The Components of a PESTEL Analysis in Healthcare

For healthcare organizations amid strategic planning, a PESTEL analysis can be a useful tool. That’s because the best strategies—the ones that position organizations for their best chance of success in a particular period—are developed in large part based on external factors in which a company operates.

What is a PEST analysis in healthcare?

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:

• Political factors
• Economic factors
• Sociocultural factors
• Technological factors

A variation of PEST that provides additional insights, called PESTEL, also includes:

• Environmental factors
• Legal factors

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 PESTEL 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.)

The Components Of A PESTEL Analysis In The Healthcare Industry

The components of a PESTEL analysis are categorized into four main areas: Political, Economic, Social, Technological, Environmental, and Legal.

1. Political 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.

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2. Economic Factors

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 can 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.

3. Sociocultural Factors

A PESTEL 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.

4. Technological Factors

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 its consumers, as in app development or digital marketing.

Planning to take advantage of those advancements could mean good growth opportunities.

5. Environmental Factors

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.

6. Legal Factors

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.

5 Benefits Of A PESTEL Analysis For Healthcare Organizations

1. Understanding the impact of external factors: The COVID-19 pandemic highlighted how external events can drastically affect healthcare operations. A PESTEL analysis provides your organization with a structured way to assess these external influences, helping you understand how they can affect your operations and planning.
2. Comprehensive strategy planning: A PESTEL analysis extends your strategic planning beyond the internal focus on your facility and competitors. It incorporates an examination of political, economic, social, and technological factors, offering a holistic view of the environment in which you operate.
3. Proactive problem-solving: Identifying potential external challenges through a PESTEL analysis enables your organization to take preemptive actions. 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.
4. Enhanced profitability through external awareness: By recognizing and responding to external factors, such as emerging legislation or workforce trends, your organization can enhance its profitability and operational efficiency. This proactive stance helps in navigating the healthcare landscape more effectively.
5. Alignment with community health needs: A PESTEL analysis encourages your organization to look beyond its walls and understand the health trends within your community and the broader region. This knowledge ensures that your services are aligned with the current and evolving needs of the population you serve, aiding in informed decision-making for future strategic directions.

How To Conduct A PESTEL Analysis in Your Healthcare Organization

1. Determine the external factors you believe will be important to your business

For each of the PESTEL components named above, make a list of factors that might affect your hospital or healthcare 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.

2. Identify factors that are threats

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 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 occur.

3. Identify factors that present opportunities

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.

4. Take action to either leverage potential opportunities or mitigate potential threats

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 PESTEL findings at this time, you now have valuable knowledge you can use for decision-making.

What Should You Do Once You’ve Completed the PESTEL Analysis in Healthcare?

The next step is to adjust your strategy to reflect your PESTEL 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 PESTEL analysis by allowing you to:

1. Connect each of the potential external factors identified in your PESTEL analysis back to one of your high-level goals. This ensures your strategy capitalizes on those opportunities, and helps your organization be proactive about managing threats. In some instances, you could also formulate KPIs around the identified risks and opportunities. By linking external factors to your goals and measures, you’re more likely to develop a strategy that gives your organization a competitive advantage

2. Monitor threats concerning your strategy. After you rank the threats based on their potential impact on your facility, you can add them to ClearPoint and methodically track and report on them over time. As a result, potential threats naturally become part of your continuous discussion about strategy, ensuring you stay on top of them.

Discover the Power of ClearPoint for Your Healthcare Organization

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