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Assessing the impact of political, economic, socio-cultural, environmental and other external influences

Understanding Organisations: Assessing the impact of political, economic,
socio-cultural, environmental and other external influences
 

Introduction: 

The inherent fundamental changes in thinking, practice and delivery of health
care required by the NHS Plan (2000) have led managers and professionals to
recognise the importance and links between problem solving and decision-making
skills. In particular, assessing the impact of political, economic,
socio-cultural, environmental and other external influences upon health care
policy, proposals and organisational programmes is becoming a recognisable stage
of health service strategic development and planning mechanisms. Undertaking
this form of strategic analysis therefore is to diagnose the key issues that the
organization needs to address.

This form of analysis can be undertaken by reviewing the organizational
(external) environment using the PEST-analysis (sometimes known as
STEP-analysis), extended to the PESTELI checklist described below. PESTELI
Analysis is a useful tool for understanding the “big picture” of the
environment in which you are operating, and the opportunities and threats that
lie within it. By understanding your environment, you can take advantage of the
opportunities and minimize the threats.

What is
PEST

(ELI)?

The term PEST has been used regularly in the last 10 years and its
true history is difficult to establish. The earliest known reference to tools
and techniques for ‘scanning the business environment’ is by Francis J.
Aguilarwho discusses ‘ETPS’ - a mnemonic for the four sectors of
his taxonomy of the environment: Economic, Technical, Political,
and Social. Over the years this has become known as PEST with the
additional letters are: Ecological factors, Legislative
requirements, and Industry analysis. PESTELI is known as a ‘trends
analysis’. The external environment of an organisation, partnership, community
etc. can be assessed by breaking it down into what is happening at Political,
Economic, Social, Technological, Environmental, Legal
and Industry
levels. The same checklist can also be applied inside an organisation.

Initially the acronym
PEST

was devised, which stands for:

Political factors - both big and small 'p' political forces and
influences that may affect the performance of, or the options open to the
organisation

Economic influences - the nature of the competition faced by the
organisation or its services, and financial resources available within the
economy

Sociological trends - demographic changes, trends in the way people
live, work, and think

Technological innovations - new approaches to doing new and old
things, and tackling new and old problems; these do not necessarily involve
technical equipment - they can be novel ways of thinking or of organising.

The expanded PESTELI, also includes:

Ecological factors - definition of the wider ecological system of
which the organisation is a part and consideration of how the organisation
interacts with it

Legislative requirements - originally included under 'political',
relevant legislation now requires a heading of its own

Industry analysis - a review of the attractiveness of the industry of
which the organisation forms a part.

To be useful as an analysis tool, these environmental factors have to be
linked to the organization's mission: which are helpful or which make it more
difficult to accomplish that mission.

Why undertake a
PEST

(ELI) Analysis?

To be effective a PEST(ELI) needs to be undertaken on a regular basis.
Organisations that do analyses regularly and systematically often spot trends
before others thus providing competitive advantage.

Advantages and disadvantages of using a PEST(ELI) analysis

Advantages

  • Simple framework.
  • Facilitates an understanding of the wider business environment.
  • Encourages the development of external and strategic thinking.
  • Can enable an organisation to anticipate future business threats and take
    action to avoid or minimise their impact.
  • Can enable an organisation to spot business opportunities and exploit them
    fully
  • By taking advantage of change, you are much more likely to be successful
    than if your activities oppose it;
  • Avoids taking action that is doomed to failure from the outset, for
    reasons beyond your control

Disadvantages

  • Some users over simplify the amount of data used for decisions – it is
    easy to use scant data.
  • To be effective this process needs to be undertaken on a regular basis.
  • The best reviews require different people being involved each having a
    different perspective.
  • Access to quality external data sources, this can be time consuming and
    costly.
  • The pace of change makes it increasingly difficult to anticipate
    developments that may affect an organisation in the future.
  • The risk of capturing too much data is that it may make it difficult to
    see the wood for the trees and lead to ‘paralysis by analysis’.
  • The data used in the analysis may be based on assumptions that
    subsequently prove to be unfounded (good and bad).

Who should undertake the analysis?

Decision-making is more natural to certain personalities, so these people
should focus more on improving the quality of their decisions.  People that
are less natural decision-makers are often able to make quality assessments, but
then they need to be more decisive in acting upon the assessments made. PESTELI
is almost entirely based on external factors, so ensure at least some members of
each team have knowledge of, or are able to consider, the PESTELI factors if you
intend using this exercise. PESTELI is a good exercise for marketing people, and
is good for encouraging a business development, market orientated outlook among
all staff. If you want to use PESTELI with staff who are not naturally
externally focused you can have them do some research and preparation in advance
of the exercise.

Completing a PESTELI analysis can be a simple or complex process. It
all depends how thorough you need to be.  It is a good subject for workshop
sessions, as undertaking this activity with only one perspective (i.e. only one
persons view) can be time consuming and miss critical factors.

What areas of PESTELI are best to use?

For most situations the original w:st='on'>
PEST
analysis model arguably covers all of the 'additional' factors within the
original four main sections. For example Ecological or Environmental factors can
be positioned under any or all of the four main
PEST

headings, depending on their effect. Legislative factors would normally be
covered under the Political heading since they will generally be politically
motivated. Demographics usually are an aspect of the larger Social issue.
Industry Analysis is effectively covered under the Economic heading. Ethical
considerations would typically be included in the Social and/or Political areas,
depending on the perspective and the effect. Thus we can often see these
'additional' factors as 'sub-items' or perspectives within the four main
sections. Examples of these have been added to Table 1.

Keeping to four fundamental perspectives also imposes a discipline of
considering strategic context and effect. Many of these potential 'additional'
factors (ethical, legislative, environmental for example) will commonly be
contributory causes which act on one or some of the main four headings, rather
than be big strategic factors in their own right.

How to undertake a
PEST

(ELI) analysis?

It is important to clearly identify the subject of a PEST(ELI) analysis,
because a PEST(ELI) analysis is four-way perspective in relation to a particular
policy, proposal or business plan- if you blur the focus you will produce a
blurred picture.

The shape and simplicity of a four-part model is also somehow more
strategically appealing and easier to manipulate and convey.

The PEST(ELI) template below (Table 1) includes sample prompts, whose answers
can be inserted into the relevant section of the PEST(ELI) Grid (Table 2). The
prompts are examples of discussion points, and obviously can be altered
depending on the subject of the PEST(ELI) analysis, and how you want to use it.
Make up your own PEST(ELI) questions and prompts to suit the issue being
analyzed and the situation (i.e. the people doing the work and the expectations
of them).

The following factors may help as a starting point for brainstorming (but
make sure you include other factors that may be appropriate to your situation):

  • Decide how the information is to be collected and by whom (often a team
    approach is much more powerful than one person’s view).
  • Identify appropriate sources of information.
  • Gather the information - it is useful to use a template as the basis for
    exploring the factors and recording the information.

Table 1: w:st='on'>
PEST
(ELI) Template

Insert Subject for
PEST

(ELI) analysis:  

Political

Economic

  • Government type and stability
  • Freedom of press, rule of law and levels of bureaucracy and
    corruption
  • Regulation and de-regulation trends
  • Social and employment legislation
  • Tax policy, and trade and tariff controls
  • Environmental and consumer-protection legislation
  • Likely changes in the political environment
  • Stage of business cycle
  • Current and project economic growth, inflation and interest rates
  • Unemployment and labour supply
  • Labour costs
  • Levels of disposable income and income distribution
  • Impact of globalization
  • Likely impact of technological or other change on the economy
  • Likely changes in the economic environment

Socio-cultural

Technological

  • Population growth rate and age profile
  • Population health, education and social mobility, and attitudes to
    these
  • Population employment patterns, job market freedom and attitudes
    to work
  • Press attitudes, public opinion, social attitudes and social
    taboos
  • Lifestyle choices and attitudes to these
  • Socio-Cultural changes
  • Impact of emerging technologies
  • Impact of Internet, reduction in communications costs and
    increased remote working
  • Research and Development activity
  • Impact of technology transfer

 

Examples:

Ecological factors – Air quality, transportation, parking,
pollution discharge, water quality, waste management, land use, coastal
resources etc.

Legislative requirements – Primary and secondary legislation
in relation to Health Bills e.g. employment laws, contracts over rights
of staff, rights of patients, direct payments etc.

Industry analysis – Demand, liaison and selection for
services, products and/or component parts on the basis of price,
quality, delivery times and services support; market knowledge,
forecasting, purchasing strategies, liaising with users, business
efficiency;

Now go to the Grid: 

Table 2: w:st='on'>
PEST
(ELI) Analysis Grid

(Adapted from http://www.rapidbi.com/pestle/PESTLE-analysis-templates.html)

PEST
(ELI) Analysis Grid

Subject Area:

Date:

w:st='on'>
PEST
(ELI)

Analysis Factors

Potential Impact

Implication and Importance

Use the lists in Table 2 to get you started.

Consider changes to treatment and public attitudes as well as
government changes

H- High

M- medium 

L – Low

U- Undetermined

Time Frame:

0- 6 month

6-12 months

12-24 months

24+ months

Type:

Positive +

Negative –

Unknown

Impact:

Increasing >

Unchanged =

Decreasing <

Unknown

Relative Importance:

Critical

Important

Un-important

Unknown

Political

 

 

 

 

 

Economic

 

 

 

 

 

Socio-cultural

 

 

 

 

 

Technical

 

 

 

 

 

Ecological etc…

 

 

 

 

 

Analysis checklist:

  • Analyse the findings.
  • Identify the most important issues.
  • Identify strategic options.
  • Write a report.
  • Disseminate the findings.
  • Decide which trends should be monitored on an ongoing basis.

In reviewing the data drawn from undertaking a PESTELI analysis it will be
important to assess whether there are any disproportionate impacts on particular
groups of people, especially those who are vulnerable. Proposals, oragnisal
missions and policy development should not widen inequalities, but actively seek
to reduce them. Part of the decision-making that follows the analysis will be to
consider what could be done to counterbalance the negative impacts for groups
which may get less health benefit from positive proposals or may be adversely
affected by proposals with a negative impact on health.

 

References

© S Markwell 2009