Let’s zoom out and use the PESTTG analysis. The PESTTG analysis is composed of Political, Economic, Societal, Technological, Mega Trends and Globalisation Driving Forces. They are dynamic and create and destroy opportunities constantly. The Driving Forces are connected and a change in one Driving Force will affect all the others. When looking at the PESTTG analysis you need to consider whether your mindset is in the central position focusing on the Organisation, or are you zooming out past the Market, past the Industry Critical Success Factors and into the Environment?
If you zoom out and look at the big picture, you can see the whole game. As with any game, if you can see the whole game, the likelihood of winning increases. Entrepreneurs do one more thing – they also zoom in, back to those small details that run the organisation, getting the details right using the Tools of Innovation.
Traditionally, most people in business are focused on their Organisation and they might ‘poke’ their heads up and look at the Market occasionally. Today when asked how their work is, everyone says, ‘busy’ – busy doing, busy fixing, busy, busy and busy. Entrepreneurs seem to stop and think and zoom. If you can zoom out and see the whole game, and your competitors can’t, who do you think will win? Remember business is only a game.
What you have to do is zoom out from your business ideas, zoom out from the Market, and take a look at the Environment. What are those Driving Forces that will act on your organisation or idea? What a PESTTG analysis is also doing is forcing you to stand back from your organisation, stand back from the market place and out into the Environment. Each Driving Force creates an Industry Critical Success Factor. Industry Critical Success Factors are those things that you need to meet or exceed in order to play the game. For example, a Critical Success Factor for a restaurant that sells alcohol is that it must be licensed in order to sell liquor to the public.
The main political Driving Forces are focused on the rules and regulations in the
market place in which you are playing. Too many companies go into business without knowing all the rules. The main Critical Success Factor created by the political Driving Forces is your ability to comply with all the rules and regulations. So when you start to think about your business or organisation, ensure you can comply with all of the rules that govern your industry segment, and those rules that may come into effect.
The number-one competitor for any organisation is the government. A government representative can simply come along and say, ‘Hi, I’m from the government, we have decided that we are going to remove tariffs in your industry’ – which could have the unpleasant effect of wiping out your industry completely! If you want to play the game you must have an understanding of the government’s policy. Most government policy (and change of policy) is discussed prior for months and in some cases, years. A smart player will get ‘connected’ and move from a reactive position to be proactive and try to either
avoid or embrace the changes proposed by government a lot earlier than the competition.
To explain political Driving Forces more clearly we will look at a small restaurant.
The restaurant, which sells alcohol, has experienced, friendly and hard-working staff. However, they are not certified for the responsible serving of alcohol as prescribed by local government law. If a health inspector or a representative from the Liquor Licensing Commission were to come in and ask to see the licences and the bar staff did not have them, there is a good chance that, along with receiving a hefty fine, the restaurant won’t be selling any drinks that night, or for some time to come.
People are always puzzled when this happens, and business owners generally blame the government for not telling them the law. It is your responsibility to find out. Could you imagine playing a sport without knowing the rules – if you didn’t know the rules, you wouldn’t play and you certainly wouldn’t blame the referee for your ignorance of the rules. So find out the laws, ask your lawyer, ask your accountant to investigate them or go to your government’s business office and ask them.
Economic Driving Forces consist of gross domestic product (GDP), interest rates, disposable income, discretionary income and other key economic indicators. To understand the Economic Driving Forces you need to have an overall feel for the economy – is it up or is it down, flat or recovering, or is it about to burst? When the economy is doing well, you should try to compete on service or difference; when the economy is not doing that well you should probably compete on value, difference and then price. The Industry Critical
Success Factors created are concerned with the notion of Value, and more importantly, consumers’ notions of value. People, like Driving Forces are constantly changing, and so too is their notion of value. Now there are two sorts of Value.
Tangible Value is where you compete on price and Intangible Value is where you compete on service. Tangible value is fairly easy to understand. Simply put, it’s, ‘I’ll give you $1.20 for a can of soft drink.’ ‘I’ll give you money for that product.’
However, it is the intangible aspect of value that organisations try to compete on that allows them to hit the sustainable level. A great example of this is evident in brands. What do you value in a brand? People tend to love or hate brands – they give them personalities. Brands give customers a level of certainty; their expectations are managed, and in some cases brands give consumers a true feeling of belonging. The best way to visualise this is to think of the people who hang out at beaches and surf almost every day – do you think they would wear anything other than a surf label and risk being made fun of by their peers? Of course not – it’s tribal, and they want to belong. It is not just limited to physical products either. People continually go back to the same hotels, accountants, lawyers and other professional services because of the great service they receive.
The intangible value of a clothing label is the brand – the reason they charge $200 for a pair of jeans, even though the manufacturing and delivery of the product wouldn’t cost much more than $20. It is much easier to compete on the tangible value of your product – you simply drop your prices. However, you may not last long as you can only drop your prices so low. You may not have the cash reserves needed for a price war that the giants of your industry may have.
Although harder, competing on the intangible value of your product will allow you a greater competitive advantage than dropping prices ever could. Competing on the intangibles can also foster customer loyalty. And if a customer is loyal, they will tell their friends about you. If, however, you want to make your organisation a force to be reckoned with, combine great service with both Product and Process innovation.
Societal Driving Forces are all about fads and fashions, what’s hot and what’s not, what’s in and what’s out. This isn’t only about what people are wearing. It is also where people are eating, what they are reading, what they are listening to on the radio, what they are watching on television.
The Industry Critical Success Factors of Societal Driving Forces are all about setting the trends, fashions or fads or keeping up. There is nothing wrong with either of these two strategies. Both have their advantages and disadvantages.
An example of Societal Driving Forces can be seen when you enter most of the larger fast food restaurants. Society is moving towards a healthier lifestyle, and the fast food restaurants know this. Some fast food restaurants set the trend by introducing healthier options through their franchises, with their marketing focuses on the dietary benefits of their products over their competitors. The competitive reaction to this has been to introduce healthier options to their menus too.
Technological Driving Forces are all about faster, lighter and stronger or a convergence of these. The Industry Critical Success Factors of the technological Driving Forces are similar to those of Societal Driving Forces – either set the trend or follow it.
Consider mobile telephones as an example. When they first came out in the 1980s they were bulky, unattractive things. Over time they became smaller and smaller. As they became smaller more people took up the ‘new’ product. This increased uptake reduced the cost of the mobile phones and made the market much larger. Today mobile phones have evolved to a very different item from their original counterpart – they are now small, lightweight, durable, and in many social circles, a fashion item or even a status symbol
Mega Trends are those things which, at large, society is doing. These include living longer, having an improved quality of life, adopting new age medicines and health practices (the wellness movement) and being more aware of security, both personally and nationally.
There has been heavy investment in bio and nanotechnology, along with a higher level of personal and national investment in ‘security’. So you can see that the Driving Forces are all connected – the Mega Trends in health have had an impact on the Driving Forces in technology, the security Mega Trends have had an impact on the Driving Forces of society.
You should look at the effect that the Mega Trends will have on your idea or organisation, and whether there is an opportunity beckoning.
Globalisation is a topic that upsets some people, though it is nothing new. If we take a look at the great civilisations throughout history and remember the Egyptians or the Romans, it is clear that globalisation has been going on for thousands of years. The three most successful globalists were the English, the Spanish and of course the French.
Still a little confused? Let’s look at what they did. They globalised – or colonised – the world. At the beginning they had boats, then they progressed to trains, then planes and today we have electrons. Globalisation is all about speed, making and changing things faster. Today we can surf the internet for a couple of minutes and learn what is for sale at a fish market anywhere in the world, and how much it will cost to purchase it.
We can then organise for it to be delivered to us wherever we choose – all in real-time, and we can be enjoying our somewhat less fresh fish from anywhere in the world within 24 hours. Where previously a nation used to rely on its armies and armaments to globalize, in recent decades it has been a nation’s economy, and its ability to lower trade barriers that have allowed certain countries to rise to power. Trade barriers are being lowered, and they are starting to trade with the rest of the world.
To determine the Industry Critical Success Factors of globalisation you need to have a look at your industry, and determine if you are in a segment or niche that is going to be impacted by a gate opening in a trade agreement with another country. If this is the case, keep in mind that a massive international competitor can enter the market and offload their products for a fraction of the cost that you can. If you are a small enterprise the biggest impact of globalisation is seen by the presence of the internet. The speed at which you can get information has changed the way that many industries operate.
The slightest change in any one of the Driving Forces can literally kill your organisation or make it irrelevant, or alternatively, can create a wonderful opportunity for those people who are alert and are looking outside their organisation. It is very much a butterfly effect, where a small change somewhere on the other side of the world can have an enormous effect on your idea or organisation.
If you are always aware of this situation, you have a greater chance of surviving and thriving in the market place. You need to figure out the Industry Critical Success Factors for your idea or opportunity.
You need to develop your own ‘radar’ to determine the trends influencing your ideas, to find out what’s going on, who’s doing what and when, as well as the other various effects of the Driving Forces. The more attuned you are to your environment, the greater your level of success will be in any current and future ventures. You can develop your radar by keeping abreast of local, national and international media publications and broadcasts. Also by subscribing to industry newsletters and expanding your personal and business networks.
Another activity to remember is keeping your radar in tune. Too many organisations don’t spend enough time staying in tune. Would you take a raincoat to work every day because you watched a weather report six months ago that said it was going to rain?
Of course not. Like the weather, the Driving Forces are continually changing, and you have to make sure that you are keeping in tune with them.
So what? – What are the Industry Critical Success Factors for the Driving Forces that will affect your idea or organisation today
Dr Marcus Powe
Marcus is the Entrepreneur in Residence at Melbourne’s RMIT University and has been awarded Australia’s Best Entrepreneurial Educator. He has worked with 1500 organisation, including The Cancer Council, Australia Industry Group, Red Cross and The Pharmacy Guild, and specialises in growth for profit and non-profit organisations in turbulent market places.