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PEST analysis for better business practices

Business owners and managers face enough challenges these days – perhaps altering your way of working will pay dividends

In these trying times for businesses, managers need to explore every possible avenue in their search for advantages in the marketplace.

It’s an ever-changing world and business owners need to be acutely aware of external factors that will impact, positively and negatively, their prospects. Only then will managers be able to react accordingly, aiming to make the end result a positive one.

PEST IS BEST: Getting a grip on the external factors covered by PEST analysis greatly improves your chances of success

One tried-and-trusted tool used by business owners looks at the external factors that they cannot control but that will affect them going forward. These can be vital in planning your decisions, such as marketing strategies, and focus on four factors – political, economic, social and technological.

PEST, for short. 

Uncertainty leads, not unnaturally, to caution. And that makes business owners reluctant when it comes to, say, new investment or product development. But keeping abreast of ever-changing environments by using the PEST technique can make all the difference to your business.

There are variations on the PEST analysis. Some also cover the environmental aspect and the influence of their competitors, expanding the system to PESTEC, and one version disregards the competition and includes legal and ethical factors to make the STEEPLE system, but let’s focus on PEST and its four elements.

  • POLITICAL ENVIRONMENT – This covers the rules and regulations imposed on sectors and industries in the corridors of power, and prevailing factors such as tax laws, VAT and business rates.
  • ECONOMIC ENVIRONMENT – This is affected by interest rates, growth and inflation, and helps to assess your potential for development and expansion.
  • SOCIAL FACTORS – It’s important to look at who your business, service or product is aimed at. Knowing your target market and your demographic is crucial.
  • TECHNOLOGY – The fastest-moving factor in PEST, technology advances at a rapid pace and your customer base will be keen to keep up.

Each factor can have an effect, good and bad, on your firm’s chances of success.

And each factor’s implications can be further categorised by its duration (short, mid or long-term), change type (positive, negative or unknown), rate of impact (increased, decreased, constant or unknown) and importance (critical, important, unimportant or unknown).

Business leaders love certainty and absolutes. It makes forward planning much simpler. While this isn’t always feasible, there will be major changes to the political, economic, social or technological landscape occurring that are beyond your control, in which case effective reaction is essential to your chances of success.

THE WAY FORWARD: Business managers prefer to plan for the future when they can see what lies ahead

The political forces are a prevailing source of uncertainty. We have endured, and continue to try to come to terms with, a double-whammy with the effects of the UK leaving the European Union coupled with the devastating impact of the COVID pandemic.

The impact of Brexit was an all-encompassing concern for business leaders at the back end of 2019 but when the lockdowns hit virtually no sector was left unscathed. Hospitality, retail, construction and manufacturing were hit especially hard. 

Businesses are, to a degree, at the mercy of their government’s impacts in terms of VAT, business rates and corporation tax changes, as well as any new legislation that affects how they must carry out their work. This could include health and safety amendments or environmental considerations.

And so to the economics of PEST analysis.

Smarter firms looking to make savings are trying to do so without slashing their workforce. Instead of putting extra pressure on a smaller workforce to achieve the same productivity, improvements in working practices and technology could achieve the same goals without the need to cut corners.

Driving the price of your business energy

Social factors have changed in the wake of the pandemic, with a greater emphasis on home working. Where possible, managers are happy for their staff members to be just as productive from their own homes. And while many workers are happy to hunker down at home, cutting their travel time and costs into the bargain, money-savvy managers are keen to slash their running costs for pricey premises, perhaps even doing away with a permanent base completely in time.

The key to the S of PEST actually starts with a P – people.

Any business relies on its people to thrive and survive. And a manager who addresses staff members’ concerns and everyday issues is likely to be able to retain his or her top talent when competitors come head-hunting.

ISOLATION STATION: Working from home has become commonplace for many in the UK

The key to your peoples’ happiness and productivity is a good work-life balance, something that has always been a major factor but which came to the fore during the COVID lockdowns. The technology is readily available and so collaborative working practices – such as an element of remote working – can go a long way to improving your firm’s prospects.

Speaking of technology, it’s the one area that has made extensive advancements, to the point where many believe we exist in what has become known as the fourth industrial revolution. We’ve had the first, that saw water and steam powering production, the second, electricity-powered progression and the third, the age of electronics and information technology. 

Now we have essentially taken the third to a new degree – the digital age.

Firms that don’t update and evolve run the risk of falling behind. 

Research indicates that more than half of UK organisations’ employees feel that outdated infrastructure prevents them from realising their potential.

Those firms without the capability to continue trading during lockdown – and, again, every sector and industry was affected – relied on their insurers to assist. That’s the reason they paid for business interruption insurance, after all.

GHOST TOWN: The UK lockdowns saw the streets deserted and businesses unable to trade

There are elements of running your business that you can control, and countless that you can’t. All you can do is make provision in advance for the worst-case scenario. And in return for your outlay, you are entitled to support from the insurance company with whom you have entrusted your firm’s future. 

All the PEST analysing in the world could be for nothing if the company you have insured your firm’s well-being with decide that coronavirus doesn’t qualify you to make a claim on your policy.

Business interruption (BI) policies are put in place to cover companies during periods when unexpected incidents or events mean they are unable to trade as normal. Unsurprisingly, the major factor affecting businesses in recent years has been the pandemic. The UK Government enforced nationwide lockdowns – with only essential workers permitted to go to their jobs – for the majority of 2020, leaving potential customers staying at home and businesses unable to function due to COVID.

Despite the restrictions, a number of insurance companies refused to acknowledge coronavirus as a ‘notifiable disease’ as referred to in their documents. This, in turn, meant they denied customers’ claims for payment under the terms of their policies.

LANDMARK JUDGEMENT: The Supreme Court found in favour of the FCA and the SMEs they represented

The mass refusals by these companies plunged thousands of small-to-medium enterprises (SMEs) into hardship and prompted the Financial Conduct Authority (FCA) to take steps.

They looked to the High Court for clarification on BI policies and whether customers were in fact entitled to help from their insurance companies. Seeking clarification, the FCA brought a test case involving 21 samples of policy wordings from business interruption policies from eight insurers. The case progressed to the Supreme Court, from where a decision was handed down in January 2021, finding in favour of the FCA and the companies being represented.

The landmark decision meant that policyholders who had previously been refused should have their claims for losses paid. And settlements totalling more than a billion pounds have been paid out so far.

If your business has been denied the help that you are entitled to, having kept up to date with your BI premiums, you need to take action.

Barings Law’s experts will scrutinise the wording of your business interruption insurance policy and prepare a compelling claim to help your SME get the vital settlement it needs.
Our legal team works on a no-win no-fee basis, which means there is no financial risk to you for making your claim. And it has to be worth taking the time to find out what we can do for you, right?

Speak to one of our advisors on 0161 200 9960, or start a webchat by clicking the bottom-right icon, to see how we can help your business.