PEST – insights into the business environment and the forces that change it
01/02/2012 Leave a comment
You DON’T need to run because you think a small critter is about to attack…and ‘NO’ this article will not be detrimental to your health like the Black Plague (‘pestilence’) – from which the acronym was derived.
The real shock is this – last week I attended a networking session with 6 business leaders of small to medium sized enterprises, which included 2 professional firms. The topic of discussion was business planning and what each leader and his/her team did as part of their annual strategic planning process.
Of the 6 people surveyed – not one of their teams completed any formal review of their direct competitive environment prior to…or whilst doing their strategic planning …and, with the exception of one party, none converted their strategic plans into financial targets/budgets.
This is something we had an inkling of – but until those admissions… no direct evidence of!
The above is all the more surprising given there are so many factors in the broader-environment that affect the decisions of owner/managers. Interest rates, market liquidity, tax changes, new laws, tariffs and trade barriers, demographic and local-government policy changes, are but a few examples.
In the words of Charles Darwin: “in the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment”! Strong words …worth thinking about…
In order to understand…and then help our clients adapt to these types of factors we, like many others, use PEST analysis, as a strategic planning tool.
PEST (a mnemonic standing for Political, Economic, Social and Technological). Its a simple, effective framework for assessing the macro- and meso-environmental factors which drive the environment in which your business is operating.
Its specific focus is on factors:
- Completely out of your control (the “macro” factors); and
- Partially in your control …but only if your company works collaboratively with other market players.
In a world besotted with acronyms PEST has morphed into STEER / SLEPT / PESTEL / PRESTEL / STEEPL / STEEPLED which you might have heard of or used. The reason for these variants is the fast changing world around us and the growing importance of legal factors and regulation, environmental and ecological factors to a number of industries like chemicals, resources, forestry etc…as well as the increased focus on global business, governance and ethics.
Some of the different variants of PEST are:
- PESTLE/PESTEL: Political, Economic, Sociological, Technological, Legal, Environmental.
- PRESTEL: the above with the Regulatory aspect added
- PESTLIED: Political, Economic, Social, Technological, Legal, International, Environmental, Demographic.
- STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical.
- SLEPT: Social, Legal, Economic, Political, Technological.
Each element of the mnemonic is used to brainstorm the characteristics of the market, country or region where you’re operating and, from that, draw conclusions as to the significant forces of change operating within that/those environment/s.
Making use of PEST
PEST is a simple, 3 or 4-stepped process:
- Brainstorm only the most relevant factors that apply to your industry (based on the most suitable mnemonic e.g. PRESTEL)…thinking about current circumstances and the medium term future.
- Many factors can appear in one or more categories (e.g. interest rates could form part of government monetary policy and also the economic category) …so simply decide where you think it best belongs…don’t stress overly about the classification.
- Identify the salient information that applies to each of those factors – then think about the implications of changes in those factors …and what each variation might mean to your business.
- Draw initial conclusions and never assume they’re complete…or that you’re spot-on!
- Carefully review market realities on an ongoing basis and make the best of the position your company finds itself in by utilising that knowledge and analysis in the strategic action setting processes…
Now its over to you …and please let us know whether this assisted your strategic planning process?
If you would like a high level checklist for issues to consider in a PEST analysis drop us a mail on info @ latticecapital.com.au.
Join us next week when we’ll take you through a step by step guide for getting your business strategy in place for 2012.
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