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Macks Creek is a small town located in southwest Camden County, Missouri, United States. According to the 2010 census, there are less than 300 people live in that small town.
For years, Macks Creek collected 85% of its total revenue from speeding tickets. In fact, the town had the most infamous speed traps in the nation. Their officers strictly enforced a 45-MPH speed limit along the narrow highway that divided the city in the middle. However, in 1995, Missouri passed a law prohibiting cities and towns from collecting more than 45% of its total revenue from speeding tickets. Two years later, every town officials resigned from office, and the city declared bankruptcy, and the town was dissolved in 2012.
Had that town officials understood the state's political and economic climate, the town would have survived. I’m going to share a tool that might help your company avoid the same fate.
In 1964, a Harvard Business School professor, Francis J Aguilar, wrote a business book: Scanning the Business Environment, and was credited as the PEST analysis founder. The tool evolved throughout history to become PESTEL, but it is still considered one of the most critical strategic and marketing planning tools.
The tool focuses on analyzing six factors of the environment:
By focusing on these six factors, you will discover trends and use real data to improve your productivity and profitability. Instead of guessing about future trends, you will use the collected data to make informed decisions.
These macro trends are the driving forces that are always at work on markets, creating opportunities, and uncovering threats.
1. Political Forces
Political forces include national elections, local elections, legislative changes, regulatory decisions, and litigatives cases.
Who will be the next president of the United States? Who will be the governor of the State? Will the tax policies be favorable to your business model? Are there any laws that prevent you from growing too big?
Uber is struggling with many political forces around the globe. Last September, Uber won the latest legal case in London. The company kept its license for another 18 months. However, The company is still at odds with regulators and drivers of traditional cabs in the country.
In the last election, California voters saved Uber and Lyft from entirely shutting down their operations in California by approving Proposition 22, “To exempt key gig economy companies such as Uber and Lyft from punitive regulations that had nearly driven them out of the state.”
As a business owner, you have to be aware of any state's political changes to plan and adjust accordingly. Politicians can complicate your business, and political instability might impact your supply chain. You also have to follow bills in congress, state legislative, and even local level, get involved and help shape some of these bills.
2. Economic Forces
Economic forces include factors such as Macroeconomic trends, Microeconomic dynamics, competitive environment, internal company politics.
How will the trade negotiation with China impact the prices of raw materials? What is the minimum wage? What is the cost of hiring a new person? What is the cost of using your products? What is the cost of borrowing money?
In 2008, due to the high cost of gas, U.S. auto sales declined as buyers fled from pickups and sport utility vehicles. The cost of manufacturing vehicles did not change. The cost of using and maintaining them change dramatically, so sales declined.
Once these companies understood the real cost, they pivoted their operation to manufacture smaller vehicles. This shift in the economic environment changed the economy of selling, buying, and using cars.
Since the economy changes very often, it is crucial to be aware of any economic shift and understand how it might impact your operation.
3. Social Forces
Social forces include demographic shifts, lifestyles, values, demand, political movements, and social issues.
How will people's values impact your sales? Are people shopping online or offline? Are people cooking at home or eating out? Do people want to grocery delivered to their homes?
Howard Schultz is the former CEO of Starbucks, built his company on The Third Place concept. He realized that people wanted a place to meet other people, drink coffee, socialize, and enjoy a peaceful time. They did not want to meet in their own living rooms (first place) or the office (second place), so he designed his stores to look like a living room (third place).
In the last nine months, Starbucks understood the need to protect their employees and their customers, so they adapted to encourage more online orders and drive-thrus. They also committed to modifying their stores to make them more convenient and safer for their customers.
It is essential to understand your customer's values and their biggest fear and concerns so you can deliver your services or products in the most convenient way for them.
4. Technological Forces
Technological forces include software changes, hardware changes, usage changes.
How will high-bandwidth wireless technology impact driverless cars? How will access to computers impact online education in the public school system? How will people's preference to watch movies at home impact movie production?
Fast food restaurants are becoming more efficient, self-ordering is in almost every restaurant, their labor cost is declining dramatically, food cost is declining, and it is becoming easier to trace and track every item.
Technological changes can be the biggest threat or the most significant opportunity for the fast-food industry. McDonald’s has recently upgraded their menus, created a responsive app, improved its online, allowing customers to grab and leave their stores quickly. They are also using automation to deliver safer food and faster service.
How can you use technology to deliver better and faster service?
5. Environmental Forces
Environmental forces include natural, regional, and attitudinal changes.
What changes in the natural environment will create opportunities or problems for us? Will Texas allow medicinal marijuana? Will people's attitude about the environment inspires them to use solar panels?
These forces have only become important in the last 20 years; however, they are becoming essential in running an ethical business. Building a sustainable business and reducing pollution is not an easy task, but most companies place their sustainability effort at the top of their priority list.
Adidas is working hard to lower its environmental impact. They are on a mission to end plastic waste, monitor hazardous substances, and eliminate any negative impact on the environment.
Do you have eco-friendly policies?
6. Legal Forces
Legal forces include health and safety, advertising standards, loaning policies, consumer rights, product labeling, and more.
Do you a specific policy that you follow for hiring new employees? Do you provide a safe environment for your staff? Are your products manufactured safely?
In the United States, the FDA regulates food and drug production. Some beauty products are regulated under The Federal Food, Drug and Cosmetic Act and Fair Packaging and Labeling Act, so consult an attorney if you manufacture any beauty products.
There are also consumer law, discrimination law, copyright law, employment law, fraud law, pyramid scheme law, and import and export law. Always be aware of any law in your industry before making any move.
If you pay attention to these six forces, you will stay ahead of the competition and be aware of your customer's needs. They cover every aspect that might slow down your progress and hinder your ability to serve your customers faster and better.
Had town Macks Creek officials followed the PESTEL Framework, the town would have survived. Had they understood they did not have the political support to raise 85% of their revenue from speeding tickets, they would have acted a little different.
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