Sometimes executives and entrepreneurs in Scotland can be a little insular, focussed on internal issues within the company, putting out fires or desperately trying to meet their KPI’s. All these things are important of course, but sometimes the solutions are not within the company but out with.
When deciding on a new course of action, whether that is developing a new product, hiring staff or perhaps relocating to Edinburgh there are several factors that could be critical to the success of that course of action. While many of us can sense what is going on within our companies easily there are many external macroeconomic factors that can have bigger effects on a company’s success and these can be assessed and analysed using PEST.
So, first things first; what does PEST stand for?
Assessing all these factors will help you work out how the will affect your business performance across a given time period. It can be used in conjunction with other analysis tools such as SWOT and Five Forces to give an even more detailed picture of the likelihood of success for a given course of action.
But why are the various factors important to your business?
Political factors relate to government legislation and new laws that could affect your business. For instance, if you run a haulage company, a hike in fuel duty is going to have a profound effect on your bottom line. Or perhaps you run a construction company and the HSE issue new guidelines on working at height that affects dozens of your building sites. The bigger the business the greater the effect a relatively small change in legislation can have, but for small companies with very low margins small changes can be devastating and failing to assess these factors can be terminal for your business.
Economic factors are more general effects on a business due to the countries economic outlook, and that includes GDP, tax, employment growth, consumer sentiment, inflation and so on. As an example, if the Bank of England or the Fed put up interest rates, consumer confidence tends to drop as members of the public tighten their belts, so perhaps that is not the time to open a new chain of restaurants. Conversely, it may be a very good time to look to acquire a struggling business at less than market value price
Social factors are specifically related to socio-economic elements in the sector your business trades in, eg is your core customer demographic ageing or changing in any way, are there cultural changes afoot or education and recruitment issues. For instance, if your company is a Hotelier, a large sporting event will have an effect on your turnover but if your core demographic customers are not sports fans but art lovers, they may well stay away from the city hotels which would prompt you to consider changes to your standard advertising strategies.
Technology factors don’t just affect technology companies producing products, so it is important not to overlook this even if you are a traditional business. As an example, a specialist stone masonry company may not consider themselves a technology company but with the advent of drones it may be a lucrative business move to provide historic building assessment “reaching places other stone masons cannot”. Equally a handset manufacturer may release a new phone weeks before an updated chip is launched by a supplier leading to a waste of R&D budget and a loss of sales.
So, whenever you are considering a change of direction for your Edinburgh business, or indeed you are assessing the viability of an existing strategy, PEST analysis is critical to the success of your chosen approach.
Without it, you might as well through a dart at a white board wearing a blindfold to decide upon next quarter’s sales strategies