How PEST Analysis Can Help Your Business

Business Articles

PEST analysis is a method of self-examination that businesses from any field can use to better understand the general health of their enterprise in the context of their industry.

The four factors of PEST analysis help to dissect and evaluate the leading indicators of well-being and the opportunities available to a business. Knowing these four aspects of PEST allows the researcher to fully understand and better influence the direction the company is taking regarding growth and profitability.

1. Political

Knowing the political context of your industry is vital to staying ahead of the curve when it comes to long-term planning. Changes in law and governmental policy can have a significant impact on the operational ability of a business, so it’s important to stay abreast of any relevant political changes or proposals.

If a political change is likely to have a negative influence on your business, it’s best to know about it early. That allows you to be proactive in your preparations and protestations. A business plan that takes political factors into account will be more flexible than one doesn’t.

Stay informed of all political aspects that affect your industry. Even regular changes like local or national elections can bring with them the great variation in influential factors such as tax or planning legislation.

2. Economical

When considering the economic aspect of PEST analysis, it’s necessary to examine the broader national context in your research. Economic indicators such as inflation, wages and disposable income all affect the amount of money your leads will have to spend. In times of slow economic growth, lenders may be more reluctant to issue credit, so your customers and your business could be more reliant on cash savings.

Exchange rates may be especially pertinent for international businesses. A fluctuating exchange rate could reduce net revenue and erode your profit margins. Conversely, if you keep astride of relevant indicators, you can make decisions that capitalize on almost any economic environment. The economic outlook is often mercurial and difficult to predict so stay as informed as you can to make the best decisions possible with the information on hand.

3. Sociological

Societal issues are always relevant to business decision making. All companies work within the fabric of local society, so the issues that influence the community have a direct and indirect impact on business. Consider the demographics of your targeted population. An aging population, for instance, may necessitate a different approach to marketing or product design to maximize sales.

Market trends and societal conditions often go hand in hand so keeping in line with the socio-cultural climate is integral to staying relevant. Attitudes and lifestyles also vary over time and across locations so take care not to become out of touch.

Stay informed by conducting market research and encouraging feedback from your customers. A lot of sociological understanding comes from merely being a part of the community as individuals, but a more formal approach to knowledge acquisition also goes a long way.

4. Technology

Technology is an essential component of any modern business, regardless of industry. Take stock of how your enterprise and identify areas that you could improve with a different approach or new investment. Analyze your competitors’ approach to technology and learn from what they do well.

Stay on top of any technological developments that may increase efficiency or cut costs for your business. New technology can necessitate a complete overhaul of how you do business, or it can make one small aspect of your operation more manageable.

There are many varied benefits to different technological approaches but keeping informed about the options available will enable you to capitalize on anything that will give your business an edge over your rivals.

PEST analysis is a quick and efficient way of gaining a sound understanding of the realities and potential of your business. By understanding the political, social, economic and technological context of your enterprise, you can make more informed decisions to facilitate growth and prosperity in your field.