national and international events that may affect your business, identify opportunities and threats and take action for both. To get you started, below is a list of questions that you can ask yourself about each of the points addressed in PEST analysis – adapt and change them to suit your business area as needed. So, we’ll start with the ‘P’ of PEST analysis.
political factors – you should be thinking about when the next elections are in your country or location. Could a change in local or national government policy, such as taxation, property or business laws, and their approach to environmental issues affect your business? Can you find out who the most likely winner will be and what their views are on business? If new rules are to be brought in, how long is the time-scale for change likely to be? What other factors might affect your business?
economic factors – what is the state of the current economy – it is growing, shrinking or just stagnating? How are the levels of customer income changing – do people have more or less disposable income and how fast is this forecast to change in the next few years? Are the banks lending money to people? How will changes in interest rates affect you? What is the employment market like? Are there lots of skilled workers you can hire or is it likely to cost you a lot of money?
socio-economic – what are the current and future population trends likely to be? Is the population getting older or younger and what kind of effect could that have on your business? Are the levels of education, health or social mobility of your country changing and, if so, how is this likely to affect your business? What are the current trends in employment and attitudes to work and do these changes depending on age group?
technological factors – what new technologies could you be adopting to make your business easier to run? Do your competitors have access to technologies that will allow them to poach custom from you? If they do, what do you propose to do about it? Are there any local technology groups you could attend to help you gain more insight into how to use what’s currently available to its full potential.
That’ll do for this week. Next week, we’ll have a look at what you do once you have the answers to the questions posed above.
