Managing PESTs in a Virus Pandemic

One of the great tools for planning, often used along with a VRIO analysis, is a PEST analysis. PEST stands for Political (or Regulatory), Economic, Social, and Technological, and a PEST exercise is a helpful way to identify current and future challenges your credit union either needs to mitigate, or capitalize on. In this post we outline a PEST process overview, and illustrate how it can be used to address today’s, and tomorrow’s coronavirus-inspired issues.

PEST Analysis Approach

Our recommended approach to a PEST analysis involves a three step process. First, participants from your credit union are tasked with brainstorming the variety of political, economic, social, and technological issues facing credit unions in general, and your credit union specifically.

The second step requires that participants consider the results from the first step, and then think both in and beyond the current organizational structure and marketplace to identify critical organizational strengths, weaknesses, opportunities, and threats (SWOT).

The final step is to discuss, as a team, the results of the first two steps and determine appropriate response strategy.

How It Works

Participant input is gathered using a two-part survey/questionnaire. For PEST brainstorming (step one above), participants respond to a series of open-ended questions, with responses captured and synthesized into a set of PEST issues. These issues are added to a second questionnaire (step two) which engages participants in a series of issues-based questions related to SWOT.

The results of the PEST effort are then captured in a SWOT matrix which offers relevant perspective regarding the credit union’s strengths, weaknesses, opportunities and threats in overall terms, and in relation to political/regulatory, economic, social/demographic, and technological issues. Participants use these responses to debate and make decisions regarding credit union strategic direction, risk tolerances and mitigation, and to appropriately position the operating environment (step three)

Team Engagement

To focus team brainstorming and feedback on relevant areas, we recommend using pre-defined questions for gathering team input on critical PEST issues, and then using team responses to the PEST issues questions in structuring questions to elicit feedback on SWOT.

Here’s what we mean…

PEST Team Brainstorming

The basic PEST questions we recommend to drive team PEST issues brainstorming are as follows:

  1. What major short- and long-term political/regulatory issues are facing credit unions in general and/or our credit union specifically?
  2. What major short- and long-term economic issues are facing credit unions in general and/or our credit union specifically?
  3. What major short- and long-term social/demographic issues are facing credit unions in general and/or our credit union specifically?
  4. What major short- and long-term technological issues are facing credit unions in general and/or our credit union specifically?

PEST-Driven SWOT Assessment

Once you have the results from the PEST team brainstorming in hand, use them to construct SWOT-driven questions as outlined below:

  1. What strengths do we possess that will allow us to address the following short- and long-term…
    1. …political/regulatory issues? (note: the consensus issues from the relevant PEST exercise would be listed here and similarly for each of the following sections)
    2. …economic issues?
    3. …social/demographic issues?
    4. …technological issues?
  2. What weaknesses do we possess that make it more difficult for us to address the following short- and long-term…
    1. …political/regulatory issues?
    2. …economic issues?
    3. …social/demographic issues?
    4. …technological issues?
  3. What relevant opportunities are available given the following short- and long-term…
    1. …political/regulatory issues?
    2. …economic issues?
    3. …social/demographic issues?
    4. …technological issues?
  4. What relevant threats are present given the following short- and long-term…
    1. …political/regulatory issues?
    2. …economic issues?
    3. …social/demographic issues?
    4. …technological issues?

For example, suppose a current political issue identified in the PEST brainstorming exercise is a growing government desire for financial institutions to forgive loans. Your first SWOT question using this issue could be:

What strengths do we possess that will allow us to address a potential government mandate for financial institutions to forgive loans?

You responses would certainly vary depending on your circumstances, but could include things like strength of loan loss reserves or capital, low overhead/operating expenses, and the like.

The Document

Once the raw results from the PEST/SWOT effort are captured, it is best to organize them into a matrix-based discussion document as follows:

  1. By SWOT Category (strengths, weaknesses, opportunities, threats).
  2. By PEST and SWOT Categories (e.g., political/regulatory-related SWOT, economic-related SWOT, etc.).

Sample Matrices – By SWOT Category

The SWOT category matrix is illustrated below. This matrix allows for an overarching view of strengths, weaknesses, opportunities, and threats. It is helpful in driving discussion of the interrelationships between the four areas, in particular the ability of the internal environment to “successfully” interact with the external environment (e.g., discussing what weaknesses could allow a threat to become an existential risk, and what the appropriate organizational strategic response should be – such as leveraging an existing strength, or developing new strengths).

PositiveNegative
InternalStrengths ListWeaknesses List
ExternalOpportunities ListThreats list
SWOT Category Matrix

Sample Matrices – By PEST and SWOT Categories

The PEST/SWOT category matrix is illustrated below. This matrix allows a detailed look into issues and impact in each of the four PEST categories. This is particularly helpful if there are numerous responses in each of the PEST categories, and/or if participants want to isolate discussion specific to the strategic opportunity and risk in a given category. Given the impact the coronavirus has had in each of the four areas, this approach may be more helpful than only reviewing results structured in a SWOT-specific matrix.

Category: Political/Regulatory Issues

PositiveNegative
InternalStrengthsWeaknesses
ExternalOpportunitiesThreats
SWOT/PEST Category Matrix – Political/Regulatory

Note: Repeat for each of the four PEST categories

Acting on PEST & SWOT Data

An exercise where the results are never used is wasted effort, so make sure if you tackle a PEST/SWOT effort you take the critical next step of using the results. So, how do you use them?

Once you have the matrices completed, team members should be gathered – virtually, of course – to discuss whether the credit union is properly prepared (strengths/weaknesses) for the most important existential risks (opportunities/threats), and, if not, what is to be done.

Here is a basic example to illustrate the dialogue using PEST/SWOT outcome. One of our clients has a defined weakness given today’s meeting restrictions – they do not have a drive through. While a majority of members are younger and tech savvy, the credit union does have an abundance of older members who are either not specifically tech savvy, or have simply eschewed technology because of the convenience of the branch.

Here is a (simplified) PEST issues list that they might have created:

  • Political/Regulatory: The government has mandated social distancing, and seeks to restrict public gatherings.
  • Economic: The stock market has bottomed out, and nearly 10 million people are newly unemployed.
  • Social: Consumers are fearful of lost retirement savings, seek reassurance that their funds are safe, and/or (some) do not know how to use home/mobile banking technology to stay on top of their personal banking.
  • Technological: Adoption of mobile tools is growing by leaps and bounds, but some people do not have the appropriate hardware to take advantage.

And here are the general strengths, weaknesses, opportunities, and threats relative to the PEST issues above – organized in SWOT terms – that they might have identified. Again – this is a simplified extract.

PositiveNegative
InternalStrengths:
1) Dedicated staff trained in empathetic personal interactions.
2) Branch on a side street, and a parking lot with two entrances.
3) Drive-through ATM
4) Newly improved phone system and text communication capabilities
Weaknesses:
1) No full service drive through to allow for “safe distance” engagement.
2) Staff is small in total number relative to total membership.
3) Low income-designated FOM, and older members, means an abundance of members without good technology tools.
ExternalOpportunities:
1) Mass movement to fully embrace mobile banking tools.
2) Members in field of membership having to learn new skills, but generally still employed.
Threats:
1) Massive economic slowdown means loss of consumer sending (non-interest income, loan income negatively impacted).
2) High demand for cash.
3) Fear of the unknown sparks panicky/reactionary behavior and choices.
SWOT Category Matrix

Identifying PEST-inspired SWOT issues allowed the credit union to think uniquely about how to respond. One of the really interesting choices they made was to offer “curbside service” for members most at risk, or that are exhibiting high levels of general fear.

Through they do not have a drive through, their parking lot is “drive through,” meaning members can queue up for curbside support as needed and exit without impeding incoming traffic. To reduce risk, staff do not handle cash, but if cash is needed the members can be directed to the drive through ATM adjacent to the credit union’s parking lot.

Basically, the credit union looked at certain risks in their membership in the context of political/regulatory orders for gathering restrictions, and made a choice to adapt their member service processes specifically for a smaller sub-set of members considered “at risk.” For all other members, they encouraged, like so many other credit unions, the use of the credit union’s excellent technology platform.

In short, the credit union was able to stay visible and open to sensitive members, project stability to all members, and support the migration to tech tools for members with skills but a general, historical dependence on the branch experience. They absolutely leveraged their strengths in new ways in an effort to adapt to the PEST issues largely outside of their direct control.

Engage in PEST/SWOT Today

Like the client mentioned above, you undoubtedly have your current processes tuned to today’s situation, but risks over the coming months will mutate – to use a recently oft-used word. We encourage you to dive into the PEST/SWOT analysis to drive discussion focused on future issues and action considerate of the changing environment. The process outline above should get you going if you haven’t done a PEST/SWOT analysis before, or if it has been awhile.

And know that if you need assistance in facilitating the process, we’re here to help. We have all of the virtual tools necessary to engage your team wherever they happen to be working on any given day. Schedule a discussion, or complete our contact form if you want to learn more.

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