Business principles in personal life: #4 PEST analysis
As an entrepreneur, you can try to predict how your products/services or career will resonate with the public. However, there will always be factors outside of your control affecting how your business or career operates. One method for discovering and quantifying those factors is the PEST analysis.
What is PEST analysis?
PEST is an acronym for political, economic, social and technological. It’s a way of understanding how external forces impact you or your business. It was created by Harvard professor Francis Aguilar in 1967. It should be included in every business plan, in addition to a SWOT analysis (link), as it is part of risk management and strategy design. There are many variations of this framework, which look at different external factors, depending on which industry or market the organization operates in. Examples include:
- PESTLE/PESTEL: Political, Economic, Socio-Cultural, Technological, Legal, Environmental.
- PESTLIED: Political, Economic, Socio-Cultural, Technological, Legal, International, Environmental, Demographic.
- STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical.
- SLEPT: Socio-Cultural, Legal, Economic, Political, Technological.
- LONGPESTLE: Local, National, and Global versions of PESTLE.
Benefits of PEST analysis
There are numerous benefits of conducting a PEST analysis, which can reap dividends for you. The more significant benefits include:
- A greater understanding of yourself
- More effective long-term strategic planning
- Heightened attention to potential threats and dangers
- Insight for valuable career opportunities
- Helps to evaluate how your strategy fits into the broader environment and encourages strategic thinking
- Provides an overview of all the crucial external influences on the organization
- Supports more decisive and knowledgeable decision making
How to conduct PEST analysis?
Step 1: Brainstorm factors
Political
Political or politically motivated factors that could impact you.
Examples include:
Government policy, political stability or instability, bureaucracy, corruption, competition regulation, foreign trade policy, tax policy, trade restrictions, labor/environmental/copyright/consumer protection laws, funding grants & initiatives, etc.
Questions to ask:
- What government policies or political groups could be beneficial or detrimental to your success?
- Is the political environment stable or likely to change?
- When is the country’s next local, state, or national election? How could this change government or regional policy?
- Could any pending legislation or taxation changes affect your business, either positively or negatively?
- How will business regulation, along with any planned changes to it, affect you and your business? And is there a trend towards regulation or deregulation?
- Are there any other political factors that are likely to change?
Economic
Overall economic forces that could impact on your success.
Examples include:
Economic trends, growth rates, industry growth, seasonal factors, international exchange rates, International trade, labor costs, consumer disposable income, unemployment rates, taxation, inflation, interest rates, availability of credit, monetary policies, raw material costs, etc.
Questions to ask:
- What economic factors will affect you moving forward?
- How does the performance of the economy affect us at the moment?
- How are our pricing, revenues, and costs impacted by each economic factor?
- How stable is the current economy? Is it growing, stagnating, or declining?
- What is the unemployment rate?
- Do consumers and businesses have easy access to credit? If not, how will this affect you?
- Are there any other economic factors that you should consider?
Social
Social attitudes, behaviors, and trends that impact your organization and target market.
Examples include:
Attitudes and shared beliefs about a range of factors including money, customer service, imports, religion, cultural taboos, health, work, leisure, the environment; population growth and demographics, immigration/emigration, family size/structure, lifestyle trends, etc.
Questions to ask
- How do our customer’s beliefs and values influence their buying habits?
- How do cultural trends and human behavior play a role in our business?
- What are the population’s growth rate and age profile? How is this likely to change?
- Are generational shifts in attitude likely to affect what you’re doing?
- What are your society’s levels of health, education, and social mobility?
- How do religious beliefs and lifestyle choices affect the population?
- Are any other socio-cultural factors likely to drive change for you and your business?
Technological
Technology that can affect the way you make, distribute, and market your products and services.
Examples include:
Technology and communications infrastructure, legislation around technology, consumer access to technology, competitor technology, and development, emerging technologies, automation, research and innovation, intellectual property regulation, technology incentives, etc.
Questions to ask:
- What technological advancements and innovations are available or on the horizon?
- How will this technology impact our operations?
- Are there any new technologies that you could be using?
- Are there any new technologies on the horizon that could radically affect your work or your industry?
- Do any of your competitors have access to new technologies that could redefine their products?
- In which areas do governments and educational institutions focus their research? Is there anything you can do to take advantage of this?
- Are there any other technical factors that you should consider?
Step 2: Brainstorm Opportunities
After you have identified the changes that are taking place in your life, it’s time to look at each change, and brainstorm the opportunities that this could open up for you. For example, could it help you start a new career, going to a new country, starting a business or help you learn new things? Here the SWOT analysis (link) can help you a lot!
Step 3: Brainstorm Threats
It is also important to think about how these changes could undermine your life. If you understand this early enough, you may be able to avoid these problems or minimize their impact. For example, if the technology is threatening your career, can you learn something new and start a job?
Step 4: Take Action
Where you have identified significant opportunities, build the actions you’ll take to exploit them into your SMART goals(link). You can check our article for SMART goals which will help you to create a long term plan. Where you’ve identified significant risks, take appropriate action to manage or eliminate them.
Conclusion
PEST analysis helps us identify and understand Political, Economic, Socio-cultural and Technological factors causing change, which in turn shape our business or/and our careers. You are not alone and have determining factors for your success. The key is taking control of each of them. When you know these factors and look for its options the threats they pose are capable of compounding an adequate career plan that will help you develop through the following years.
Business principles in personal life:
- #1 SMART goals
- #2 SWOT analysis
- #3 Branding
- -> #4 PEST analysis <-