What is PEST analysis?
PEST (political, economic, social and technological) analysis is a management method by which an organization can assess the main external factors that influence its functioning in order to become more competitive on the market. As described by the acronym, these four areas are at the heart of this model.
A popular variant of the PEST analysis format, particularly in the UK, is the PESTLE strategic planning approach, which includes additional aspects of legislation and the environment.
PEST analysis explained
It is believed that PEST analysis was first introduced under the name ETPS by Harvard professor Francis J. Aguilar. In the 1967 publication Analysis of the business environment, Aguilar presented economic, technical, political and social factors as major influences on the business environment. Subsequently, the letters were reorganized to create a practical and original acronym used today.
Areas assessed by PEST analysis
A comprehensive assessment of the main areas of influence that affect the sector in which an organization is positioned, as well as the organization itself, can facilitate more effective strategic planning. This planning can be undertaken to maximize the organization’s ability to take advantage of conditions as they exist, and to be alert and better prepared for impending changes, allowing the organization to stay one step ahead of its competitors. .
P – The political aspect of the PEST analysis focuses on the areas in which government policy and / or changes in legislation affect the economy, the specific industry and the organization in question. Areas of policy that can particularly affect an organization include tax and labor laws. The general political climate of a nation or region, as well as international relations, can also greatly influence the organization.
E – The economic part of the analysis targets the key factors of interest and exchange rates, economic growth, supply and demand, inflation and recession.
S – The social factors that can be included in a PEST analysis are demography and age distribution, cultural attitudes and trends in the workplace and lifestyle.
T – The technological component takes into account the specific role and development of technologies within the sector and the organization, as well as wider uses, trends and technological changes. Public spending on technological research can also be a point of interest in this area.
Applications of PEST analysis
PEST analysis can help an organization to recognize and therefore take advantage of the opportunities offered by existing conditions in the business environment. It can also be used to identify current or future challenges, allowing effective planning of the best way to manage these challenges.
PEST analysis can also be used to assess the internal structure of an organization in order to identify the strengths and weaknesses of its internal policy, its economic prospects, its social climate and its technological base. The results of this analysis can facilitate changes or improvements in areas identified as inferior.
PEST analysis can be used in conjunction with other forms of strategic business analysis, such as the SWOT (Strengths, Weaknesses, Opportunities and Threats) model, for an even more complete result. Comparing these completed analyzes can provide a very solid foundation for informed decision making.