Behind every successful accomplishment of a company, there is a dedicated team and effective strategic planning. While achieving its goals helps the company grow within the industry it belongs to, without a sound strategy and a clever team to execute it, a company will not go too far.

When a company wants to achieve a goal, it should come up with an effective strategy to accomplish it. The strategy should set priorities, allocate resources, decide on a time period, come up with controlling mechanisms, assign employees and should include guidelines as to how each and every one of these aspects should be dealt with to achieve the specific goal in the best way possible.

Your company may have a dedicated and skilled team, but how will you make sure whether the strategies they come up with are effective or not? The answer is quite simple; conduct a PEST analysis.

What is a PEST analysis?

A PEST analysis is a widely used strategic planning tool. It is used by many to identify the political, economic, social and technological factors that may have an effect on a project and its planning process.Sometimes it’s expanded to include legal and environmental factors and called a PESTLE analysis.

With this analysis, you can identify potential opportunities and threats associated with your strategy and figure out ways to take advantage of them and avoid them.

  • Political factors include tax policies, employment laws, tariff & trade restrictions, consumer protection laws, environmental regulations, political stability of a country etc.
  • Economic factors include economic growth indicators, inflation rate, interest rates, exchange rates, fiscal policies, unemployment trends etc.
  • Social factors include cultural aspects, age distribution, career attitudes, health consciousness, population growth rate, social classes etc.
  • Technological factors include rate of technological change, technology incentives, spending on research & development, basic infrastructure level etc.
  • Legal factors include tax laws, labor laws or any other laws that concern your business that aren’t considered in political factors.
  • Environmental factors include data about different seasons, sunshine, snowing, rainfall etc. which can be critical for a business.

Analyzing these factors will help you and your team gain a comprehensive understanding of the external (macro environmental) factors that may positively or negatively affect your company’s strategic planning process. With access to such knowledge, you can quickly come up with strategies that would put the company on the fast track to achieving its goals.

What are the benefits of using a PEST analysis for strategic planning?

Visualize all the factors in one place for better decision-making

When it comes to decision making or strategy building, having all the information you want together in one place is as important as having your team together.

A PEST analysis, which is a grid with four sections representing each of the above-mentioned factors, brings together and juxtaposes all the important facts necessary to make decisions and build fail-proof strategies. Therefore, conducting a PEST analysis prior to your strategic planning session is rather important, because it will not only help you be cautious with your decision making, but it will also keep you and your team on the right track.

Identify opportunities and threats

Gathering information is only the first step of a PEST analysis; once you gather information, your next move should be to evaluate them. By assessing them, you and your team will be able to identify the opportunities and threats caused by the external factors. Thus, you can focus on the most important opportunities and take advantage of them while coming up with ways to counteract the threats.

Typically a PEST analysis is used to gather the inputs to be included opportunities and threats section of a SWOT analysis, which in turn is used to make strategic planning decisions.

PEST analysis gives inputs to SWOT analysis diagram

PESTLE analysis provides input for the SWOT analysis diagrams ( Credit: Creately )

Ability to gather information from experts and compare them with other factors

A PEST analysis is not about listing down political, economic, social and technological factors that you simply know of, have heard of or make assumptions of. You need to seek information from experts who are aware of current conditions with regard to each area.

Such information would be immensely valuable in building effective strategies. After you independently gather information for the relevant factors the PEST diagram will be useful in comparing them with other factors. This makes is easier to come up with solutions for threats and ways to make the best of the opportunities available in order to help your company achieve its goals.

A PEST analysis is a crucial part of any strategic planning process. Without a general idea about the external factors that would affect your company or its strategies, you will never be able to reach your targets or accomplish your goals. On the other hand, the comprehensive insight you could gain from a PEST analysis will ensure that the strategies you come up with will be successful!