What is PEST Analysis?

Andrew Strassmore
Andrew Strassmore
29.11.2022
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Theory

PEST analysis is a business tool used to assess the external environment in which a company operates. PEST stands for political, economic, social and technological factors. PEST analysis can be used to assess opportunities and threats in a business environment.

The aim of PEST analysis is to identify the factors that are affecting, or could affect, a business. The factors can be political, economic, social or technological. PEST analysis can help businesses assess opportunities and threats in their environment.

Factors to Consider in PEST Analysis

Political factors include government policies and regulations that may impact a business. For example, a new tax or regulation could impact a company's profits.

Economic factors include conditions such as inflation, interest rates and the strength of the economy. A recession could impact a company's profits.

Social factors include demographics (e.g., population size and age) and cultural trends (e.g., changing social values). Social factors can impact consumer demand for products and services.

Technological factors include changes in technology that could impact a business (e.g., the development of new software that makes it easier to sell products online).

Digital_Pulse_PEST_Analysis

When implementing PEST analysis, it is important to consider all of these factors in order to understand the external environment and identify potential opportunities and threats. By being aware of key trends and developments in your industry, you can proactively respond to changes in the business environment and take advantage of new opportunities as they arise.

PEST Analysis and SWOT Analysis

PEST analysis and SWOT analysis are two different ways of looking at a company's external environment. PEST analysis looks at political, economic, social and technological factors, while SWOT analysis looks at strengths, weaknesses, opportunities and threats.

The main difference between PEST and SWOT is that PEST factors are external to the company, while SWOT factors are internal. PEST factors can impact a company's ability to compete in the market, while SWOT factors relate to how well the company is performing currently.

PESTEL and PESTELI

PEST analysis also has three kinds: PEST, PESTEL and PESTELI analysis. PESTEL and PESTELI analysis are two different ways of looking at a company's external environment. PESTEL analysis looks at political, economic, social, environmental and legal factors, while PESTELI analysis also includes industry-specific factors.

The main difference between PESTEL and PESTELI is that PESTEL factors are external to the company, while PESTELI factors are internal. PESTEL factors can impact a company's ability to compete in the market, while PESTELI factors relate to how well the company is performing currently.

STEEP Analysis

One way to further examine an industry is through STEEP analysis, which stands for Social, Technological, Economic, Environmental and Political. This analysis can help identify potential opportunities and threats that may not be as apparent when looking at individual PEST factors.

For example, if you are looking at the technology factor, you might not consider the environmental impact of new technology. However, through STEEP analysis, you may realize that there could be negative environmental consequences from using certain types of technology. This could then lead to further exploration into that particular issue and how it could impact your business.

When conducting STEEP analysis, it is important to consider all of the relevant factors in order to get a complete picture of the environment in which the company operates. By understanding the key trends and developments in your industry, you can proactively respond to changes in the business environment and take advantage of new opportunities as they arise.

Advantages of PEST Analysis

PEST analysis can be useful for businesses due to the fact that it can help:

  • Understand the external environment in which your business operates. This information can help you make informed decisions about how to respond to changes in the business climate;
  • Identify new opportunities and threats in your industry. By understanding the key trends and developments, you can take advantage of new opportunities and proactively respond to threats;
  • Understand the impact of external factors on your business. For example, a change in government policy could have a significant impact on your profits;
  • Benchmark your business against competitors. By understanding the key factors affecting your industry, you can compare your company against others and identify areas where you may be weak or strong.

Disadvantages of PEST Analysis

  • It does not provide a complete picture of the environment in which a business operates. There are many factors that could not be considered in this type of analysis;
  • It is limited to political, economic, social and technological factors only. Other factors, such as environmental or legal factors, may be important for businesses but are not considered in PEST analysis;
  • PEST analysis is often done at a high level and does not consider specific details about how each factor could impact the business. This could lead to inaccurate conclusions being drawn about the environment in which the company operates.

PEST analysis is a process that can help you understand the external environment in which your business operates. This information can help you make informed decisions about how to respond to changes in the business climate. PEST analysis can help you identify new opportunities and threats in your industry. By understanding the key trends and developments, you can take advantage of new opportunities and proactively respond to threats. PEST analysis can also help you understand the impact of external factors on your business. For example, a change in government policy could have a significant impact on your profits.

Four Stages of a Process

PEST analysis is a process that can be divided into four stages:

  • Identification of factors: identify the key political, economic, social and technological factors that could impact the business;
  • Analysis of factors: analyze each factor in detail, understand the implications for the business;
  • Evaluation of opportunities and threats: Once the factors have been analyzed, it is necessary to evaluate the opportunities and threats that they present;
  • Development of strategies: Once the opportunities and threats have been identified, it is necessary to develop strategies to respond to them. For example, if a new tax is likely to have a negative impact on the business, strategies might include reducing costs or finding alternative sources of funding.

Conclusion

The PEST analysis helps in planning further actions and evaluating the environment. It is conducted in four areas, each of which explains a different way to impact the business. There are other models that are extended. Each of them includes a different direction for evaluation.

The PEST analysis does not show the whole picture. It is rather subjective, especially if conducted by non-professionals. But you should not give up on it. It helps to identify threats and eliminate them. Business management will be able to prepare for the likely consequences and reduce their impact. This approach helps to fine-tune internal processes and bypass competitors who could not hustle in time.

Andrew Strassmore

Chief Marketing Officer

Visits: 73

Marketing addicted and blockchain inspired. Writing about marketing and cryptocurrency since 2017.

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