The PEST Analysis

The PEST analysis is not as widely used as the SWOT analysis but is nonetheless an extremely valuable tool which, when applied in tandem with a SWOT analysis can provide a more in-depth understanding of the overall environment your organization is operating within and might face in the future; vital considerations when developing strategy.

PEST Analysis is a simple but important and widely-used tool that helps you understand the big picture of the Political, Economic, Socio-Cultural and Technological environment you are operating in. PEST is used by business leaders worldwide to build their vision of the future.

Identifying PEST influences is a useful way of summarizing the external environment in which a business operates. However, it must be followed up by consideration of how a business should respond to these influences.

It is important for these reasons:

  • By making effective use of PEST Analysis, you ensure that what you are doing is aligned positively with the forces of change that are affecting our world. By taking advantage of change, you are much more likely to be successful than if your activities oppose it.
  • Good use of PEST Analysis helps you avoid taking action that is condemned to failure for reasons beyond your control.
  • PEST is useful when you start operating in a new country or region. Use of PEST Analysis helps you break free of unconscious assumptions, and helps you quickly adapt to the realities of the new environment.

PEST is a simple mnemonic standing for Political, Economic, Socio-Cultural and Technological.

Political:

  • Government type and stability.
  • Freedom of press, rule of law and levels of bureaucracy and corruption.
  • Regulation and de-regulation trends.
  • Social and employment legislation.
  • Tax policy, and trade and tariff controls.
  • Environmental and consumer-protection legislation.
  • Likely changes in the political environment

Economic:

  • Stage of business cycle.
  • Current and projected economic growth, inflation and interest rates.
  • Unemployment and labor supply.
  • Labor costs.
  • Levels of disposable income and income distribution.
  • Impact of globalization.
  • Likely impact of technological or other change on the economy.
  • Likely changes in the economic environment.

Socio-Cultural:

  • Population growth rate and age profile.
  • Population health, education and social mobility, and attitudes to these.
  • Population employment patterns, job market freedom and attitudes to work.
  • Press attitudes, public opinion, social attitudes and social taboos.
  • Lifestyle choices and attitudes to these.
  • Socio-cultural changes.

Technological Environment:

  • Impact of emerging technologies.
  • Impact of Internet, reduction in communications costs and increased remote working.
  • Research & Development activity.
  • Impact of technology transfer.

Other forms of PEST – PESTLE, PESTLIED, STEEPLE and SLEPT:

Some people prefer to use different flavors of PEST Analysis. These are:

  1. PESTLE/PESTEL: Political, Economic, Sociological, Technological, Legal, Environmental.
  2. PESTLIED: Political, Economic, Social, Technological, Legal, International, Environmental, Demographic.
  3. STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical.
  4. SLEPT: Social, Legal, Economic, Political, Technological.

Choose the flavor that most suits you!

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