Posted On April 2rd th, 2020 by Profit Network Australia
Here at Profit Network Australia we are here to help our members be able to understand changes and how they will affect their businesses and guide them through the processes, this is how to undertake a PEST Analysis.
What is a PEST analysis?
PEST is an acronym describing four primary external factors that influence the business environment:
PEST analysis is a strategic planning tool that helps organisations identify and evaluate threats and opportunities for the business. It is also how these factors could create future business as well as help you see the Threats that may affect it too and is great for understanding the overall market environment .
How to do a PEST Analysis:
Note: Conducting a PEST analysis is fairly straightforward, but it can be time-consuming.
Step 1. Consider PEST factors that could impact your business.
The first step is to research and gather as much information about your organisation’s external influences as possible. Enlist the help of other people (if you can) in the business to ensure you have a comprehensive data set.
As you start brainstorming and gathering data, consider the following list of PEST examples to guide your research:
P: Political Factors.
Political factors look at how legal and governmental regulations, as well as the political climate, might affect your organisation’s freedom to operate and its ultimate profitability.
Examples may include:
- Upcoming local, state, or national elections
- Main political candidates and their views on different policies
- Government regulation of industry or competition (Fed, State, Local)
- Trade policies (e.g., tariffs, current or prospective trade deals, etc.)
- Level of corruption or organised crime in your region or country
- Import restrictions
- E-commerce policies
- Consumer and employee protections
E: Economic Factors.
The economy has a significant impact on any business. Consider the following economic factors that could influence your business operations:
- Current economic stability
- Projected growth and inflation rates
- Interest rates
- Fiscal policies
- Consumer habits and financial stability
- Unemployment rate and competition for jobs
- Access to credit (personal and business)
S: Socio-cultural Factors.
Socio-cultural factors consider the makeup of the population and your target demographics to understand how well your business can compete in the market. These factors might include age distribution, cultural attitudes, and workplace or lifestyle trends.
As you analyse the market, consider how the following factors could impact your organisation:
- Population growth and demographics
- Generational shifts
- Consumer habits and values (e.g., focus on product quality or eco-friendliness)
- Family size and structure
- Consumer lifestyles
- Immigration rates
- Attitudes toward work
T: Technological Factors.
This step considers technology’s specific role and development in an organisation and the industry, as well as wider technological trends and uses that affect society as a whole.
For example, one way technological changes have affected the workforce is by increasing access and availability of remote working opportunities. These changes have far-reaching consequences for the future of work and will impact how organisations structure their businesses and employees.
Other technological factors to consider include:
- The organisation’s access to new technology
- The competition’s access to technology
- Rate of technological change
- Evolution of infrastructure
- Government or institutional research
Step 2. Identify Opportunities.
Once you’ve researched the various ways your organisation is influenced and affected by external conditions, start identifying opportunities these changes could provide.
An example is there a technological development of which you could take advantage to increase efficiency? Or are there shifts in consumer demographics that could open new markets for your products?
Seek out as many opportunities as possible so you can develop the best strategic response in your business.
Step 3. Identify Threats.
Unfortunately, change also comes with risks.
Whether an economic downturn threatens your bottom line or a competitor’s access to a new technology gives them a competitive edge, you need to identify potential threats to your organisation so you can mitigate the risks and adapt your strategy accordingly.
The sooner you recognise threats, the more likely you are to avoid them or reduce their impact.
Step 5. Act on your Findings.
With all your data collected and your opportunities and threats outlined, it’s time to take action.
So now it is time to put these findings into your business plan to take advantage of opportunities and manage threats as soon as possible.