PEST is perhaps one of the most widely used business tools yet incorrectly applied by many students. This tool simplify the analysis of marketing or business environment for us but do we know how to carryout an environment analysis using this tool? The common problem among students is that they simply list down irrelevant factors and end their analysis. Which if you look closely is not an analysis at all. It is simply a list. And to make things worst the factors listed under each environment is sometimes not significant or, is not clear enough as to why that matter to the business. So let’s see how to avoid making list instead of a proper analysis of environment using PEST framework.
- 1. Do you research – Yes, research is obviously important to carryout an effective PEST analysis. Without knowing what is happening in each of the environments there is not going be a PEST analysis. You can look for specific business publications from government, industries, and even universities or news papers. Usually a business student must keep in touch with the business environment and know how to connect the dots. For example, recently the Australian Government introduced a Law on Internet News sharing websites to pay royalty fees to those media companies where they take those news to share. The fee is to be decided by the media companies. This has been openly and aggressively fought back by Google which is going to be affected by this negatively as they collect and share news from other media companies which generate these News without paying for the content putting those media companies at a disadvantage.
- 2. identify the specific issues that are in each environment. For example without simply saying “Government Tax” under the Political Environment you must find out what is the prevailing tax rates for business organisations, and if this is high or low compared to previous years, similar countries in your neighbourhood.
- 3. Once you got the points ready you can write them under each environment with an explanation of how these points impact on the business organisation. This is the significant part. This is the part where you show that you know how to connect the dots or have that business acumen. For example if the tax rates have increased over the years or higher than the neighbouring countries the business are forced to pay out a significant potion of their profit to government. If this payout does not result in a good return (like infrastructure development so businesses can do business efficiently) then the investors will recognise the high tax as an unnecessary expense and withdraw their future investments from the business sector. Specially foreign investors are unlikely to come down and invest in the country. There are ripple effects of such investor behaviour on employment, technology transfers and even on consumers.
- 4. Keep on reading insightful articles related to business environment to develop the competency in seeing the connection between things happening in the environment and their effects on the businesses.