Business Environment Analysis Part 2: Using PEST Analysis in Your Business

Using a PEST Analysis

A PEST Analysis is an extension of the notion of weighing up the pros and cons of a situation and the Analysis is represented as a grid. Firstly, the subject of a PEST Analysis should have a clear definition, understood and agreed by all those involved in the Analysis. Typically, the subject would be concerned with considering entering a new market, or investing in launching a new product. An example of a PEST Analysis is given below. Questions should be addressed concerning each pertinent bullet point. The example is not exhaustive, each PEST Analysis may have additional points relevant to your business. Commonly occurring bullet points include the following:

Subject: To expand the range of HR Services we offer

Political                            Economic
Current relevant legislation          Taxation issues
Future legislation                    Home economy trends
European procedures                   Tax costs/savings
Regulatory bodies                     relevant to services
Likely change of Govt                 Market & trade cycles
Funding, grants & initiatives         Specific industry cycles
Local bodies & grants                 Market rates for services
Professional bodies’ interests        Customer financial drivers

Social                                Technological
Buying patterns                       Use of technology to
Brand image                           transmit services
Advertising & publicity               Maturity of technology
Existing customer attitudes           Information &
Potential customer attitudes          communications
Intellectual property                 Technical skills of
issues                                personnel

 

The 4 quadrants will vary in size and significance depending on the type of business you are involved in e.g. a multi-national oil company will be more concerned by “political” factors, than a business close to their customers, where “social” factors may have more significance.

Why is PEST Analysis important to your business?

  • It helps you consider the context your business is operating in, to ensure changes you make to your business align with the positive, powerful changes impacting on the market and on global markets overall.
  • On the other hand it helps you avoid taking actions that are likely to fail, because of factors beyond your control.
  • It is a useful tool to use when considering expansion into new countries or regions, because it challenges your assumptions and helps you to consider how to tackle issues such as cultural differences in the way business is conducted.
  • In a group setting, brainstorm the relevant factors that apply to your business.
  • For each relevant bullet point you can pose a question for those in the group to analyse e.g. What grants are available to help to promote our business in a new country or region?
  • Consider what information you have already about each bullet point. It is important to test your assumptions at this stage to ensure you have up-to-date and correct knowledge and information. If you don’t it may require group members to research the gaps in knowledge, in order to progress your analysis.
  • Over time, with accurate and sufficient information, the PEST Analysis will change and additional factors may need to be included. But as a “living” document, the PEST Analysis can guide you and your company to make the most appropriate decisions about the future direction of your business.

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