What is a PEST Analysis?
A PEST Analysis is a commonly used tool that helps organisations to understand things that are happening in the external environment.
This is a very important part of the strategy development and planning processes as it helps us to understand what factors in the outside world could help or hinder the organisations ability to achieve its objectives.
PEST is an acronym for:
Political
Locate factors dictated by the government can impact on your organisations ability to attain its goals and vision. These factors will can include taxation, employment, environment, health, trade policies, and many other factors that could affect the way the organisation operates.
Economic
Locate the economic factors that will influence the organisations ability to implant its strategic plan and achieve its goals and vision. These factors will include interest rates, exchange rates, the rate of inflation and much more. These factors can have a significant impact the organisation’s ability to raise capital, trade internationally, etc.
Social
Social factors include the socio-demographic makeup of the population, cultural aspects, education, diversity, etc. These factors can have a big influence on the organisation’s strategic plan in many areas. These include recruitment, employment policies, the culture of the organisation, how it interacts with current and future customers, for example.
Technological
In todays fast moving world having an understanding of how technology may impact the strategic plan. The biggest challenge here is understanding how current technology can be used and how it may evolve, as well as anticipating what emerging technologies should to be taken into account in the strategic plan.
Conducting the PEST Analysis
The analysis of each of the above elements needs will vary depending on the where the organisation operates, its activities, how it delivers its products/services. For example, a multi-national business will need to conduct a PEST for each country in which it operates. Conversely, an organisation that operates in a local market may still have to look at both the local and national elements of the PEST.
Not all PEST Analyses are the same
A conventional PEST analysis is normally done as stand-alone exercise and consequently, the information is captured as a series of factors that can be used and referred to at a later date. The problem with this is that there is no context as to how these affect the business strategy.
We take a different approach to the PEST analysis.
We create causal links amongst the various elements of the PEST analysis as well as to the relevant elements of the strategy model. This effectively creates a map of the PEST as well as integrating that map into the overall strategy model, thereby creating a better understanding of the issues and how they affect the business goals and vision.