What Goes Into A PEST Analysis For Healthcare?

What is a PEST analysis and why is it important to your strategy? Read here to find out.

RJ, Associate Consultant, works with ClearPoint customers to improve the efficiency and effectiveness of their performance management processes by leveraging ClearPoint's strategy execution software.

For healthcare organizations in the midst of strategic planning, a PEST 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 time period—are developed in large part based on external factors in which a company operates.

A PEST analysis is a framework for healthcare organizations to analyze 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 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.)

Components Of A PEST Analysis In The Healthcare Industry

A PEST analysis would include analysis of the following factors:

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 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.

3. Sociocultural Factors

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.

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 their consumers, as in app development or digital marketing. Planning ahead to take advantage of those advancements could mean good opportunities for growth.

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.

What should you do once you’ve completed the PEST analysis in healthcare?

Connect each of the potential external factors 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.

You should also review your strategic goals and KPIs as they relate to your PEST analysis on an annual basis to ensure your strategy remains relevant in the ever-changing healthcare environment.

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What Goes Into A PEST Analysis For Healthcare?