The PEST Analysis

LEARNING OBJECTIVES

After examining this chapter, readers will have the ability to: • Understand that healthcare entities exist in a larger macroen­

vironment that consists of opportunities and threats that have the potential to positively, neutrally, or negatively im­pact operations.

• Realize that environmental forces must actively be monitored and evaluated in an effort to best position healthcare organ­izations to respond to such forces.

• Appreciate the value of the PEST Analysis as a tool for moni­toring and evaluating the macroenvironment.

INTRODUCTION

Healthcare entities exist in a much larger macroenvironment teeming with opportunities and threats capable of bolstering or destroying institutional progress. Although these environmental forces are beyond the control of those responsible for managing entities, it is essential for marketers to ac­tively monitor and evaluate these elements in an effort to capitalize on op­portunities and avoid or eliminate threats.

A useful tool for performing this evaluative task is known as the PEST Analysis. This analysis, illustrated in Figure 26-1, involves the assessment

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180 CHAPTER 26 THE PEST ANALYSIS

Political Forces Economic Forces Social Forces Technological Forces

1. 1. 1. 1.

2. 2. 2. 2.

3. 3. 3. 3.

4. 4. 4. 4.

5. 5. 5. 5.

6. 6. 6. 6.

7. 7. 7. 7.

8. 8. 8. 8.

9. 9. 9. 9.

10. 10. 10. 10.

FIGURE 26-1 The PEST Analysis

of a series of macroenvironmental variables-political, economic, social, and technological-that can potentially influence organizations. Political, economic, social, and technological forces are defined as follows.

POLITICAL FORCES

Political forces involve all aspects associated with the legal and political framework of the environment. Although the political environment influ­ences all industries, it has an even more profound impact on the health­care industry. This increased political attention is due to the unique role of health care in society. First, the health status of a nation influences na­tional prosperity and is, therefore, of significant concern to political lead­ers. Second, health care is very expensive and thus draws government scrutiny, especially given the fact that the US government pays for a sig­nificant portion of national healthcare expenditures. Third, the healthcare industry deals with life and death issues and must be monitored and, in some cases, regulated by the government to protect the public. Medicare and Medicaid insurance programs; certificate of need legislation; and reg­ulatory oversight by the Food and Drug Administration, state licensure boards, and other entities all serve as examples of political and politically driven forces impacting the healthcare marketplace.

SOCIAL FORCES 181

ECONOMIC FORCES

Economic forces involve all aspects associated with the economy ofa soci­ety, notably including factors related to economic health (e.g., inflation, un­employment, income). The economic climate exerts a powerful influence on both organizations and individuals. In weak economies, healthcare entities might scale back or even eliminate product offerings. Rising costs might deter facilities from introducing new services or upgrading technolo­gies. Poor economies might even result in the closure of facilities.

An environment of company layoffs and closures often reduces the number of individuals covered by health insurance. Laid off individuals lose their eligibility for company-sponsored health plans and often lack the funds necessary to obtain private coverage. Declining income levels can de­stroy demand for elective procedures. Individuals will often bypass even medically necessary services when they have been negatively impacted by economic downturns. Alternatively, strong economies can stimulate con­sumption of healthcare offerings and positively impact the depth and breadth of goods and services offered by healthcare entities.

SOCIAL FORCES

The social climate ofa society impacts virtually every organization operat­ing within the particular environment. Social forces include such aspects as the demographic composition and system of values and beliefs of a society. Demographic factors (e.g., age, gender, race, family size, education) heavily influence the healthcare industry. An aging population, for example, will likely increase the demand for long term care services, such as home health, assisted living, and nursing home care, whereas a youthful population heav­ily composed of women of childbearing age will likely drive the demand for labor and delivery services in the area.

Values and beliefs also impact the environment of healthcare entities. These lifestyle factors can positively or negatively influence the health status ofa society. Healthy eating habits, for example, positively impact the health status of a population in that these practices contribute to an increased level ofcommunity health and wellness.

Promiscuous sexual behavior, on the other hand, negatively impacts the health of a society in that it increases the likelihood of unwanted

182 CHAPTER 26 THE PEST ANALYSIS

pregnancies and sexually transmitted diseases. Healthcare entities, ofIi Ii

" course, must be prepared to deal with the health-related wants and needs 1\ of their communities, whether driven by positive or negative social forces. Ii

.. TECHNOLOGICAL FORCES

.~ Technological forces significantly influence broad society, including the healthcare industry. Both the healthcare industry and the individuals it serves have greatly benefited from technological innovations, which have become frequent and expected in society. Noninvasive medical technolo­gies, advanced surgical techniques and procedures, and therapeutic and cur­ative pharmaceuticals represent only a few of the many healthcare innovations that significantly improve the health of a population.

Healthcare innovations are likely to become all the more spectacular with promising new developments in biotechnology and other scientific frontiers. As more healthcare innovations enter the market, demand will undoubtedly increase, positively impacting the health status of society.

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OPERATIONAL MATTERS

Formulating a PEST Analysis requires that marketers (1) construct the PEST diagram, as illustrated in Figure 26-1, (2) identify relevant macroen­vironmental forces, and (3) describe how these forces are expected to im­pact given healthcare entities. The resulting diagram is then analyzed to

gain macroenvironmental insights. Figure 26-2 presents a PEST Analysis that was developed for a rural

hospital. This diagram clearly and concisely identifies relevant macroenvi­ronmental forces. With this tool, the hospital can quickly assess macroen­vironmental influences and formulate strategies and tactics to address pressing issues. Opportunities can be identified and exploited, while threats can be assessed and avoided or eliminated. The PEST Analysis allows or­ganizations to proactively, rather than reactively, address macroenviron­mental forces.

Importantly, the PEST Analysis should be conducted in an inclusive fashion where input from all organizational members involved in the de­velopment and management ofassociated goods and services is actively en­couraged. The multiple perspectives offered by this extended group of individuals can greatly enhance resulting PEST Analyses.

SUMMARY 183

Political Forces Economic Forces Social Forces Technological Forces

Recent election placed Robust economy: Growth of newly New Emergency 911 "friends" of quality health care in office

... expected to... Improve government

support for healthcare facilities and services

State lawmakers recognize looming

long term care crisis ...expected to...

Increase nursing home beds; offer incentives to build assisted living

centers

Legislation pending regarding rural health improvement initiative

... expected to... Increase reimbursement

rates for rural health

rising income, low unemployment ... expected to...

Increase percentage of insured patients;

increase demand for elective medical

procedures

Significant industrial growth

... expected to... Increase demand for

general medical services; increase demand for occupational health

services

married couples and young families

... expected to... Increase demand for

OBIGYN and pediatric medical services

Growth of senior citizen population

... expected to... Increase demand for

geriatric services

Teen smoking On the rise

... expected to.. . Increase demand for substance abuse and

smoking cessation

automated system ... expected to...

Improve ambulance response times and

E R efficiencies

Improved imaging technologies ... expected to...

Improve hospital's diagnostic capabilities

More efficacious pharmaceuticals

... expected to... Reduce number of

inpatient days

entities programs

FIGURE 26-2 A Rural Hospital's PEST Analysis

It should be noted that the information derived from the PEST Analysis should ideally be combined with microenvironmental information (e.g., information regarding suppliers, competitors, customers, and so on). When this is accomplished, organizations possess a complete environmen­tal assessment-invaluable information for planning marketing strategies and tactics.

SUMMARY

With its external focus, the PEST Analysis provides healthcare marketers with a useful method for monitoring the macroenvironment. By rou­tinely conducting this analysis, healthcare marketers can proactively re­spond to opportunities and threats that exist in the larger environment, allowing their organizations the increased opportunity to achieve growth and prosperity.

184 CHAPTER 26 THE PEST ANALYSIS

EXERCISES

1. Define and comprehensively discuss the PEST Analysis, the four forces that the tool acts to monitor, and methodology associated with effecting this instrument. A diagram of the PEST Analysis should be included in your narrative. Share your thoughts regarding the tool's implications and uses in the healthcare industry. Do you believe that marketing departments in modern hea1thcare organizations are effectively monitoring their macroenvironments? Please justifY your response.

2. Over the course ofa I-month period, monitor national, regional, and local news sources, noting elements of the macroenvironment that have the potential to impact local healthcare entities. Then, develop a PEST Analysis incorporating these elements. In this exercise, the PEST Analysis need not be tied to a specific healthcare institution but can instead be assembled as a general guide to macroenvironmen­tal issues that might impact any area healthcare entity. Provide a brief narrative explaining overall discoveries and implications.