The renewed importance of SWOT and PEST analysis in volatile and vulnerable conditions

25 March 2020     min read

Daniele Lima highlights how returning to SWOT and PEST analysis models can help businesses to adapt and ultimately survive a global health and economic crisis.

The SWOT and PEST analysis are among the best known business models in the world yet they remain the most unappreciated and underutilised tools in the marketers’ armoury – especially within the realm of SME businesses.

At the time of writing in March 2020, the coronavirus continues to impact every nation both in terms of its high levels of human mortality and morbidity, as well as its profound economic impacts that are literally causing markets to evaporate and almost inevitably drive most nations into what appears to be  an economic recession in the second half of 2020 and beyond.

Against this bleak backdrop the importance of both the SWOT analysis and its partner, feeder model, the PEST analysis is again being brought into stark focus. Specifically, how the use of these key business models can help businesses better understand, adapt to and ultimately survive the current crisis that will continue to drive many businesses into bankruptcy.

Now for those that may not be familiar with either of the S.W.O.T or PEST analysis models, they are as follows: 

The PEST (political – economic – social – technological) analysis:

This analysis looks at the large macro factors that dominate the market to better understand the key drivers that will most directly impact the marketplace moving forward. They include:

• Political/legal and other controlling statutory bodies: those groups that determine and change the laws and rules that a business must follow to compete within a given market.
• Economic: the state of the economy now and projecting into the future both locally and abroad.
• Social – cultural – environmental factors: the prevailing beliefs, views, opinions and attitudes that people within a market have about any issue and the existing environmental circumstances that underpin those beliefs.
• Technology: the ever changing and dynamic area driven by innovation that sees the application of scientific knowledge for practical purposes, especially in industry to produce better, faster and more cost efficient machinery, equipment and processes.

The PEST analysis allows the business to analyse the marketplace and then, based on its own resources and circumstances, be able to feed those findings into the SWOT analysis as either opportunities or threats. For this reason, the PEST analysis is always conducted prior to the SWOT analysis. 

The SWOT (strengths – weaknesses – opportunities – threats) analysis is the tool used to list a business’:

• Internal strengths and weaknesses: these are the points of relative advantage and disadvantage that the business has in comparison to other rivals competing for those same customers within that market. Importantly these internal strengths and weaknesses are controllable by the business. In the case of strengths, it allows the business to better leverage and more fully align to market opportunities and changing positive circumstances, and in the case of weaknesses will provide greater insight into those areas of development that need to be addressed to ensure that the business is able to effectively compete within the required market, segment or niche.
• External opportunities and threats: this highlights to the business the potential areas within the outside market that offer potential areas of both growth and concern. These market forces are completely uncontrollable from the businesses point of view yet remain critical in identifying the best path the business needs to pursue to survive and in time, prosper. The basis for these external factors as outlined above come from the PEST analysis.

Now to be fair, it would be an extraordinary person that would have proactively anticipated the outbreak of a virus earlier this year that would turn into a global pandemic, and have had a comprehensive array of mitigating strategies and contingency plans in place to counter its devastating impacts.

On the other hand, as of two months ago, I believe it’s fair and reasonable to say that its presence and impact was already large enough and powerful enough to warrant businesses updating their PEST analysis to include it as a key environmental factor which certainly had the potential to move beyond China – and with this update make corresponding changes to the ‘opportunities and threats’ section of the SWOT analysis.

The PEST analysis for this update would be the same for any business as a statement of fact about the virus. The variable in this situation, is how that point translates into your specific SWOT analysis. To better understand this, consider the impact that the spread of the coronavirus has had on some of the following industries in 2020*:

This partial list is just a brief snapshot of some the more obvious examples on either side of the ledger. Any business that follows this process, regardless of its size, positioning or market can more fully prepare with what may be coming next.

With this, the business will have the additional time to strategise on how best to adapt critical marketing elements such as: product range, unit volumes, target audience, service delivery – logistics, overall positioning, pricing strategy and core messaging.

Additionally, these changes will require corresponding internal business adjustments which may include restructuring, refinancing and recruitment. These types of additional resources are needed to effectively meet the changing circumstances within the marketplace.

The examples provided, demonstrate that as people’s behaviour changes, the specific type and delivery of that product or service also needs to change. The recent increase in online courses being provided by registered training organisations, both nationally and abroad are a testament to this.

The obvious link to the role of cutting-edge technology also becomes apparent here as digital products such as: Zoom, Skype, Teams and Hangouts provide the opportunity for businesses to quickly and cost effectively adapt to changing circumstances that they have no direct control over and yet need to quickly adapt to.

In summary

The need for all businesses to perform an annual, detailed PEST and SWOT analysis for their business and to then routinely review those analyses a quarterly basis, has not changed and most likely never will.  

What is more apparent is that between these formal points of revision, an ongoing need for vigilance and attitude to closely observe changing circumstances, needs to be woven into the fabric of how we do our business planning and with this changed mindset, along with a greater commitment and focus on how the business can adapt to the dynamic market and environmental conditions being encountered.

Daniele Lima is a published author and the director of Road Scholars Business Training and Consultancy.

Photo by AJ Yorio on Unsplash.