Strategic planning and business planning are two common elements of any business that get thrown around somewhat synonymously. Regardless of whether you think strategic planning is based on the long view and business planning is more tactical and in the here and now, there are elements of both that are often overlooked.
For instance, the textbook definition of any planning should incorporate a SWOT (strengths, weaknesses, opportunities and threats) analysis. This is an integral discussion that looks at internal strengths and weaknesses, and external opportunities and threats. Most firms use this sound tool to provide context for a short- or long-range plan, but it is often gained internally. Associates of the organization chime in with their thoughts and rationale about why a firm is great or where they should actively engage the market more deeply. The key word is “internal.”
There is no question that a firm should involve the team that will lead the strategy. However, there is something to be said for a firm that goes the extra level and examines the market in which they operate with a deeper, fact-based analysis. One such tool is a PEST (or PESTLE) analysis, which uncovers the ramifications of the political, economic, social and technological aspects of the market (legal and environmental are included in PESTLE).
The PEST analysis originated in 1967 by Harvard professor Francis Aguilar. While the aforementioned SWOT does
take into account those external drivers, the PEST’s deeper dive provides not only an understanding of those opportunities and threats, but also the leverage point. For instance, it is fairly common to talk about “the economy” in a strategic planning session. It may be a threat or a weakness, but the real questions could be as follows:
- As interest rates increase, what will this do to consumer spending, vis-à-vis consumer goods manufacturers, or retail markets in which we operate?
- As unemployment ratchets down, what will be our response to both compensation (i.e., an employee-driven market driving wage rates) and the overall supply of potential workers?
These are two basic questions that every firm should consider and have an opinion on. Additionally, there is no shortage of opinions across the political landscape. In both cases, the key is to avoid basing business decisions on opinions, and using the facts within the market to create the best possible outcome. This is not to say a leader cannot have an opinion on who they like in office or various legislation that may get passed. However, it is important to avoid letting a strategic plan be dictated by those opinions. Put another way, you may not like who is leading your city, state or country, but it is important to remain focused on the potential ramifications and potential impact on the business.
Political
Once again, there is no shortage of opinions in the world today about any political leader or party. As a business leader, the important things to remain focused on are the potential outcomes. Whether you like them or not is somewhat irrelevant — it is about your response as a leader.
Consider this polarizing question: What will you do if immigration reform goes one way or another? Some business owners will say, “We won’t be impacted, as we only hire legal residents or individuals with work visas.” Some might have a more stern response to the question, potentially jading their thought process. The astute business leader will look at this question — devoid of opinion — and develop scenarios around the impact of costs/benefits related to an influx or decrease in immigrant flow from other countries on wages, overall population, impact to health care and education, etc. If you built in these arenas, there is a cascade effect. For instance, would an area see an increased or decreased demand in housing, health care or education, thus affecting the competitive landscape?
Economic
While the dollar is relatively stable worldwide, there are plenty of countries that experience currency valuation and devaluation on a regular basis.
So what? We live in Anywhere, USA.
Whether we are discussing “local” economic changes, such as the aforementioned interest rates, or, on a global scale, the potential impact of trade routes, trade disputes or even armed conflict near those trade routes, leaders must look at these situations not from the “We can’t have interest rates go up or down,” or “I don’t want to see another item from (insert country here)” viewpoint. Instead, ask these questions: “If interest rates go up, what sectors are most affected and how can we leverage this? Our sector is not adversely affected, so can we use this to recruit talent?” Or, “Our main products are from Asia — how will we either introduce new products or pass on tariffs to clients?”
To be clear, no one has a crystal ball, but great leaders ask “What if?” and then “What is our response?”
Social
Whether we are discussing the broader social climate in the U.S. or even the world, it is easy to get fixated on thoughts and feelings. The social discussion is less about thoughts and feelings on diversity, equity and inclusion (DEI), but about addressing the impacts. For instance, look at population distributions — whether locally or nationally — what will that do to consumer demand, housing, transportation, etc.? What will the impact be relative to DEI initiatives passing or not passing in respective businesses and locales?
If an area has a focus on DEI — whether it is positive or critical — what will that do to population, education or workforce development? Once again, it is easy to have positive or negative opinions sway a strategic plan. “We need it” or “No way on my watch” are not factual and do not create an appropriate action plan.
Technological
To say Pandora’s box is wide open is an understatement. Whether we are thinking about artificial intelligence’s (AI) next move or even how to enter the arena of autonomous equipment, it would be ignorant and malpractice as a leader to discount the next five to 10 years and potential impacts that new innovations will have. This is not about what we can use internally, but what it will mean to the greater economy.
To cite an example from the last 20 years, firms actively pursued fiber optic installation nationally to capitalize on the new improvements in data transfer. Great leaders are looking at AI not only in the impacts it could have on their business internally, but also what it means for the tech space, tech clients, etc. When you pull on these threads, they open new considerations. It can be mind boggling, but it also requires some introspection at a strategic level.
Legal & Environmental
In the broader PESTLE model, legal and environmental are two newer considerations that should be considered. Legal changes take many forms, some of which begin as political ideations and end up as business issues. In many cases it will straddle a few areas — consider questions about AI. It is easy to see this in the political, social and technological buckets. How does a company protect itself and its data while still thinking broadly about AI?
Additionally, there is plenty of discussion about environmental considerations. New legislation on the political front will certainly impact new projects, new restrictions/fewer restrictions, etc., but it may also open new market opportunities. For instance, as firms migrated toward green energy, there were billions of dollars in infrastructure spending for solar, wind and geothermal projects. Were the firms that went into these projects simply opportunistic, or were they proactive in the way they researched the environmental segment?
It is easy to become dismayed or overwhelmed. There are infinite possibilities, so where do we begin to model and develop a business case?
To modify a common phrase, “look globally and act locally.” Begin examining the elements that will affect the business in the short term. Even considering just a few factors leaves the organization better equipped to navigate strategically.
When a firm looks outside its four walls objectively, interesting business cases can be considered. However, with so many opinions about each of the PESTLE areas, it is easy to let judgment be clouded. Strategic thinking must consider these aspects, or you will be left saying, “If only we had thought of that … ”
