The impact of political, economic, socio-cultural, environmental and other external influences
Understanding Organisations: The impact of political, economic, socio-cultural, environmental and other external influences
Recent political and economic developments and associated changes in the practice and delivery of health and social care 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 organisation needs to address.
This form of analysis can be undertaken by reviewing the organisational (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 minimise the threats.
What is PEST(ELI)?
The term PEST has been used regularly in the last 20 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. Aguilar who 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 (Aguilar, 1967).
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 organisation'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
- 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.
- 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 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 analysed 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: PEST (ELI) Template
Insert Subject for PEST(ELI) analysis:
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
Now go to the Grid:
Table 2: PEST (ELI) Analysis Grid
(Adapted from https://rapidbi.com/the-PESTLE-analysis-tool/)
PEST(ELI) Analysis Grid
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
L – Low
0- 6 month
- 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, organisational 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.
For more on PEST(ELI) and other change management tools within the health sector see Iles and Sutherland (2001) and Iles and Cranfield (2001).
© S Markwell 2009, N Leigh-Hunt 2016
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