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Guide to the PEST business analysis method

The effectiveness of PEST analysis as an effective management tool in strategic planning and providing direction for future growth of business is the fundamental of the various parts of this presentation.

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The necessity to analyze various change forces to decide the present conditions and future trends through PEST is brought out thoroughly.

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Inside PEST Guide:

PEST Analysis Guide - Table of Contents

Introduction to the method and problem of PEST
PEST and SWOT
PEST and its extensions
Step-by-step guide on how to use PEST for solving business problems
Key success factors of PEST
Examples of real-life usage of PEST
Conclusions
PEST FAQ
Checklist for PEST
Other aspects related to PEST

PEST analysis is en effective tool to measure the external macro-environmental changes due to political, economic, social, and technological factors. PEST analysis is generally combined with SWOT analysis, which focuses on the strengths, weaknesses, opportunities, and threats. When legal, environmental/ecological, ethical, and demographic factors are included in PEST, it is termed variously as SLEPT, PESTEL, STEEPLE, STEEPLED, etc. All the criteria that involve the above change factors are evaluated step-by-step in PEST analysis for maximum results.

When legal, environmental/ecological, ethical, and demographic factors are included in PEST, it is termed variously as SLEPT, PESTEL, STEEPLE, STEEPLED, etc.

The key reasons for success of PEST are its ability to provide exact evaluation of the macro-environmental changes. Sony Corporation, TESCO, and Accor Hotels are some examples of business organizations that had benefited significantly from PEST analysis. In spite of its several merits, PEST has limitations if inadequate data is considered for analysis.

The key reasons for success of PEST are its ability to provide exact evaluation of the macro-environmental changes.

The definition of PEST, procedures of preparing PEST analysis, and advantages and disadvantages of PEST are the most frequently asked questions. Any checklist of PEST should consider all the factors that have a direct bearing on the operations of the organization. Five Forces Model of Porter and Change Management are the other tools considered with PEST and SWOT for maximum benefits to the company.

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The first part of the PEST Guide presents an introduction to PEST analysis and its effectiveness as a management tool to estimate business potential, present status, market direction, and future operational decisions, based on external macro-environmental changes related to political, economic, social, and technological factors. PEST analysis helps the management in strategic planning to adapt to these external changes.

The next part illustrates the importance of SWOT analysis, an evaluation of the strengths, weaknesses, opportunities, and threats that are encountered by the business organizations. Usually, PEST and SWOT analyses are used in combination to achieve greatest advantages to growth of business. PEST analysis concentrates on external change factors, while SWOT focuses on internal factors that impact the business.

The variations of PEST analysis, such as SLEPT, PESTEL, STEEPLE, and STEEPLED are derived by adding the legal, environmental/ecological, demographic, and ethical factors to the basic PEST factors. Even though many organizations consider these additional factors as separate criteria, in majority of PEST analyses, these extra factors are also effectively covered by the basic PEST itself.

The subsequent part considers the step-by-step analysis of using PEST in solving business problems. This type of analysis helps the management in understanding the market influencing forces, in taking right decisions on the market potential, and in devising proper strategies to direct the future operations of the company in the most efficient manner.

The success of PEST analysis is discussed in the next part by elaborating on its ability as a strong management tool to evaluate the external change forces and understand the various facets of the operating environment of the company. PEST helps the management in developing required strategies to seize upon opportunities and to counter threats to business.

The experience of Sony Corporation, TESCO, and Accor Hotels in the global market and their business improvement by proper implementation of strategies developed through PEST analysis are discussed in detail in the following part as real-life examples of the effectiveness of PEST as a powerful business tool in fueling smooth growth and direction to business ventures.

The next part provides conclusions about PEST analysis by bringing out the advantages of PEST to the management in identifying change factors and countering them with suitable strategies. At the same time, the limitations of PEST due to inadequate data and irregular periodicity are also explained to avoid mistakes in implementing PEST.

Frequently asked questions such as, what is PEST analysis? what is the procedure for preparing a proper PEST analysis?, and what are the advantages and disadvantages of PEST analysis are taken up in detail in the following part, with complete explanations and answers for these questions to highlight the importance of PEST to management in strategic planning.

The detailed checklist of various criteria of PEST related to political, economic, social, and technological factors is clarified in the next part. The importance of analyzing each factor separately along with its relational influence on other factors is emphasized to make crucial business decisions and strategic planning for sustained business growth.

The importance of including other analytical tools like the Five Forces Model of Michael Porter and Change Management, along with PEST and SWOT analyses is the subject matter of the concluding part. The assured success of a business that utilizes all these tools effectively is quite clear from the effect of each tool in decision making and strategic planning.

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SWOT and Balanced Scorecard

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Before we go in to the details of the balanced Scorecard method and compare it to the SWOT analysis, let’s take a look at the BSC (Balanced Scorecard) and define what it is, what it does and how it differs from the SWOT analysis.

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BSC is a strategic planning and implementation tool that assists management in the process of achieving organizational goals. It is a method that enables cooperation and synchronization in the business procedures. Typically, balanced Scorecard consists of several fields (usually 4), which lists the subject of interest and the steps that would allow the company to reach highest results in the listed fields.

A simple version of a basic BSC is illustrated below.

Balanced Scorecard

As you can see, there are four fields: financial, internal business procedures, learning and growth and customers. We will discuss each one of them in little more detail in order to give you a better understating of how the method works.

The SWOT analysis is a part of Balanced Scorecard process needed when you define company's strategy goals

Financial; in this section managers list some of the key steps and goals they need to achieve in order to succeed in their ultimate goal. Steps might be lowering fixed costs, low leverage, possible IPO etc. As for the internal business process, it might involve training, better communication, changing organizational structure, etc. For the learning and growth, it might outline the process of training, growth strategies (acquisition, franchising), and target market share. As far as the customers are concerned, management might define the strategy for increasing customer satisfaction, brand development, and advertising.

What is important to understand is that, there is a difference between the SWOT and BSC. While the SWOT analysis is mostly used in the broader planning procedures, such as strategic goals for the organization, BSC is a tool that has often been used in the process of achieving a specific goal. To make it clear, SWOT is used to define the goal, and the BSC is used to design a plan to achieve that goal.

BSC is not strictly limited to this particular purpose and can be successfully used in a broader planning; but we have found that the method is most appropriate and useful when planning for a particular strategy and steps for implementing it.

While the design presented above is not a standard one, most frequently we encounter 4 field designs. An alternative design is presented below.

SWOT and BSC have been in use for several decades and have proved to be effective and efficient methods in business planning.

The two methods have frequently been viewed as competitors, but the consensus has been emerging in the academic as well as the professional community that the two are more complementary to each other than they are rivals.

Both methods are relatively cheap to design and implement, and provide a valuable insight in to the key aspect that will determine the organization’s success.

In conclusion it has to be mentioned that, BSC and SWOT are two methods that help define goals, steps, and an overall organizational strategy; they both have been used successfully for several decades. Even in the modern age of technology and alternative methods, these two simple graphic charts have been very popular among the top executives.

The full version of SWOT Guide includes:

21 PowerPoint templates for SWOT presentation
28 pages SWOT Analysis Guide that includes
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SWOT analysis: introduction and use of the method in the business environment

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If you are even remotely familiar with a business world, you have certainly heard about the competitive environment, strategic planning and business analysis.

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There are several different methods currently used in the business world and one of the most popular strategic evaluation tools is the SWOT analysis. SWOT stands for strengths, weaknesses, opportunities, and threats.

SWOT can be further classified in to internal and external factors. Strength and weaknesses belong to the internal factors, and the opportunities and strength are classified as external factors.

Why use SWOT analysis you might ask? Well, it is a very useful and highly effective tool when planning for the strategic goals, when trying to analyze the environment the company operates in, and it is a good visual illustration of the challenges company faces. What is unique about SWOT is that it enables managers and executives to lists the key advantages and disadvantages of the company and matches them with the external factors that will influence the company’s performance in the short and the long run.

SWOT stands for strengths, weaknesses, opportunities, and threats.

To give you a better understanding of the method, let’s look at some of the examples of strength, weaknesses, opportunities and strength.

Strength

Rights to intellectual property; patents.
Strong brand.
High customer satisfaction.
Cost effective methods in operations.
Availability of cheap resources.
Advantage of a highly efficient and effective distribution networks.

Weaknesses

No patents.
Weak or no brand developed.
Low customers satisfaction.
High cost structure.
Expensive natural resources.
Poor distribution networks.

As you have probably noticed, strength and weaknesses are exactly the opposites of each other. It is true in a lot of real cases when the strength for one company is a weakness for another. If one has an access to cheap energy and other company doesn’t, the former has the strength over the latter.

SWOT Analysis. As you have probably noticed, strength and weaknesses are exactly the opposites of each other. It is true in a lot of real cases when the strength for one company is a weakness for another.

Opportunities

Underutilized customer market; there is a room to grow and generate revenue.
Modern technologies.
Relaxed regulations.
Globalization. Since there are fewer barriers, companies may expand.

Threats

Changing consumer needs and wants.
Substitute products and new entrants.
Regulations.
Trade barriers.

As you can see, the method can be universally used for almost any condition and environment. It is a tool that can be used in a broader sense and can be as specific as the problem requires it to be.

A simple SWOT analysis graphic is shown below for illustrative purposes.

Stakeholders of the SWOT analysis are several. They are: management, employees, suppliers and distributors, and customers. Let’s not forget that the ultimate goal is to deliver the highest customer satisfaction possible in order to generate revenue and maximize profits. SWOT provides adequate procedures and guidelines for the management to practice. It states clearly the tactics and communication patterns management has to implement in order to achieve the strategic goals. Employees are directed and trained to increase productivity and reduce errors. Suppliers and distributors are considered in order to design highly effective and efficient supply chains and distribution networks; and finally the customer satisfaction and loyalty is one of the most important aspects that SWOT helps to evaluate and plan for.

Who uses the method? SWOT is used by the managers and top executives in the evaluation, planning, and implementation process.

In the evaluation process, top executives review the available resources, measure the revenues and the target cost structures, and once ready, set out a strategic plan that stipulates the direction that company is going to take. In this process, they evaluate all four characteristics and plan for an appropriate course of action.

For the planning process, upper and mid level management reviews the graph, and gets familiar with the key objectives as well as the resources available to them in order to achieve the strategic goals. In the implementation process, thanks to the clear definitions of what is going to affect the company’s performance, employees have the advantage of knowing what to expect and what is going to challenge them. SWOT helps them anticipate the future hurdles and plan appropriately in order to overcome the barriers.

As you can see, SWOT is an illustrative method of business planning and evaluation. It enables the management to clearly identify the advantages and disadvantages they are faced with, and design the realistic goals in order to achieve overall organizational success. Advantage of the method is that it is versatile, it creates clear visual picture of the situation and can be modified and adjusted fairly easily. One of the biggest advantages of the method is that it is very inexpensive and provides highest results per dollar invested in to the analysis.

Cost efficiency and performance effectiveness is one of the reasons why the method has been popular among the business executives sine the 1960s.

The full version of SWOT Guide includes:

21 PowerPoint templates for SWOT presentation
28 pages SWOT Analysis Guide that includes
Learn more about Business Analysis Method Toolkit full version

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SWOT Analsys Free Guide

SWOT Analysis Free Guide

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Bonus Mini-Training: Strategic Goals and BSC

There are several different methods currently used in the business world and one of the most popular strategic evaluation tools is the SWOT analysis.

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SWOT stands for strengths, weaknesses, opportunities, and threats.

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Inside: 3 PowerPoint Templates; 6 pages Guide on SWOT; 5 page PEST Guide.
Check also the full version of the guide.

SWOT can be further classified in to internal and external factors. Strength and weaknesses belong to the internal factors, and the opportunities and strength are classified as external factors.

Learn more about SWOT:

The full version of SWOT Guide includes:

21 PowerPoint templates for SWOT presentation
28 pages SWOT Analysis Guide that includes
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SWOT Analysis Guide

The SWOT Analysis Guide will introduce you to SWOT and PEST – widely used strategic planning methods. It enable business executives and strategists to evaluate options, plan for the strategic goals and implement the changes necessary to achieve those goals.

Inside:

29 page SWOT guide (Adobe PDF file)
32 page PEST Analysis Guide (Adobe PDF file)
21 PowerPoint templates (.pptx file; check examples below) for SWOT analysis presentation

We will discuss the advantages and disadvantages of competitive methods and will evaluate each one against the other. This will give you some insight to what methods work better in particular situation, and what is the course of action one would take to maximize the advantages each method has to offer.

Full version includes:

The full version of SWOT Analysis Guide that includes:

21 PowerPoint templates for SWOT presentation
28 pages SWOT Analysis Guide that includes
32 page PEST Analysis Guide (Adobe PDF file)

Furthermore, we will discuss several business cases where SWOT has been used and will provide you with a detailed information how it have been helpful in the decision making process.

Finally, we will provide you with a detailed checklist and FAQ sections. By reviewing the information, professionals looking for the material on business analysis methods can get educated on the key aspects of SWOT.

What is inside?

21 PowerPoint templates for SWOT presentation:

SWOT Analysis Guide includes 21 PowerPoint templates for SWOT presentation

28 page SWOT Analysis Guide:

“SWOT Analysis” part addresses the definition of the SWOT analysis, and talks about the problems and situations that the method can be useful for. It is a short, but all inclusive summary of the method and its uses. It provides reader with focused information on the advantages and disadvantages of the method, informs on the key stakeholders of the SWOT analysis, and provides information on who uses the method the most.
“SWOT and balanced Scorecard” is a summary part that discusses the balanced scorecard as a tool for the business professionals, and provides a view of how SWOT and balanced scorecard can work together in order to achieve the strategic goals. It concentrates on the role SWOT plays in the balanced scorecard. It answers a question of how SWOT can assist in designing the BSC (balanced scorecard) and what are some of the measures and evaluations necessary in order to achieve the best results. It compares the scope and coverage of each method and presents them as a complementary to one another.
Part “Alternative Methods to SWOT analysis” discusses some of the alternatives available today when it comes to the strategic planning tools and methods. It is a summary part that goes in to certain detail about three alternative methods: PEST, Porters Five Forces for Competitive Position, and SCORE. These are all methods that have been very popular through years and have earned positive evaluations from many prominent business professionals. As with all other methods, they have advantages and disadvantages that we will try to present as fairly as possible. Furthermore, we will discuss them in contrast with SWOT and try to give you an objective point of view on which is the best solution and in what case do they provide the best results.
Part “Steps in Solving Problems Using Porter’s Five Forces” touches on one of the alternative methods to SWOT, and provides a step by step guide to what it means to solve the problem using Porter’s Five Forces. It is an all-inclusive and detailed part on the method, its applications and the advantages and disadvantages it offers in the decision making process. It goes in detail on every force described by the author and provides some examples and scenarios where the method might be useful.
Part “Solving Problems Using the SWOT Analysis” talks about the method and its pattern of implementation in the business world. It provides 5 alternative scenarios where the method has been successfully used and has delivered the desired results. It is a sort of practical illustration of a theoretical concept. In this part we will try to show you how the real companies have used the method and what are the steps, factors and details that one needs to pay attention to when using SWOT. After reading this part, reader will have an idea about the method, the theory behind it, and how it can be helpful for the strategic planning purposes.
Part “SWOT Analysis Conclusions” discusses and summarizes some of the key points made in the previous parts about the method. It offers more analytical rather than discussion tone, and provides readers with some prospective on the method, its advantages and disadvantages, and the opportunities other methods might offer. It mostly discusses the best scenarios when the SWOT delivers the highest results.
Part “SWOT FAQ” talks about the method and the questions that some might have when first encountering it. Questions like, why use SWOT? Who are the key stakeholders, and what are the cases when the method is most effective? Also, one might be interested in who is the main user of the method is. All of these questions and more are addressed in the part.
Part “SWOT Checklist” discusses some of the key aspects that one would need to use, in order to analyze the situation using the method. It give a user an idea about the factors that affect the method, about the key measures that need to be addressed and it touches on the results and their interpretation by the business professionals. It also addresses the topic of the key findings and most probable outcomes. In other words, it is a complete overview of the method and the factors that affect its results.