What is PEST Analysis?

A. Leverkuhn

PEST analysis is one of the most important things that a business can do to chart its path for the future. This strategy involves looking at a “macro environment” for a business. PEST analysis stands for Political, Economic, Social, and Technological analysis. This kind of thinking helps business leaders to anticipate how their products and services will be received, and how they can best deal with change.

Companies use PEST analysis factors to determine how external government forces may alter operational plans.
Companies use PEST analysis factors to determine how external government forces may alter operational plans.

As a kind of market research tool, PEST analysis is handy for looking at many factors that can shape a business. Some experts add another component, Legal, where the acronym becomes SLEPT. PEST analysis on its own covers a range of “soft science” environment indicators that can be a little harder to measure than some other business metrics.

The PEST analysis is often used in conjunction with a SWOT analysis.
The PEST analysis is often used in conjunction with a SWOT analysis.

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There are a lot of details to look at within a general PEST analysis. Business leaders might consider government policy changes that will affect their firm, under the Political area of PEST. Economic factors may include statistics on family incomes and spending. Looking at social factors can help a business reach a target audience. Technology can also come into play in many ways, including production, advertising, and more.

Some people point to the idea of “green business” as something that a company often considers in a PEST analysis. Here, the company is looking at not only the Political and Economic factors of PEST, but the Social one as well. Businesses often undertake “green” efforts based on what they think the average consumer wants to see in a company.

The PEST analysis strategy is often used in conjunction with a SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. This kind of “global” analysis of a company provides more for helping top brass to make decisions based on how a business is perceived, and how it perceives itself. Any of the items in a SWOT analysis are likely to fall into one of the PEST categories. That makes these two kinds of research very complimentary.

The use of PEST analysis and similar tools has helped many businesses to reinvent themselves for better consumer relevance and more profit. It’s something to think about, even for a small business that may not tend to use technical business strategy tools. The popularity of PEST shows that the greater environment always matters in modern business.

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