4. Analyze the factors included in the PEST business model 5. The steps to apply the PEST analysis model to the business strategy
Before starting a business plan or want to evaluate the current performance of the business, a manager always needs to have a clear overview of the business environment. Currently, there are many methods used to analyze the business environment, in which the PEST model is the most commonly used method.
Viewing: What is a pest?
What is PEST? What role does the business play? How is the PEST model applied? These are the questions that many interested people have sent to TPos. Therefore, in the following article, we will answer all questions about the concept of PEST as well as how to apply the model in an effective business. Let’s start learning now.
What is PEST model
?PEST model is a model to analyze external macro-environmental factors affecting enterprises.
Economic factors (Economic)
Social factors (Social)
These are four factors that directly affect the economy in general and each business in particular. Businesses must always be objectively affected by these factors. Therefore, they need to research and analyze them to come up with appropriate strategies for the development of the business.
Benefits of the PEST Model
The ever-changing business environment presents great opportunities as well as potentially significant threats to your business.
The PEST business model is a tool to help businesses understand the full picture of the business environment in which they are operating, thereby identifying opportunities and potential threats in it.
PEST analysis helps businesses understand the business environment, map out detailed and appropriate strategies and plans for each specific region, make the most of opportunities and minimize losses. upcoming threats.
During the application process, several elements are added to the PEST model to make the analysis more thorough:
Model PESTEL/PESTLE: adding elements of law (Legal) and environment (Environmental).
SLEPT: adding legal elements (Legal).
STEEPLE: adding ethical elements (Ethics), .
STEEPLED: adding demographic factors (Demographic).
Purpose of business PEST analysis
The PEST analysis tool is used to develop a more proactive and comprehensive business strategy. The main purpose is to direct the view of the business to the external factors that directly affect the business of the enterprise.
These external factors are difficult to control, but once prepared, most of the bad effects of the external market turn into leaps and bounds of the business.
For example: You are prepared for economic fluctuations and your competitors are not prepared for that market volatility leading to business failure and falling behind your business. .
When analyzing PEST, if used correctly, it will create opportunities for you from these factors, capture and manage risks. This helps businesses to be proactive with existing strategies instead of having to make temporary coping decisions that are less likely to succeed.
Analysis of factors included in the PEST . business model
Includes 4 main elements:
Political factors relate to the influence of the Government on the economy. These factors are extremely important in the strategic management of the company. Having a direct influence on many important areas in life such as education, labor, economic background, infrastructure, etc.
Some of the main politically relevant elements in this model include:
Political stability: mainly related to political conflicts, diplomacy of legal institutions. If the institution is stable, it will create favorable conditions for production and business, and vice versa, it will cause problems that are difficult to solve.
Level of Government Intervention: The government controls, encourages, funds or provides industrial services to businesses. Understanding this level of intervention will help businesses operate more smoothly and take advantage of state funding sources to develop more.
Laws such as labor law, tax, investment, environment,… and policies on trade, industry development, consumer protection, etc. create a fair and sustainable business environment. Requiring businesses to understand and comply with the law well will take advantage of the business opportunities that legal provisions bring. At the same time, it reduces the damage caused by lack of legal understanding in the business environment.
Economic factors are one of the leading factors that strongly affect businesses when doing business. These factors are considered both in the long term and in the short term.
Issues to consider consists of:
A high level of economic development creates conditions for businesses to develop and vice versa.
High interest rates can hinder investment because businesses have to borrow capital to pay for many business activities. In addition, high interest rates will make consumers tend to save rather than spend, which will reduce consumption demand.
Inflation: can increase the wage demand of workers, thereby increasing costs for businesses. High inflation will create great risks for investors, while deflation will cause the economy to stagnate.
In addition, there are unemployment policies, the cost of goods and resources, etc.
See also: What is Remote – Meaning of Remote in Vietnamese
Culture – Society (Social)
Social factors analyze demographic and cultural aspects of the market such as health awareness, population growth, age structure, occupation and social security, etc. affects the aggregate demand for a firm’s products and services and the way in which the firm meets the needs of its customers.
For example, an aging population can cause severe shortages of human resources in companies leading to higher labor costs.
Based on social factors, businesses can change their management strategy to be able to adapt to these changes.
The advancement of science and technology has a profound impact on products, services, markets, suppliers, customers, competitors, marketing processes and the position of the business, etc. the way a business provides its products and services to the market (distribution channels).
The development of technology and the Internet will cause businesses to shift to more e-commerce business, marketing online to reach customers due to changing online shopping habits.
Like other factors, businesses should consider the change of technology related to customers to find a way to reach more potential customers.
Steps to apply PEST analysis model to business strategy
You can follow the steps below to analyze potential opportunities as well as threats in your business environment.
Step 1: Consider impact factors
Considering when will local or national elections take place? How might this affect regional policy?
Who is vying for control? What are their views on business policy and other issues affecting your business?
What laws have not been passed or are there any changes in taxes, interest rates, etc. that affect your business?
Government policies on business approach, social responsibility, environmental issues and consumer protection laws?
Are there any political factors that might change?
Is the current economy stable?
Has the exchange rate changed?
Income level, living standard of customers increase or decrease?
What is the unemployment rate? Is it possible to build a workforce or will it be expensive?
Has the economic situation in the country and the world changed drastically?
What is the population growth rate? How does the age of the population change?
What is the level of health, educational status?
What are the employment models and labor market trends?
What socio-cultural changes are affecting your business?
Religion and way of life of the people.
Is there a new technology coming out that could affect your business?
Which competitors have used the new technology in their business and production?
Step 2: Look for opportunities
Once you’ve identified what’s changing, you need to look at each of these changes and see if there are opportunities that could open up for you to develop new products, open up new markets, or help you make your own. more efficient sales processes.
Step 3: Look for potential threats
As circumstances change, you should consider where it could weaken your business. If these are detected early, you can avoid or minimize the unwanted effects.
Example: If the population of the main market is shrinking, can you scale the development in other regions?
Risk analysis can help you assess threats and devise strategies to avoid and manage them easily.
Step 4: Take action
After you have identified the big opportunities, come up with specific actions and strategies that will be taken to make the most of the opportunities in the business.
And once you have correctly identified the risks that will occur, plan the right strategy to manage and eliminate them from your business process.
Example of an effective PEST model
Here, TPos will take an example of Coca Cola’s PEST model, so that you can easily imagine how to apply this model.
Thing This drink is not alcoholic. However, the regulations issued by the Government may cause certain effects on the production process. Companies will have to pay fines to the Government if they do not meet the standards of the law and food safety policies.
Legal and regulatory changes include tax standards and environmental laws in the business area.
Changes in the non-alcoholic beverage business environment may include competitive pressures on products and prices, and the ability to gain market share against competitors.
Economic factor analysis:
Economic fluctuations such as recession will cause Coca Cola products to be sold at low prices. Rising interest rates reduce business activity, causing redundancies and lower costs.
Analysis of social factors:
Many people today are gradually leading a healthier lifestyle. Many people have switched from carbonated soft drinks to bottled mineral water or “diet” coke, which affects the carbonated beverage industry.
Technology factor analysis:
Several technological factors can make the difference between a business plan and Coca Cola’s actual results:
Effectiveness of the marketing program: Thanks to new television technology and the Internet, the use of special effects to advertise through the media makes certain products more attractive and easier to consume. .
With advanced technology, the introduction of many state-of-the-art machines has helped Coca-Cola’s production efficiency increase many times compared to a few years ago.
The importance of analyzing the business environment is indispensable for every business. However, it has not received much attention from some small and medium enterprises. Failure to research PEST in the first place will have long-term business consequences.
See also: What is English reflexes – Reflections in English
What is PEST Analysis? It is an effective solution when your business is having problems and wants to carry out business restructuring as well as get effective strategies against any unexpected situations.