First things first, let’s address the elephant in the room. It is called a “PEST” but that doesn’t automatically imply that it is irritating, ok?
In fact, a PEST analysis can be a really useful tool to help you take a look at the external factors that could have an impact on your organisation. If used properly, it can really enhance your strategic planning by allowing you to understand your business position, potential for growth, direction of travel and any outside factors that may have an influence on your operations such as market decline, environmental legislation, financial regulations and infrastructure investments in your local area.
PEST is a mnemonic that stands for “Political, Economic, Social and Technological” and the framework covers macro-environmental factors that can be used to conduct environmental scanning to inform strategic planning or market research.
There are many other variants of this mnemonic, which include additional factors which may be right for your organisation to consider including too, we’ve listed these below.
- SLEPT > Social, Legal, Economic, Political, Technological
- PESTLE/PESTEL > Political, Economic, Social, Technological, Legal, Environmental
- STEER > Socio-cultural, Technological, Economic, Ecological, Regulatory
- DESTEP > Demographic, Ecological, Social, Technological, Economic, Political
- STEEPLE > Social, Technological, Economic, Environmental, Political, Legal, Ethical
- STEEPLED > Social, Technological, Economic, Environmental, Political, Legal, Ethical, Demographic
You need to decide which of these analysis frameworks best covers all aspects of your organisation’s work, whether you use a basic PEST, or a more complex version, and then you can choose the one that best suits your needs. However, for the purposes of this blog (and keeping things simple – which is what Active Outcomes do!) we’ll be covering the basic “PEST” analysis.
We recommend having a bit of time set aside to complete this analysis, it can help to do a bit of background research around the various external environmental factors and so we also suggest that you work on this with your computer near at hand so you can quickly look up any potential issues as you consider them.
We also find it helps to bounce ideas around, so if you have a colleague you think would be great at helping you identify potential issues and opportunities ask them to take a look and add to your document.
A blank sheet of paper can worry some people if they have absolutely no idea where to start. So, if you already have any strategic planning documents, such as SWOT analyses, market research reports and so on, these can be a great initial source of ideas and can act as a springboard to help you get some ideas scribbled down.
Remember, when you are drafting this analysis that there are no bad ideas. The point of the exercise is to consider hypothetical situations. You are trying to foresee what might happen and unless you have a fully-functioning crystal ball (unfortunately we don’t) you are not going to correctly predict everything that may come to pass.
Completing Each Section
We’re going to go through each macro-environmental factor now and suggest a few ideas for each individual section to get you started. When completing your analysis try and be specific, for example, if you have an ageing local population with 17% more retired people than the national average include the figures. This gives you an at-a-glance reference to what the main issues/opportunities are so that you can figure out how to set about overcoming and exploiting them.
- Current government: how stable is it, what are the priorities in their manifesto, what announcements have been made recently in the news?
- Bureaucracy: which government departments might have an impact on your work?
- Local government: what are the priorities for your local area, e.g. are there any planned infrastructure projects that could affect access/footfall, do you have all the correct licenses in place and when do these need renewing?
- Tax policies: what are the rates and incentives, are there any changes in the pipeline?
- Press freedom / priorities.
- Trade controls: if you import/export consider the risk of changing tariffs, restrictions on goods (quality and quantity). [The UK exit from Europe could have some serious repercussions in this particular area.]
- Trade Unions: which ones represent your workforce, do they have any campaigns/industrial actions planned?
- Law: what changes to any applicable laws might be happening – consider:
- Environmental law,
- Anti-trust law,
- Education Law
- Employment Law
- Discrimination/Equality Law
- Parental Leave / Flexible Working,
- Competition regulations,
- Copyright/Intellectual Property law,
- Health and Safety,
- Consumer Protection / eCommerce, and
- Data protection and Information Security.
- Growth rates: these may not seem to have a direct bearing on your business, but if the whole economy is booming you are more likely to feel the benefits.
- Inflation: if inflation increases, the amount you (and your customers) can purchase will decrease, knock-on effects could be increased raw material prices and transport costs which you have to pass on to consumers.
- Interest rates: whether low or high, the implications can be huge, e.g. low rates of interest are great for those who already have a mortgage but are not as helpful to the people saving a deposit to put down on a home.
- Exchange rates: important for import/export led business.
- Unemployment trends: this can affect the availability of skilled labour and the costs of hiring.
- Labour costs: employees are your greatest resource (and often your biggest expenditure), look at your rate of employee retention, could you reduce staff turnover and re-train skilled members of staff to fill any gaps and reduce external hiring costs. What changes do you anticipate needing to make to your workforce?
- Stage of business cycle: review your business plan, look at the potential for strategic growth, plan for your busy/quiet periods.
- Credit/funding availability: when a scheme is time-limited plan ahead so that you have all the evidence needed to support an application for credit/funding within that cycle. If your funding lasts for a set period, put in place a timescale for review so that you know when to start the application process for continuation funding.
- Trade flows and patterns: these could be disrupted due to global events.
- Level of consumers’ disposable income: this ties in to levels of inflation, if people have less money to spend after they have paid for the basic necessities what impact could this have on your business?
- Monetary/fiscal policies: what changes have been announced or could be on the cards?
- Stock market trends: on the whole, the stock market is seen as being mysterious and complicated, but you can gain an insight into current market conditions by looking at the type of companies that are winning or losing and seeing why they are in that position, e.g. if an announcement is made about investment in green energy you might see a decline in traditional energy companies and an increase in more environmentally friendly ones.
- Weather: this one may seem trivial but can have a huge impact if you rely on getting customers through your door.
- Health: the health and well-being of local people can affect productivity and effectiveness.
- Population: growth rates, age profiles e.g. an ageing population might mean there is a smaller workforce and a demand for different services.
- Education: may mean there are not enough workers with the correct skill-sets.
- Religion and beliefs: you may need to take into account various religious holidays and observances.
- Lifestyle and buying habits: try to segment your “typical” customers to create a profile for each and see how they spend and why. What might affect this?
- Family: e.g. what rights/regulations may change for employees with families? Can you adapt and work flexibly around family commitments?
- Environmental/ethical: what are the prevailing attitudes toward green or ecological products and renewable energy? What options exist for you to trade more ethically/responsibly?
- Immigration/emigration rates: do you have a diverse workforce or work internationally, could this change as a result of the EU exit? What changes might need to be put in place to ensure continuity for your workforce?
- Work/life balance: look at attitudes toward career, leisure and retirement. Could you do more to ensure you are offering an attractive benefit package and retaining the best talent?
- Technological change: what is likely to change within your industry and how can you keep pace?
- Research and development: what do you need to be looking into changing now to get ahead of competitors?
- Automation: can you improve efficiency/effectiveness by automating processes?
- Outsourcing: is it cheaper in the long-run to outsource certain services rather than spend time struggling to compete tasks in-house?
- Government priorities: how much is the government spending on technological research and innovation, what infrastructure are they investing in?
- Depreciation/product lifecycle: when do you anticipate needing to replace key equipment? Do you have contingencies in place in the event of any equipment failure?
- Generational shifts: who is buying your product, how do they expect to interact with it? E.g. younger consumers may expect to be able to log a complaint via social media and have it responded to instantly
These suggestions are by no means exclusive, they are here to help you get started, not all of them will apply to your organisation and there will be a lot of other factors that do apply that we have not mentioned.
How to Present the Information
Here is a sample PEST Analysis we have completed for a small charity as part of an Organisational Review. As you can see, we have tried to keep it simple and visual. We have highlighted the key issues for each section and we have charted whether this is likely to have a high, medium, or low positive or negative impact.
We created this infographic using Canva and you can sign up and create designs completely free of charge online on their website.
This is not the only way to present the information: you can choose to use a table, with the titles for each section and a bullet pointed list of the factors listed underneath. Others choose to present the document in a more traditional report style format, going through each section individually and giving a greater level of explanation for each factor identified. There are pros and cons for each approach and you’ll need to identify which is the best for your particular needs.
If you need any assistance or advice about undertaking a PEST Analysis give us a shout, we’re always happy to help, visit www.activeoutcomes.co.uk for all of our contact details.