PEST analysis explanation
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PEST (Political, Economical Social and Technological environment) Analysis
The external environment of any organisation / university / faculty / department etc. can be analyzed by conducting a PEST analysis. The acronym PEST (sometimes rearranged as STEP) is used to describe a framework for the analysis a range of macro environmental factors including the Political, Economical Social and Technological environment. A PEST analysis fits into an overall environmental scan including the SWOT analysis and McKinseys 7S Model, which is briefly discussed below and also referred to in the document Preparing a SWOT Analysis. For a unit (referring to any area under review be it an academic department, a research unit, an administrative unit or a support service unit), a PEST analysis should relate to:
1. The external environment outside of the unit but within UCC, and
2. The external environment outside of UCC, given the national and international profile of the office
The PEST analysis provides the following simple framework:
Political factors can have a direct impact on the way business operates. Decisions made by government affect the operations of units within the university to a varying degree. Political refers to the big and small p political forces and influences that may affect the performance of, or the options open to the unit concerned. The political arena has a huge influence upon the regulation of public and private sector businesses, and the spending power of consumers and other businesses, both within UCC and outside of UCC. Political factors include government regulations and legal issues and define both formal and informal rules under which UCC and units must operate. Depending on its role and function within the university a unit may need to consider issues such as:
How stable is the internal/external political environment?
Will government policy influence laws that regulate third level education?
What is the government\'s policy on the education?
Is the government involved in trading agreements such as the Bologna Agreement?
The impact of employment laws
The impact of environmental regulations
Trade restrictions and tariffs
Political stability (internally and externally
All businesses are affected by economical factors nationally and globally. Whether an economy is in a boom, recession or recovery will also affect consumer confidence and behaviour. The dramatic impact of reduced funds upon UCC is already very apparent. This will impact upon the nature of the competition faced by the university and particular units within the university, upon service provision, and upon the financial resources available within UCC. Economic factors affect the purchasing power of potential customers, and the state of the internal/external economy in the short and long-term. The unit may need to consider:
The level of inflation
Employment level per capita
Long-term prospects for the economy and the impact upon funding of third Level Education etc
Social factors will include the demographic changes, trends in the way people live, work and think and cultural aspects of the macro environment. These factors affect customer needs and the size of potential markets (inside and outside of UCC).
Population growth rate
Internal/external emphasis on safety
Internal/external attitudes to change
What is the stakeholder expectation of the unit?
What is the perceived impact of the unit upon UCC and external stakeholders?
How are views expressed?
How does the unit respond to such views?
New approaches to doing new and old things, and tackling new and old problems do not necessarily involve technical factors, however, technological factors are vital for competitive advantage, and are a major driver of change and efficiency. Technological; factors can for example lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. New technology is changing the way business operates. The Internet is having a profound impact on the strategy of organisations. . Academics and administrative staff can now access UCC 24 hours a day comfortably from their homes. Expectations in relation to response times, for example, have altered dramatically. This technological revolution means a faster exchange of information beneficial for businesses as they can react quickly to changes within their operating environment. Those businesses, which are slow to react, will fall at the first few hurdles. What are the implications for the unit? Do we exploit the available technology to the advantage of the unit and UCC?
Rate of technological change
Perception of technological change within the unit
Does technology allow for the services provided by the unit to be created cheaply and to a better standard of quality?
Do the technologies offer users / stakeholders more innovative services from the unit?
How is information / decision-making distribution changed by new technologies?
Does technology offer the unit a new way to communicate within UCC and with external users / stakeholders?
Does technology offer the unit an opportunity for CRM (Customer Relationship Management) etc?
It is also needed to take into consideration Micro Environmental Factors, those internal factors close to the unit that have a direct impact on the unit and UCC strategic planning. These will include:
Customers: Organisations survive on the basis of meeting the needs, wants and providing benefits for their customers. Failure to do so will result in a failed business strategy.
Employees: Employing the correct staff and keeping these staff motivated is an essential part of the strategic planning process of an organisation. Training and development plays an essential role particular in service sector marketing in-order to gain a competitive edge. This is clearly apparent in the airline industry.
Suppliers: Increase in raw material prices will have a knock on affect on the marketing mix strategy of an organisation. Prices may be forced up as a result. Closer supplier relationships is one way of ensuring competitive and quality products for an organisation.
Shareholders: Shareholder expectation and perception.
Media: Positive or adverse media attention on an organisations product or service can in some cases make or break an organisation. Hence the need for a unit website etc.
Competitors: Are there any internal competitors offering some of the services, information etc. provided by the unit?
The starting point would be to brainstorm an appropriate PEST checklist. The PEST checklist can be used to analyze which factors in the environment are helpful to the unit, and which may impede progress of the unit in achieving its aims. There is of course a danger, common to all checklists, that once an entry has been made under each of the headings it is deemed complete, regardless of whether or not the list reflects the complexity of the reality. Another common error in the implementation is that boxes are completed without reference to the aims of the organisation or to the change programme; this can lead to considerable expenditure of time and energy for little benefit.
© Copyright for this article belongs to University College Cork.
This document was re-printed with the kind permission of Aoife Ni Neill. Original Source of the article is located here: http://www.ucc.ie/quality/INTERNET/PESTAnalysis.pdf
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