All types of business analysis have a specific purpose. Indeed, there is no point in performing analysis if no decisions are made and no changes are introduced. Analysis should be performed for the sake of improvements but not for the sake of analysis itself. It is also very important to analyze both internal and external environment of a company. Business performance pretty much depends on internal environment, i.e. something that is inside the company and thus can be changed if necessary. However, there is also external environment which does not depend on something that happens inside the company. Stir no environment can be merciless or favorable. Everything depends on company position and conditions in this environment. To evaluate strengths and weaknesses of a company in certain external environment aspects, PEST analysis is performed. It needs saying that PEST analysis is very popular in different industries, although PEST techniques and methods can vary from business to business. The final goal is to obtain information and use it in strategic planning and decision-making, otherwise there is no point in PEST. Read this article to learn more on PEST components and PEST conclusions.
Some business owners doubt efficiency of PEST analysis as they believe that political analysis can not offer valuable information. Well, this is a common myth. Political decisions are said to influence economic situation and economic developments in the country. Moreover, companies operating in the international markets must take into account global political developments. What conclusions can be made based on political analysis? For example, tension and conflicts between certain countries can cause panic in certain markets. If your company is operating in these markets it is better to get ready for negative changes beforehand. Political instability can cause problems that are not easy to solve. Thus it is better to forecast and model possible developments in advance and get ready to face challenges.
Economic analysis is truly priceless. It is almost impossible to succeed in the market if national economy is sinking. Having forecast economic problems in advance, the company has time to get ready to face hard times. Most leading companies analyze economic indicators that evaluate health of national and international economies such as: inflation rate, unemployment rate, gross domestic product others. Information obtained through economic analysis needs to be directly used in strategic planning as a foundation for any business development.
As to social aspects, business is a part of society. Thus, it should follow all social developments and trends. If a business lags behind in terms of social development it will be inevitably wiped out by competitors who come closer to people. The recent rise of social media and the Internet makes it possible to directly address people ask them what they want. This is a great advantage for any business to become socially oriented.
Technological factors need no explanation at all. Even a child understands that proper business development requires use of the latest technologies. That’s why most successful companies invest almost half of revenues into research and development.