Earlier this month, I revisited the SWOT Analysis and discussed how it might be used with some purpose rather than used and forgotten. In this blog I look at the SWOT Analysis’ close relation; the PEST Analysis. Often mistakenly considered to cover similar ground, where the SWOT analyses your organisation, the PEST analysis the environment in which you operate.
The PEST analysis is not as widely used as the SWOT analysis but is nonetheless an extremely valuable tool which, when applied in tandem with a SWOT analysis can provide a more in-depth understanding of the overall environment your organisation is operating within and might face in the future; vital considerations when developing strategy.
The PEST analysis considers the external macro environment (i.e. the ‘big picture’) in which a business operates and considers factors which are beyond the direct control or influence of the organisation but are important to be aware of when doing product development, business or strategy planning.
PEST breaks the environment into four sections to enable more focused analysis; Political, Economic, Social, Technological.
The PEST analysis enables you to consider the implications of changes to the environment in which you operate (whether current or future) and thus can assist in planning to address them in place of becoming a victim of them.
These are some examples of PEST factors that may affect your organisation although you should ensure you conduct your own comprehensive analysis:
- A change in government
- A change in government policy towards the sector(s) in which you operate
- Local Authority priorities, such as funding and investment
- Legal aspects such as tax policies, labour laws, environmental law, health and safety, employment law, etc. (sometimes analysed separately, see below)
- Interest rates and their effect on (e.g.) the cost of capital items
- Inflation and its effect on (e.g.) different spending priorities of consumers
- Exchange rates and currency values around the globe (e.g. in countries where you manufacture or to whom you export)
- Unemployment rates and the availability of cheap(er) labour
- Demographic shifts in the population (e.g. geographical ‘expertise clusters’ seen in high-tech industries)
- An aging population could impact (e.g.) on the cost of labour
- Attitudes towards careers and career progression
- Lifestyles, fashions and trends
- Standard of education
- Attitudes to the work/life balance
- Entrepreneurial attitudes and opportunities
- Rate of technological obsolescence (e.g. mobile phones in the communications sector)
- Government investment in research and development
- Access to and changes in technology (e.g. IT, mobile, internet, etc.)
In recent times some consultants have stretched (and rearranged) PEST into SLEPT and then PESTEL. In the first of these (SLEPT) the L represents Legal, traditionally included within political under PEST but not necessarily. The second, PESTEL (sometimes written as PESTLE) adds Environmental to the acronym. Still another step on is STEEPLE which adds in Ethical, for example the issue of child labour would be considered under this heading where the traditional model (PEST) would include both environmental and ethical within political and social. The growing importance of both has seen their introduction under separate headers to ensure they are covered.
None of these variations are wrong and none are better or worse than others. The key is that you use a model which assists you in gaining the information you need to the required depth and quality.
And, as Hill & Westbrook reminded us in 1997, having invested time and other resource in your SWOT and PEST analyses, don’t then forget to use the intelligence you have gained to inform your strategy!
© Jim Cowan, Cowan Global Limited, 2011