Understanding your sector
Understanding your sector

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2 Describing the impact of external factors

There are many factors that operate in this wider context and they can be categorised in various ways in order to help your understanding of them. In fact, in Activity 1 you started to do exactly this by describing the ‘type of event’ in the final column of Table 1. ‘Social’ and ‘economic’ were suggested as descriptors of the first two examples and you may have used other words to describe your examples – this is fine.

For the purposes of this section of the course, these factors are assigned to four main categories:

  • political
  • economic
  • social
  • technological.

These four categories have been given the acronym ‘PEST’. These are not necessarily exclusive, as there may be large areas of overlap between them, meaning that it is sometimes difficult to disentangle them. For example, political decisions, often based on economic considerations, might have economic consequences.

Having identified these four categories, they now need to be defined more closely so they can be visualised clearly.

Political

This is the way in which government, at all levels, acts to affect the governance and organisation of the economy. This includes deciding and implementing policy and enacting legislation to achieve particular outcomes. Some of the most important areas affected include fiscal policy (tax and spending), trade, health, education, infrastructure (roads and transport, for example), immigration and labour regulation.

Economic

This embraces the external economic influences affecting businesses and individuals, including economic growth and stability, exchange rates, inflation and interest rates, the availability of credit, the price of resources, and employment policy. Already you may be able to see overlaps with the ‘political’ dimension above.

Social

This covers factors such as culture, population growth, age distribution, gender, ethnic and religious diversity, education and health. It also encompasses the broader way in which society is organised and the attitudes that prevail within it, which, in turn, will be affected by some of the individual factors mentioned above.

Technological

This relates both to technological change itself, and to how this is achieved and delivered. It, therefore, includes factors such as research and development, innovation, government technology policy, education, information and communications technology, and transport. It also encompasses the consequences of these for the economy and those within it.

Activity 2 Identifying the impact of PEST factors

Timing: Allow about 10 minutes

Think of an example from each of these four areas – political, economic, social and technological – that demonstrates how developments in these areas can affect organisations and people at a local level.

Table 2 Identifying examples and impact of PEST factors

Category Examples Impact
Political
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Economic
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Social
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Technological
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Words: 0
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Comment

The following examples illustrate the general principles under consideration.

Table 3 Examples of PEST factors and their impact

Category Examples Impact
Political UK government decision to allow private organisations to bid for public contracts Fewer people employed in the public sector with implications for working conditions
Economic Global economic recession in 2008 Widespread loss of employment for many in finance, construction and other industries
Social Widespread availability of the contraceptive pill in the late 1960s Women began to assert greater control over their lives and demand equal rights with men
Technological Development of communication technologies and the internet in 1990s Many workers are able to work remotely rather than at their employer’s premises

The examples you selected will probably be different from these. They should indicate how the wider context in which an organisation operates contains factors that will have day-to-day implications for how it functions and for the people who work within it.

You have now used PEST analysis as a way of understanding the impact of external factors on the business environment and can move on to using this technique to help you analyse your own situation.

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