PEST Analysis |
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When conducting any type of analysis of a company, the PEST analysis should be considered as a vital tool to assist the process. A PEST analysis considers the main external factors that influence the way in which a business operates. A PEST analysis is also helpful when a business is considering expansion or entering into new markets. However, PEST analysis can also be used to assist a company in seeing where its weaknesses lie and how it can best make the most of its position. PEST analysis stands for political, economic, social and technological which is a broad breakdown of the key external factors that can have an impact on a company. Depending on the market and the type of company, the various components of the PEST analysis will give differing importance to the external factors, but by studying each element, the company may uncover issues that were not immediately obvious. Political IssuesThe first element of the PEST analysis is that of the political situation in which the company operates. For the PEST analysis to be completely thorough, it will have to consider not only the political situation in the normal sense of the word, but also issues such as being politically correct. Certain companies will be more resilient to changes in general political opinion than others. For example, companies selling warranties such as mobile phone insurance have recently had numerous complaints and are, therefore, subject to a much larger level of inspection than they had previously come to expect.A PEST analysis should also look beyond the immediate country of operation. International trade and any likely restrictions on trade or exporting opportunities (as well as importing threats) need to be considered. The decisions relating to international trade and the relevant restrictions and quotas will almost always be political in nature; therefore, any likely changes in policies in this regard should be considered fully, during this part of the PEST analysis. Economic IssuesEven before a company has formally conducted a PEST analysis, the economic issues facing it are often acutely clear to the management team. However, the true aim of the PEST analysis is to consider trends and how these may change so that the company can take advantage of the potentially competitive advantage. This is often regarded as a first mover advantage. By using the PEST analysis, a company aims to recognise gaps in the market or general movements that other companies have not yet identified, thus allowing it to take a competitive position.Economic issues in the PEST analysis can be both macro and micro in nature. For example, issues relating to the whole country will undoubtedly be important to most companies. Issues such as lack of credit available in the banking system will inevitably have a dramatic impact on estate agents, but other related industries such as conveyancing solicitors, interior decorators, removal companies and furniture retailers will all also feel the impact of a dramatic slowdown in the housing market. Other economic issues will be much more company or market specific. Every company will have its own balance in terms of how much debt and equity it has, which will have an impact on the cost of its financing. Internal resources need to be considered as a reflection of the external issues. Referring back to the credit problems with the banks being unwilling to lend, it is easy to see how this external factor could make a difference to the way that expansion would need to be financed, i.e. there would be a greater need to obtain investment from individuals and not debt financing from the bank. Social IssuesIn relation to the PEST analysis, the social factors can be amongst the hardest to pin down into some sort of conclusive set of factors. Social issues are ever changing; therefore, the social analysis is one of the most commonly repeated PEST analysis sections. For most companies, the first stage of the PEST analysis will be the social issues as these often offer insights into the other three external factors.Social trends such as whether people prefer to go out to pubs or prefer to drink at home will clearly have an impact on the hospitality industry, but are also going to impact on issues such as how many taxis are needed or even indirectly on clothes retailers. The real key to completing a PEST analysis is not simply to list the factors that are in play, but working out how these trends can best be used to generate opportunities for the company in question. For example, if the PEST analysis suggests that we are entering a period where finances are not readily available and the public are looking to spend more of their entertainment time at home or in cheaper pubs, then nightclubs would be wise to look at offering free entry and promotions on their products. Similarly, issues relating to age demographic and career progression will all have a vital impact on the way in which a company can make the most of external factors. Technological Issues
PEST analysis involves looking at all external factors. In some industries, the technological factors will be central to the way in which the product develops. Certain products such as information technology will be clearly dependent on technological advances and this section of the PEST analysis will undoubtedly be the most important. However, it is important to recognise that the technological backdrop is important to almost all companies, in every sector.
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