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How do outside factors affect your business? This is the one question every business owner needs to answer. Otherwise, they may face unexpected consequences.
We tend to get wrapped up in internal affairs such as operations and invoicing because we have direct responsibility and influence over them.
Outside factors can’t be as easily influenced. They exist because of people, nature, and laws — some of which were established decades ago. If we don’t adhere to what people (in this case, our customers) have to say, or abide by legislative rules, the success of the business is at risk.
There’s no room for surprise in business. That’s why we use PEST analysis to identify critical factors that directly affect significant departments in your company, from manufacturing to marketing.
What is PEST analysis?
PEST analysis is a method of strategic planning that outlines four essential external influences affecting all business types. These forces are:
- Social (or socio-cultural)
Each of these factors significantly affects market growth, business decision-making, and potential expansions. It’s not recommended to skip any of the above factors.
The point of PEST analysis is to identify specific factors and devise a plan of action. Your response determines how much you’ll be affected, especially regarding market changes or economic downfalls. If you’re unaware of how these factors influence your business, you might end up stuck.
And “stuck” is never a well-liked word in business.
As for doing your own PEST analysis, we understand it’s not an easy task. There are many political factors to consider, for example. From laws and regulations to the impact of specific political parties in your state. Feeling overwhelmed can cause paralysis and lead to an ineffective analysis.
That’s why we’ve identified over ten critical questions you can answer at each stage of the analysis.
Getting started with your PEST analysis
A PEST analysis helps you identify vital external influences that contribute to the success or downfall of your company. But first, you must decide the reasoning. For example, are you trying to see how overseas political factors affect your business or just stateside policies?
This is the time to decide the specific reason for your PEST analysis. Then you go into the questions.
When considering political factors, be sure to think about policies, environmental issues, and laws or regulations. Specifically, consider:
- What trading policies impact business?
- What regulations must you follow, and have they changed in the last 5, 10, 20 years?
- What environmental issues, if any, should be addressed (i.e eco-friendly resources/products, natural disasters, etc)
For economic factors, consider the impact of globalization, taxes, and the current state of the economically. Specifically, answer:
- How much does globalization affect your market share?
- What taxes must you follow, and how does it affect your service offerings (if at all)?
- Is the economy stable, unstable, or growing for your industry?
Social factors are determined by the people. You’ll be considering how your customers, target market, and buying habits affect profits and purchases. Ask these questions:
- Who is your target market?
- How are consumer opinions changing regarding your product or service?
- Is the population demographic growing or slowing down and if so, how is it affecting your business?
- Have you documented changes in how and when your customers purchase your products?
Technological questions focus on technology related to your business, such as the tech you use daily, and how advancements provide a competitive edge. Ask the following questions:
- What technology is critical for your day-to-day operations?
- What new technology is available that could streamline decision-making and product development?
- Do you depend on 3rd parties for any tech support or solutions?
- Are you using technology to stay ahead of the competition and if so, how?
By asking these questions, you can conduct a detailed PEST analysis for your company. Be sure to answer each question, but don’t forget to create your own. That’s how you can tailor the report to your specific needs and issues.