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Using the PEST Analysis as a Strategy Tool

By Erica Olsen

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Using the PEST Analysis as a Strategy Tool

There are many strategy tools to choose from when you are determining your strategic position, structuring your strategic plan and executing against it. The PEST Analysis is one such tool, great for assessing “pests” and hazards in your business.

Let’s start at the beginning. When determining your strategic position, the most common strategy tool is the SWOT Analysis – Strengths, Weaknesses, Opportunities and Threats. The PEST Analysis – Political, Economic, Social and Technological – is another tool that is closely linked to the SWOT Analysis. It was developed by Harvard professor Francis Aguilar and addressed in his book, Scanning the Business Environment.

Where the SWOT looks at both internal factors (strengths and weaknesses) and external factors (opportunities and threats) that affect your organization, the PEST Analysis looks at just the external influences that have a major impact on making decisions, market growth and expansion.

Overview of the Components

As we stated earlier, a PEST Analysis is a look at the external market forces affecting your organization. These include the Political, Economic, Social, and Technological forces. Here’s a brief synopsis of each:

Political – These are the external political forces affecting your organization, including laws, policies, governing bodies, officials, or any other political factors that might influence the opportunities and threats of your organization.

Economic – These forces are driven by the economic environment you operate in, including economic climate, taxation, and globalization.

Social – Social forces focus on the opinions of consumers about your product, the changing population and demographics, or attitudes that affect your operating market.

Technological – This focus area considers how technological forces may be impacting your organization.

With a basic understand of each component of a PEST Analysis, you can move on to conducting the actual analysis and asking the key questions that will help inform your organization’s strengths and weaknesses.

Conducting the Analysis

We like to take each piece of the PEST Analysis and ask a few pointed questions in each subject area to provoke thought and explore how each factor might feed your organization’s core opportunities, threats, and strategy. You don’t need to answer every question, but rather pick a few that might provoke the best conversation and discussion with your planning team. As you work through these questions, take detailed notes and brainstorm how each response might be an opportunity or a threat to your organization.

Political – Questions to Answer

  • What trading policies or international legislation will impact your business?
  • Are there any changes to regulations? What is the timeline for those proposed regulations?
  • Has new legislation passed that affects your organization?
  • Are there any other political factors that could impact your future?

Brainstorm

  • Political – What are the political opportunities you need to seize?
  • Political – What are the political threats you need to monitor?

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Economic – Questions to Answer

  • Are there any taxation issues that will affect your product/service?
  • What is the current domestic economic status?
  • How does the current economic climate affect your consumers and their spending habits?
  • How easy or difficult is it for your organization to find qualified labor in your economic market?
  • Is your market share impacted by globalization?
  • Are there any other economic factors that could impact your future?

Brainstorm

  • Economic – What are the economic opportunities you need to seize?
  • Economic – What are the economic threats you need to monitor?

Social – Questions to Answer

  • Are consumer opinions changing about your product/service?
  • Has your organization’s target demographic shifted in any way?
  • How is the changing population demographic impacting your business?
  • Are there any social attitudes about your product/service?
  • Have you experienced changes in your customers’ purchasing habits?
  • Are there any other social factors that could impact your future?

Brainstorm

  • Social – What are the social opportunities you need to seize?
  • Social – What are the social threats you need to monitor?

Technological – Questions to Answer

  • Are you staying ahead/competitive in technology development?
  • Is there new technology you should be using?
  • How has technology changed your work environment?
  • How is new technology affecting your business?
  • Are you dependent on 3rd parties for technological support/solutions?
  • Are there any other social factors that could impact your future?

Brainstorm

  • Technological – What are the technological opportunities you need to seize?
  • Technological – What are the technological threats you need to monitor?

Leveraging the PEST to Identify Opportunities and Threats

The answer to the questions above will help identify the external market opportunities and threats your organization needs to consider as part of your planning process. These answers position you to develop goals for your organization to capitalize on those opportunities and monitor the risks you may face. This is a great exercise to complete as part your SWOT Analysis.


Erica Olsen

Erica Olsen is the COO and a co-founder of OnStrategy. She has developed the format and the user interface for the award-winning OnStrategy on-line strategic management system. In addition, she is the author of Strategic Planning Kit for Dummies, 2nd Edition. Erica has developed and reviewed hundreds of strategic plans for public and private entities across the country and around the world. She is a lecturer at University of Nevada Reno and University of Phoenix. She holds a BA in Communications and an MBA in International Management.

Comments

2 Comments

  1. Amos
    May 12, 2018 @ 02:59:51

    The PEST analysis is educative.Starting business using the technique is helpful.Thank you

    Reply

  2. Anthony DiMaio
    Dec 14, 2018 @ 04:31:23

    Outstanding Erica. I would almost say that this is a game-changer in the way that we manage drinking from the fire hose of data and information that is out there.

    Reply

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