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PESTER Analysis

This is part of the P3M2 module from the Pillar 3 Your Strategic Market Positioning.

Review Your External Environment For Strategic Changes With PESTER Analysis

What Does PESTER Stand For?

  • P = Political
  • E = Economic
  • S = Social & Cultural
  • T = Technological
  • E = Ecological
  • R = Regulations

It is also known as PEST, PESTLE, STEP, STEEP and probably a few other acronyms. The best known is probably PEST but I find the extra ER useful to make sure there is a more comprehensive review.

How To Use PESTER Analysis

To help prepare for thinking about the future, I find it helpful to review the past. It’s often said that change is speeding up, so to think ahead three years, I recommend you look back five years.

What you’re looking for are:

  1. Trends that are established and will continue, further growing in importance.
  2. Established trends that will slow down or even go into reverse.
  3. Discontinuous change, this is something that is a one off important event, that has happened in the past or has a reasonable probability of happening in the near future.

As you work through the different categories you are interested in asking these questions:

  1. How does this change affect my business and my ability to compete?
  2. How does it affect my customers (and potentially their customers), and will it drive a change in the volume and nature of demand.
  3. How does it affect my competitors and their ability to supply. If they are very local to you, there may not be much difference from the impact on your business but if your competitors are international, there can be a huge shift in competitiveness because of exchange rate movements.

Look for the elephant in the room. The big assumption or risk that no one is mentioning but people think could happen.

The Closure Of The Rover Plant In Birmingham

I live in Birmingham in the UK and the collapse of the Rover Group (the car plant formerly known as Austin Rover and British Leyland) had a big impact on the businesses based around the main site at Longbridge.

It was estimated 8,000 people lost their jobs directly, 11,000 from the car components supply chain and 6,000 from local businesses (shops, takeaway food etc) who relied on the prosperity of the area. That’s not as bad as it would have been if the plant had been closed at its prime but it still shows the ripple effect.

The decline of the British mass production car market had been going on for many years and anyone who ignored the possibility of the Longbridge plant closing was being very short-sighted.

The Main Factors In Each PESTER Category

I’ve listed the main factors under each of the PESTER factors to give you ideas. One factor may have a profound effect – good or bad – while others may make little impact.

Political Factors

  • Current and potential political pressures and priorities
  • Local, national, international
  • Spending priorities
  • Tax policies
  • Political stability & instability
  • Intervention (interference)

Economic Factors

  • Economic growth rates – national/local, industry, niche (accelerators & the Beer Game) – and the change from boom to bust or vice versa.
  • Interest rates
  • Exchange rates
  • Inflation
  • Commodity prices
  • Unemployment

Social & Cultural Factors

  • Demographics – baby boomer retirement time bomb, peak spending happens in the late forties for consumers.
  • Cultural changes & expectations – education, holidays, TV, Internet
  • Attitudes – health, debt, community, family, gender roles, leisure, cult of celebrity, lifestyles,
  • Mobility – labour mobility between jobs and geography, social between “classes”
  • Fashions and fads (so important today & gone tomorrow) vs permanent changes

Technology Factors

  • Internet & digital technologies and connectivity.
  • Information technology
  • Automation & robotics
  • Material sciences
  • Research & development
  • Technology transfer & obsolescence
  • Impact on the life-cycles for the product, the process and the underlying need or want.

Ecology Factors

  • Natural world – endangered species & habitats
  • Climate change
  • Energy
  • Desire to protect – act responsibly

Regulation Factors

  • Employment law, health & safety
  • Product & consumer protection
  • Competition laws
  • Recycling
  • Intellectual property
  • International trade regulations – very applicable with the uncertainty over Brexit.

Factors To Consider In Using PESTER Analysis

  • Brainstorm
  • Then group – don’t be too concerned with categories as some may impact several
  • Incremental or disruptive (probability & impact)
  • Trends – directions and rates
  • Analyse and evaluate
  • Can be useful to look back to look forward
  • Back 10, forward 5
  • Back 5, forward 3

Keep It Simple And Focused

If you try to use PESTER on a situation which is too general, you won’t get much out of it.

I had a client with a new product with environmental and cost saving benefits that could be sold to hotels and restaurants, large corporates, domestic homes, commercial office providers and many more. Because the markets are so varied, it made sense to break it down and use PESTER to identify what’s changing in the customers world by broad category.

In another example, I used to work for a business that sold a wide range of electrical products for the building industry, made in very different ways. Because everything was linked to construction, PESTER worked very well when it was focused at the top level.

If you are in doubt, pick the main area of your business and apply PESTER to that and identify all the changes.

Then move onto your second biggest area of your business and applying that filter, ask yourself whether everything you’ve written still fits and whether anything is missing. Keep doing it until you’ve covered 80% or more of your business or you’re satisfied that you’ve picked up all the issues.

If you find there is a high crossover, you can use one PESTER Analysis. If there is significant difference in the factors or if one important factor is good for one product category but bad for others, you need to either split it or make clear notes.

Return to P3M2

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