If you own a business that you are proud of, you are continually seeking to improve and grow to become the best in your field. It takes a lot of effort and consistent hard work to run your business efficiently. For that matter, you would love to have an edge on your competition and be ahead of the curve. By knowing what your neighborhood is up to in your respective field of business, enables you to better manage your own business. How does that work? Competitive analysis of your firm with respect to the neighboring market is the answer.
In a hypothetical situation, consider your business industry as one sport. In this case, assume its football. Every firm competing in that industry is one team who wants to win the championship. Your firm is like the rest and wants to be crowned as champions. It is imperative that you know the playing style, tactics, and stature of your competition.
You should be aware of their star players and how your players can go against them. When you do your homework about them right, you will be able to face them will full strength eventually leading you to become the best in the business. The important question that arises is that how do we gauge all of the aspects as mentioned above of our rivals?
PEST is a clever acronym for Political, Environmental, Social and Technological aspects of a certain business. In 1967, a Harvard professor named Francis Anguilar created this model to help identify the major pros and cons of one’s business in respect to these factors, thus analyzing current business activity and performance. The PEST analysis can be used in combination with other tolls such as the SWOT analysis and industry analysis. It reveals what sort of political factors are present and/or the environmental suitability for your industry.
“The best outcome of the PEST analysis would be if your company is able to make the right decisions at the right time by analyzing different factors. Another benefit of PEST analysis is it could aid you in predicting the future by looking at the present. You will be prepared to tackle future challenges. It also helps you highlight the opportunities you can cash in on and threats which could harm your business,” said Jim Makos the founder of the Pestle analysis website according to Business News Daily.
Some of these political factors are policies restricting or favoring your business, whether tax guidelines, copyright and property law enforcement, political stability, trade regulations, social and environment policy, employment laws and or safety regulations. One last factor is local and federal control. You need to be aware of the potential shift in power and how that can affect your business.
The economic factor examines the outside economic issues that play a role in your business’ success. You should always take into consideration the state of the economy whether it is growing or on the decline, the current inflation and interest rates, as well as economic stability and the stock market and its role in the economy. Other considerations that should be included are inventory costs, credit availability and unemployment.
The social constraints that may arise involve analyzing your current demographic and cultural market share. These factors help you examine your consumer’s needs and determine what drives them to make purchases. Some aspects that you should take into consideration that encompass demographics are population growth rates and age distribution. Other factors to analyze include attitudes towards work, as well as job market trends, lifestyle changes, educational and environmental issues and health consciousness and religious and ethical impact.
The technology constraints about your industry along with the social acceptability will also be determined using the PEST analysis. With the help of PEST analysis, you can define the boundaries of your business industry. This is crucial as you would know that no other industry within the same line of business can exceed the limitations that Political, Environmental, Social and Technological factors are exerting. You will be aware of your playing ground.
Once you know the contingency factors from the PEST analysis, the next step is to know yourself and the industry. For that, you need to perform Industry analysis followed by the SWOT analysis.
It might not be a complete model like the PEST or the SWOT analysis, but this will be just as helpful. Since the playing ground is known, it's vital to know about other teams. Industry analysis helps you find out about the stars of the industry which includes big names that are famous for their performance. You will know about each competitor's pricing strategies, their market shares, their target audience and their best-selling zones. It will provide you with an estimate of what you need to do to give your rivals a tough time.
Knowing your opponents does not guarantee that you perform well against them. For that, you need to know your own game. SWOT is an acronym for Strength, Weaknesses, Opportunities and Threats. Created in the 1960’s, Albert S Humphrey wanted to create this tool to be used for people to have a better understanding of their business. Strengths and weaknesses are integral to your organization or company. They are internal factors while opportunities and threats are generally related to external factors. For this reason, the SWOT analysis is sometimes referred to as the Internal-External analysis.
This analysis helps you identify your business’ capabilities. Evaluating your firm on the basis of these aspects will give you information about where you stand. Once you establish that, you can use the PEST analysis and Industry analysis findings to come up with effective strategies that can help you win the customers, fame, and a larger market share.
For example some strength questions you may ask yourself in regards to your business are:
What are some advantages that your company has over others?
What do you do better than anyone else?
While some questions regarding your business’ weaknesses are:
What can you improve? What should you avoid? What factors cause you to lose sales? And what do others see as your weakness?
Opportunity questions that can help you analyze your business are:
What are some opportunities you spot?
What are some interesting trends?
Have you noticed any changes in social patterns, population profiles, lifestyle changes, etc.?
As far as threats, you need to ask yourself:
- What obstacles do you face?
- What are your competitors doing to get ahead?
- Does the future of technology affect your business and how?
- Do you have bad debt or cash-flow problems?
After answering these questions you can determine your business’ strengths, weaknesses, opportunities, and possible threats. You can decide which path will enable you to continue to grow and what hinders your growth and decreases your share in the market. When you are top among your neighbors and/or competitors, the world will look out for you. The more factors you consider, the better an analysis and the vaster your results, providing you the best strategy to continue to grow your business. Thus by utilizing these three highly essential models and amalgamating their findings, you will be fully equipped to implement them, putting you on a whole new level.