What is a PEST analysis and why is it important to your strategy?
A PEST analysis is a framework for healthcare organizations to analyze external events and trends in four areas that commonly affect their business operations and performance, specifically:
A variation of PEST that provides additional insights, called PESTEL, also includes:
The concept of assessing these factors was introduced in Frank Aguilar’s pioneering book, Scanning the Business Environment, and has evolved over time. For healthcare organizations today, the practice of performing a PEST analysis is acknowledged as an important component of strategic planning. (It’s sometimes accompanied by the more well-known SWOT analysis, which assesses internal factors in relation to company performance.)
Thanks to the COVID-19 pandemic, we have recently been shown the extent to which external factors can impact the healthcare landscape. Most healthcare facilities had to pivot in an attempt to handle everything from overcrowding and revenue loss to staff and equipment shortages.
But even less eventful periods present challenges from outside forces. Doing a PEST analysis forces your organization to consider those external factors as part of your strategy planning, rather than focusing solely on you—your facility, your competitors, and the immediate issues you’re facing.
It also gives you the information you need to be proactive. For example, if you’re aware of looming supply chain issues, you can take steps to modernize your inventory system to maintain more appropriate stock volumes and improve inventory forecasting. Then you’ll be ahead of the curve, rather than retroactively scrambling to manage the problem once it occurs. The better you are at identifying and responding to external factors—potential new legislation, workforce trends, etc.—the more profitable you’re likely to be.
Additionally, any good healthcare strategy must always be aligned with the current needs of the local population—are you delivering the services people need at this moment in time? The only way to create that alignment is to look outward to your community, taking time to understand the health trends happening nearby as well as those trends occurring outside your immediate area that could soon impact your locality. As a result, you’ll be prepared to make informed decisions regarding your organization's strategy into the future.
A PEST analysis would include analysis of the following factors:
Changing tax legislation, consumer protection and employment regulations, and insurance mandates are all elements in the political sphere that could have an impact on healthcare. For example, a change in tax policies may call for a strategy adjustment that either takes advantage of increased government spending for healthcare or makes allowances for reduced government subsidies. Or, changes in employment law, like the 2016 legislation that impacted employee overtime requirements, could mean major adjustments in staffing and overtime needs.
Unemployment, inflation, and interest rates are examples of economic issues that both directly and indirectly influence the financial performance of healthcare organizations. These changing conditions can have an impact on public spending policies and your purchasing power. For example, if you manufacture healthcare equipment, a high rate of unemployment will mean fewer people are able to purchase your products. Or, more people losing jobs means a greater loss of health insurance coverage, which will affect the types of health services people seek out.
A PEST analysis for healthcare should also identify changes in demographics, values, and beliefs of your various consumer groups. A hospital, for example, should be knowledgeable about the community it serves to avoid violating widespread values or norms. Factors like these should also play into your organization’s marketing strategy. Using content that shows you’re aligned with a specific sociocultural set of beliefs/values will boost the effectiveness of your marketing and impact your performance.
Technological advancements specific to hospitals and healthcare manufacturers could have a varying range of effects on your overall performance. The equipment being manufactured and used is continually changing, as is the development of new treatments. And new technology outside the healthcare field could also affect how an organization communicates with their consumers, as in app development or digital marketing. Planning ahead to take advantage of those advancements could mean good opportunities for growth.
Environmental sustainability practices have both environmental and financial benefits for healthcare organizations. Many hospitals are now seeking LEED certification for environmentally-friendly building design; waste disposal programs are also coming under scrutiny. Leadership in the areas of green environment practices also illustrates corporate social responsibility (CSR)—which should be a key part of any strategic plan.
Failure to follow new laws and legal procedures that govern healthcare could lead to immediate failure of your strategy. The legal implications of pending lawsuits, HIPAA compliance, potential hospital mergers and more should all be taken into consideration as part of your overall strategy.
For each of the above PEST components named above, make a list of factors that might affect your organization. Be sure to brainstorm with people who have expert knowledge of the business and/or the world outside the business, because everyone has unique insights. Sometimes the things you think are factors may not be the same as what others think.
Of the factors you and your colleagues have identified, determine which are likely to pose a challenge for your organization in the future. For example, if the turnover rate in the labor market is escalating, it could eventually occur in your own organization, threatening your facility’s quality of care and even presenting safety issues. Rank each threat according to its overall impact if it were to actually occur.
On the flip side, determine which external changes could represent opportunities you can exploit. For instance, telehealth began to take off during the pandemic, and has remained popular with many patients. Bolstering your telehealth services to match increasing demand will help you stay competitive, and offer a service your community wants.
Based on your determinations in steps two and three, identify the actions/projects/shifts in strategy that would help address these factors. It may mean adding a new objective, implementing new projects, or adjusting your KPIs. Even if you don’t feel it’s necessary to apply any resources to your PEST findings at this time, you now have valuable knowledge you can use for decision-making.
The next step is to adjust your strategy to reflect your PEST insights. Unless you’re prepared to handle this task in a piecemeal fashion across lots of departmental spreadsheets (which we wouldn't recommend because it’s a scattered approach), it’s best to do this work in a centralized strategy software tool like ClearPoint. ClearPoint houses all your facility’s strategic information in one place, making it easy to see where adjustments need to be made.
In addition to centralization, strategy software helps you make the most of your PEST analysis by allowing you to:
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