an inTroducTion To

PESTLE anaLySiS

SMALL BUSINESS INFORMATION SERIES

February 2011 Edition

Housing Industry Association

>

February 2011 Edition

>

I HIA

members:
Have direct access to practical advice and professional assistance including the latest information on technical, regulatory and business matters; Receive the latest market information on consumer trends, new products and materials; and Benefit from increased business opportunities through skills development, access to a wide industry network and being actively promoted Australia-wide as being the best in the business by their industry association.

For further information on the benefits of HIA membership or how you can join HIA, go to hia.com.au or call HIA on 1300 650 620.
The content of this guide as provided by Housing Industry Association Limited (HIA) is practical information of a general nature only for those who are operating, or who have decided to commence, a small business. The information provided is neither financial nor investment advice, and participants should make their own judgment on the application of this information to their own personal circumstances, if necessary, after obtaining accountancy or other professional advice. HIA will not be liable for any loss or damage arising from the actions of any individual based on or relying on any of the information provided in this guide.

AN INTRODUCTION TO PESTLE ANALYSIS

How this guide can help you run your building business
It is easy to get bogged down in the day-to-day running of your business and end up not being able to see the forest for the trees. Every now and again, a business owner should stop, stand back and have a look at the bigger picture. Its a way of checking that your business is still relevant to the market-place. The PESTLE Analysis is a technique that can help you do this in a simple and structured way. This guide explains the simple business planning technique of a PESTLE Analysis in two parts, being: What is a PESTLE Analysis? How do I conduct a PESTLE Analysis?
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What is PESTLE?

What is PESTLE Analysis?

PESTLE is shorthand for a list of macro-economic factors that: > already; or > may, at some time in the future, affect your business. Macro-economic is a fancy way of describing those external factors which will/may affect your business but over which your business has no control. Those factors are grouped under the following headings: > Political > Economic > Socio-cultural > Technological > Legal > Environmental

The factors that you would include in your list will depend on the nature and size of your business.

What is the analysis?

AN INTRODUCTION TO PESTLE ANALYSIS [FEBRUARY 2011]

The analysis phase consists of a 2 step process, being: > Evaluating the impact (both actual and likely) that each factor may have on your business; and > Planning those actions you may wish to take to: minimize any threats; and maximise any opportunities

This analysis can be used for a number of purposes, such as business planning, marketing strategy, and new product development.

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The steps to follow:

How do I conduct a PESTLE Analysis?

To conduct a PESTLE Analysis, you need to take the following steps:

Step 1: Make a list

Write down the headings and, under each heading, write down those factors that: > already; or > are likely to, affect your business. If possible, try to include trends. To help you with this exercise, we have included a template document in Appendix A for you to use.

Step 2: Think about it

Now you have made your list, its time to sit down and think about: > how each factor (or combination of factors): will/may affect your business. will/may affect the industry that your business is in. > which item (or group of items) from your list will be: an opportunity; or a threat.

Step 3: Make a plan

In this step, you will need to work out: > which, of these factors, amount to real and significant opportunities or threats to your business; and
AN INTRODUCTION TO PESTLE ANALYSIS [FEBRUARY 2011]

> what you can and will do about it.

Step 4: do it
Now you have worked out what you are going to do, you will need to create an action plan.

Step 5: review it
Dont forget to regularly review your plan to see whether or not you: > need to make any changes to it; and > are still on the right track.
Housing Industry Association Limited ABN 99 004 631 752

Step 1: Make a list

Write down the headings and, under each heading, write down those factors that: > already; or > are likely to, affect your business. If possible, try to include trends.

Examples of factors that may aect your business in the residential construction industry include:
Political factors: > The likelihood of a change in government at an upcoming election. > The policies and fundamental beliefs belonging to the political party (eg Liberal, Labor, the Greens) that is in power. > The level of government interference in the market-place. Economic factors > Business cycles (booms and busts). > Interest rate movements. > Exchange rate movements. > Inflation. > Employment levels. > Consumer confidence. Socio-cultural factors > Demographics this refers to the different attributes of a countrys population. Examples include: population levels, population growth, age, gender, religion, ethnicity, education level and income distribution. > Living standards. > Lifestyle attitudes. > Social mobility. Technological factors > New products. > New business processes. > Research and development.
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AN INTRODUCTION TO PESTLE ANALYSIS [FEBRUARY 2011]

Step 1: Make a list

Legal factors > The different types of laws that apply: generally to all businesses; and specifically to those businesses that operate in the residential construction industry. > The way in which legal disputes are handled. Environmental factors > Climate Change including rising sea levels, extreme or unusual weather patterns (eg droughts, floods, cyclones and tsunamis). > Energy consumption. > Waste Disposal.

Step 2: Think about it

Now you have made your list, its time to sit down and think about: > how each factor (or combination of factors): will/may affect your business. will/may affect the industry that your business is in. > which item (or group of items) from your list will be: an opportunity; or a threat.

When carrying out this step, you need to be aware of the following:
> The behaviour of each factor or influence may change in the future. > The effect of the factor or influence may change in the future (even if its behaviour hasnt changed). > You need to look at combinations of factors as well as looking at each single factor in isolation, because the effect may be very different.
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Step 2: Think about it

The following tips may help you with this step: > Getting as many people as possible involved in this exercise from the beginning; and > Using scenarios to assess the impact of those factors that are in your list.

Take the ageing population as an example

This is a socio-cultural factor (being a demographic of the Australian population). This will/may affect: > your workforce; and > the future demand/design of housing. You will need to look at other factors to get a better idea of whether or not your business and/or the industry will need to adapt to this phenomena, either now or at some time in the future. Examples of other factors you should consider: Workforce considerations > Population growth is Australias future growth likely to be from natural increase or from increasing immigration levels)? > Skilled workforce what is the trend for apprentices? What skills do those immigrants arriving in Australia have? > The mining boom is the workforce in the residential construction industry likely to be affected by the mining boom? Future demand/design of housing > Will these people want to stay in their own homes or would they prefer to live in retirement homes?

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AN INTRODUCTION TO PESTLE ANALYSIS [FEBRUARY 2011]

Step 2: Think about it

Well concentrate on the future demand/design of housing issue aspect.

The question here is will retirees want to sell their existing home and move into a retirement home?
if the answer is no: > There may be an increased demand for altering or adapting current homes to allow for wheelchair access and being able to live as independently as possible. > Wealthier retirees may decide to make a sea-change and build their new home on a block of land (which they have spotted during their grey nomad stint around Australia). > There may be an increased demand for adding separate living quarters to an existing dwelling (to accommodate live-in carers). > There may be an increase in sub-divisions by those retirees who own large parcels of land (to help fund their retirement). This in turn, may result in an increased demand for new homes. > There may be an increased demand for installing domestic security systems. if the answer is yes: > There may be increased demand for knock-down/ rebuilds or major renovation work as younger homebuyers purchase older-style housing. > There may be more developments for retirement homes/villages/gated communities rather than for mixed use developments consisting of apartment blocks and shopping centres.
AN INTRODUCTION TO PESTLE ANALYSIS [FEBRUARY 2011]

Whether or not these represent opportunities or threats will depend on matters such as:
> The size and type of your business. > Your willingness to adapt the way you do business or your business activities.
Housing Industry Association Limited ABN 99 004 631 752

Step 3: Make a plan

In this step, you will need to work out: > which, of these factors, amount to real and significant opportunities or threats to your business; and > what you can and will do about it.

remember
> When drawing up your plan, dont forget to include time frames (for example, short-term, medium-term & long-term). > If your business uses SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis, then having done this part of the PESTLE Analysis will mean that all the work on identifying the opportunities and threats of external factors to your business has already been done.

Step 4: do it

Now you have worked out what you are going to do, you will now need to create an action plan.

The object of this part of the exercise is to: > maximize opportunities; and > minimize threats to your business. Whatever goals or objectives you set for your business, make sure you break them down into smaller steps. That way, youll have more chance of success.
AN INTRODUCTION TO PESTLE ANALYSIS [FEBRUARY 2011]

Step 5: review it

As is the case with all plans, you need to regularly review them to see whether or not you: > need to make any changes to it; and > are still on the right track.

How often you do this will depend on the factor involved and the effect is has or is likely to have on your business.

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BUSINESS NAME: REVIEW DATE

INDUSTRY PURPOSE OF BUSINESS:

Short/Med/Long

FACTORS TO CONSIDER

IMPORTANCE TIME -FRAME

High/Med/Low

OPP/THREAT PRIORITY ACTION TO TAKE (please circle) High/Med/Low / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /

Environmental

Legal

Technological

SocioCultural

Economic

Housing Industry Association Limited ABN 99 004 631 752

Political

aPPEndiX a

AN INTRODUCTION TO PESTLE ANALYSIS [FEBRUARY 2011]

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SMALL BUSINESS INFORMATION SERIES: AN INTRODUCTION TO PESTLE ANALYSIS

For more information, you can contact Hia by phone: 1300 650 620 or by email: enquiries@hia.com.au