PEST Analysis – SKCI Business Strategy Tool
Background
PEST Analysis is a tool used to understand the macro external factors affecting your organisation. PEST which stands for Political, Economic, Social and Technical, encompasses the main factors which impact an organisation from the outside. Similar to the SWOT Analysis, it is used in early stages of strategy development in order to gain a big picture understanding of your organisation’s current position.
When To Use The PEST Analysis
It is most often used in the preliminary stages of strategy development as a way to highlight the environment in which you are working. PEST Analysis outlines the main opportunities and threats that surround a business and can indicate when an organisation is in a changing business environment. It can also be particularly useful if you are planning on entering a new environment as it can showcase the risks that may be associated with that market.
How To Use The PEST Analysis
PEST Analysis is a remarkably simple and effective tool to use. You start by listing all the opportunities associated with each of the quadrants. Then you do the same with the threats that are present in each of the categories. Remember that an honest and objective approach is vital for this analysis to be successful, so try not to hesitate when thinking of opportunities and threats. No matter how big, small, or supposedly obvious a point is, it is much better to have it written down than to neglect it, as it may cause issues down the line.
Now that the table is filled in you can start to consider what actions could be taken. This may mean pursuing strategies that build on external opportunities, or it could mean taking action to avoid approaching threats.
Some questions you may want to consider are:
- What opportunities or threats need to be addressed?
- Do the threats correspond with those found in SWOT analysis?
- Is there an underlying threat that links the items?
Once the links between external factors are considered you can begin to prioritise different areas of the organisation and know which strategies are worth pursuing.
Worked Example
Here we see a sample of a PEST analysis for NewTechNow, an imaginary tech company with a B2B product that includes both software and hardware.
From our analysis we can see there are some points that NewTechNow will need to address to move forward successfully, for example:
- Growth Outside of Core Markets:
Trade wars / Brexit / Political instability in some potential growth markets / Slowing of the world economy (especially the Euro-zone) / New data privacy and data protection legislation / ESG policies
- Gaining Size Fast:
“Winner takes most” / Continuing user appetite for new technologies that solve real problems / AI and data analytics / Cloud computing
- P Protection Challenges:
High cost of protecting IP / Cyber-security / New manufacturing techniques / Political instability in some potential growth markets
How Does This Fit Into The 5KQ Strategy Framework?
SKCI’s unique 5 Key Question (5KQ) strategy framework gives our clients an effective way of managing strategy development. PEST Analysis is most often used during question one ‘Where are we now?’.
Our framework allows you to ask the right questions at the right time and provides a clear structure for the development of your strategy. Question one is an important step which is often ignored as people assume that they know exactly what is happening in their organisation. PEST Analysis is a simple way to step back and really assess your current position in terms of external factors, and therefore allow you to answer, ‘Where are we now?’.
Additional Resources
Additional Strategy resources, including blank worksheets in PowerPoint and Word format, are available to download at the top of this webpage.
