What is a PEST analysis?
PEST is an acronym for political, economic, social, and technological, external factors that can and do affect business activities and performance. One method for systematically discovering and quantifying those factors is the PEST analysis. Businesses need to take a proactive approach and be ahead of changes, rather than making hasty decisions in a reactive way. To understand what is a PEST analysis it is necessary to understand the factors it consists of:
- Political – Examines how government regulations and legal issues affect a company’s ability to succeed. Issues to be considered include tax guidelines, copyright and property law enforcement, political stability, trade regulations, employment laws and safety regulations.
- Economic – Examines the outside economic issues that play a role in a company’s success. Items to consider include economic growth, exchange, inflation and interest rates, economic stability, and other economic factors
- Social – Analyzes the demographic and cultural aspects of the company’s market to help identify consumer needs and determine what pushes them to make purchases. Demographics, population growth rates, age distribution, attitudes toward work, job market trends, religious and ethical beliefs, and lifestyle changes are among the items to be examined.
- Technological – Analyzes technology issues that affect how an organization delivers its product or service. Specific items to be considered include technological advancements, government spending on technological research, life cycle of current technology, the role of the Internet and the impact of potential information technology changes.
How to do a PEST analysis of a company
There are three steps in the PEST analysis process:
- Brainstorm the relevant factors that apply to your business. The prompts shown are suggestions. Use what applies to your business.
- Government type and stability.
- Freedom of press, rule of law
- Levels of bureaucracy and corruption.
- Tax policy, and trade and tariff controls
- Unemployment and labor supply.
- Labor costs.
- Impact of globalization.
- Population growth rate and age profile.
- Press attitudes, public opinion, social attitudes and social taboos.
- Lifestyle choices and attitudes to these.
- Impact of emerging technologies.
- Research & Development activity.
- Impact of technology transfer.
- Identify the information that applies to these factors.
- Draw conclusions from this information.
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