Getting More Out of PEST/PESTLE/STEEPLED Analyses

There probably isn’t anyone reading this who has not been through a strategic planning exercise that attempts to use a structured approach to brainstorm opportunities and threats in an organization’s external environment. These are known by a variety of acronyms, including PEST (political, economic, socio-cultural, and technology), PESTLE (PEST plus legal and environmental), and STEEPLED (PESTLE plus ethical and demographic issues).

Unfortunately, far too many people come away from these exercises feeling frustrated that they have generated a laundry list of issues and related opportunities and threats, but little else.

Having been in those shoes many times over the years, at Britten Coyne we set out to develop a better methodology. Our primary goal was to enable clients to develop an integrated mental model that would enable them to maintain a high degree of situation awareness about emerging threats in a dynamically evolving complex adaptive system – i.e., the confusing world in which they must make decisions.

Our starting point was the historical observation that the causes that give rise to strategic threats do not operate in isolation from one another. Rather, they tend to unfold and accumulate in a rough chronological order, albeit with time delays and feedback loops between them that often produce non-linear effects.

As the economist Rudiger Dornbusch famously observed, “a crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.” The ancient Roman philosopher Seneca observed this same phenomenon far earlier, noting that, “fortune is of sluggish growth but ruin is rapid.”

The following chart highlights that the changes we observe in different areas at any point in time are actually part of a much more complex and integrated change process.

Dynamics_Chart


In our experience, you develop situation awareness about the dynamics of this system by asking these three questions about each issue area:

  1. What are the key trends and uncertainties – i.e., those that could have the largest impact in terms of the threats they could produce (or, from a strategy perspective, the opportunities)?

  1. What are the key stocks and flows within each area? This systems dynamics approach focuses attention on one of the key drivers of non-linear change in complex adaptive systems – accumulating or decumulating stocks (e.g., levels of debt or inequality, or the capability of a technology) that reach and then exceed the system's carrying capacity. While media attention typically focuses on flows (e.g., an annual earnings report or this year’s government deficit), major discontinuities in the state of a complex adaptive system are often caused by stocks reaching a critical threshold or tipping point.

  1. What are the key feedback loops at work, both within each area, and between them? Positive feedback loops are especially important, as they can cause flows to rapidly accelerate and quickly trigger substantial nonlinear effects both within a given issue area and often across others as well.

With a better (but certainly not perfect) understanding of the key elements in a complex adaptive system, and the relationships between them, you are in a far better position to identify potential discontinuities (and their cascading impacts over time) in order to develop more accurate estimates of how the system of interest could evolve in the future, and the threats and opportunities it could produce.

To be sure, another feature of complex adaptive systems is that due to their evolutionary nature, forecast accuracy tends to decline exponentially as the time horizon lengthens. The good news, however, is that as many authors have shown (e.g., “
How Much Can Firms Know?” by Ormerod and Rosewell), even a little bit of foresight advantage can confer substantial benefits when an individual, organization, or nation state is competing in a complex adaptive system.

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