Tuesday, December 30, 2008

That pesky PEST

Or should I say, “that pesky uncontrollable, chaotic, external environment we work in, that makes it impossible to plan?”

In market research, one has to look beyond customers and competitors and also examine the overall environment. One common model for analysis is called the “PEST” matrix, which asks you to look at the political, economic, social and technological aspects of the environment which impact your clients and the microfinance industry in general.

P: Political. What laws are being considered which may affect microfinance? Are politicians debating interest rate caps? Consumer protection laws, which require advertising APR rather than flat monthly rates? Is there a movement to crack down on the informal economy? These are just a few examples of factors in the political landscape that impact your market.

E: Economic. How will projected inflation rates impact your MFI’s interest rates and profitability? What about currency devaluations? What other trends are on the economic horizon that may impact your operations?

S: Social. Is a religious movement against charging interest gathering steam? Are people migrating to urban areas? Sometimes when you’re living inside a social movement it’s hard to see what’s happening, but social issues such as those mentioned above can have a tremendous impact on the marketing of your products.

T: Technological. If branchless banking is heading your way, your MFI doesn’t want to be the last one to catch that wave. Ditto for mobile ATMs, or any other technological advance that can reduce the costs to your MFI and your client. MFIs which ignore these advances often find themselves at the mercy of their more forward-thinking competitors.

Action item:

Hold a “futuring” exercise with your managers. Draw up a PEST grid on a white board or sheet of poster paper and brainstorm developing trends within each category. Choose the three issues in each category which will have the greatest impact on your MFI’s performance. Then discuss the most likely directions each will take – what does conventional wisdom say? Next discuss the “worst case” scenarios – what’s the worst that can happen in each category?

Finally, discuss what your team would like to happen – what would be best for your MFI? Are there ways your MFI can help create your preferred future? Ways to take advantage of the “most likely” scenario? To avoid disaster in a worst case scenario?

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