HOW A PESTLE ANALYSIS WILL HELP YOUR BUSINESS
One of my consulting clients runs a very successful home care business employing 80 people. This is no mean feat in a sector, in which 11% are ‘zombie’ companies (with liabilities greater than their assets)and the majority are loss making according to a report commissioned by the BBC.
The home care market is so tough that UK’s largest not-for-profit care provider recently decided to pull out because it says local authority fees make it unaffordable to provide high-quality care. Local authorities offer providers the opportunity to deliver block contracts which on face value appear attractive because of their volume.
However with an average hourly rate of £16 per client of which a minimum of £7.83 goes on carer pay, and the rest on travel time for staff, recruitment, national insurance, sick pay and uniforms, mobile phones, scheduling, supervision and mileage, there’s not a lot of slack. Although this rate is adequate if “everything goes okay,” the reality is home care is a complex service where “things don’t always go right.” And the costs of regulation are high.
One of the reasons why my client has been successful in an industry that was close to collapse last year is the way she analyses her business, paying very close attention to the strengths, weaknesses, opportunities and threats her company faces. The reason she brought me in was to help her to plan for the future.
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As my client and I have been talking, it’s become apparent there are five key external factors which will have a significant impact on her business.
- The regulating body, CQC, is changing the way in which it inspects providers.
- The introduction of GDPR, and its implications for data management.
- An on-going skills shortage in the industry.
- Technological advances in Telehealth to improve the way in which care is delivered, both for the provider and the client.
- A new competitor aiming to disrupt the industry in the form of SuperCarers, a digital platform.
This is why, as part of her business planning process, I asked my client to review her SWOT and PESTLE analyses.
HOW A PESTLE ANALYSIS WILL HELP YOUR BUSINESS
A SWOT analysis is an evaluation of the strengths, weaknesses, opportunities and threats facing your business. Underpinning any good SWOT analysis is a PESTLE analysis. A PESTLE analysis will help you to assess how macro-economic factors will affect the performance and activities of your business in the long-term. It’s often used in collaboration with other analytical business tools like a SWOT analysis and Porter’s Five Forces.
PESTLE is a handy acronym which stands for Political, Economic, Social Technological, Legal and Environmental:
Political – The main issues include political stability, tax guidelines, trade regulations, safety regulations, and employment laws, and how these affect the business environment and trade markets.
Example: The US trade war with China is an obvious example of a political factor that could affect the soybean industry. A 25% tariff would deal a devastating blow to an industry which is already operating on razor-thin profit margins.
Economic – This includes factors like inflation, interest rates, economic growth, the unemployment rate and policies, and the business cycle followed in the country.
Example: Britain’s decision to leave the EU is an obvious example of an economic factor which will have clear consequences for business as economic growth slows and consumer confidence decreases.
Social – The socio-economic environment of your market, including elements like customer demographics, cultural limitations, lifestyle attitudes and education all shape the needs and buying decisions of your customers.
Example: Brand loyalty is an example of how people’s behaviour affects buying decisions. If a customer is a brand loyalist, they’re highly likely to buy other products from you. If they’re also a brand evangelist, news of your brand will also spread horizontally to other people within their network.
Technological – Ways in which technology can either positively or negatively impact your product or service, including technological advancements, the lifecycle of technologies, the role of the Internet, and spending on technology research by the government.
Example: 2018 is proving to be a year of reckoning for the Internet, and Facebook in particular. From the public outcry about the impact of fake news on our democracies, to the emerging risks of rule-by-algorithm, the dark side of the internet is becoming increasingly clear. This is driving a growing public demand for more accountable, democratic and human alternatives, and greater regulation and accountability.
Legal – Legislation that affects businesses e.g. discrimination, health and safety, consumer protection, copyright and patent.
Example: The General Data Protection Regulation (GDPR) (EU) 2016/679 is a regulation in EU law on data protection and privacy for all individuals within the European Union which comes into effect on 25 May, 2018. Interestingly, Facebook’s Mark Zuckerberg has said that he intends to make the GDPR controls required in the EU available everywhere.
Environment - Changes in weather and climate, laws regarding pollution and recycling, waste management, the use of green or eco-friendly products and practices.
Example: ExonnMobil’s own research warned of the dangers of man-made climate change as early as 1981. Rather than start a debate about how to transition its business model to a low carbon economy, the company chose instead to bury its head in the sand, plough more than $30m (£20.3m) into climate change denial, according to figures from Greenpeace and claim the future lies in oil and gas. The company has since changed its stance, but at the cost of research and development into the clean energy business.
To keep ahead of your competitors, it pays to invest a small amount of time in completing a PESTLE analysis and keep it under regular review.
Question: Have you carried out a PESTLE analysis? What are key factors affecting your sector? I love reading your feedback so please do take a moment to share in the comments box below.
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