All types of business analysis seem attractive and extremely efficient. However, one need to remember that real-life usage differs from all those plans, graphs, tables and other documents characteristic of business evaluation methods. In theory it looks simple, while in real life there can be certain problems with application of analysis results. PEST analysis is not an exception here. In theory analysis of all those 4 factors (political, economic, social and technological) works while problems may begin when top managers receive the very first results. In this article we will talk about application of PEST evaluation results in real life. However, to begin with, we need to define all 4 components of PEST analysis in order to evaluate their usage in real business environment.
Analysis of political environment has received a huge portion of criticism. Some business owners think that this is waste of time and money, claiming that politics stands out, thus having no ties with the economy. By the way, this is what most politicians would say. However, there is every reason not to believe them. Politics always influences economic situation and business environment. In real life, results of political analysis have to be applied in a cautious ways. Politics is a changeable field in which situation can change every minute. However, having correctly forecast political changes, business owners can enjoy substantial benefits. It is always important to design several scenarios and possible business reaction to various changes. In such a way the company will be ready to face any challenges since it has anticipated most of them.
Analysis of economic environment is a must for every company. First of all, every business is operating in a certain national or international economy that has own rules, norms and regulations. Every slightest change in the national economy may negatively (or just to the contrary, positively) influence business development. For example, rising economies offer great loan opportunities for businesses that can invest much money into own development. If economic analysts forecast worsening of economic situation, the company should work out new methods of business management. Very often, results of economic analysis are wrongly applied in real life. Thus, high inflation rate is not always a negative trend, and top managers should think of the ways to take advantage of such changes. The same concerns purchasing power of customers. If it goes down, then maybe it is reasonable to release cheaper products or services with fewer features.
Social trends are now playing an important role in business development. Business goes social – this is a hot trend these days. Business is a social phenomenon that cannot stand apart of the society and its needs. Thus, social trends require due attention and analysis. For example, if people love spending time in social networks, then it may be reasonable to install social network features in cell phones and other communication devices.
To properly analyze technological factors, top management of the company should locate new technologies that are being used or developed in a particular industry. After that, the company must evaluate use of latest technologies and their impact on profitability.