What Is PEST

Analysis?
PEST Analysis (political, economic, social and technological) is
a management method whereby an organization can assess
major external factors that influence its operation in order to
become more competitive in the market
Goals of a PEST analysis
● The main purpose of PEST analysis is to understand what external forces may affect your organization and how those factors could create
opportunities or threats to your business.
● PEST analysis helps you:
• Understand current external influences on the business so you can work on facts rather than assumptions.
• Identify what factors could change in the future.
• Mitigate risks and take advantage of opportunities to remain competitive.
• Develop a better long-term strategy.
● PEST is particularly useful for understanding the overall market environment. The more threats or risk factors in the market, the more difficult it is to
do business. By analyzing the market forces at play, the more strategic you can be in your planning and decision-making.
● Additionally, PEST analysis helps organizations strategically plan projects and initiatives so that you only focus on projects that have the greatest
chance of success. It also gives you the tools to forecast changes so you can grow your organization with those changes instead of working against
them.
Applications of PEST Analysis
● PEST Analysis can assist an organization in recognizing and thereby capitalizing on opportunities offered by existing conditions in the business
environment.
● It can also be used for identifying current or possible future challenges, allowing for effective planning of how to best manage these challenges.
● PEST Analysis can also be applied in assessing the in-house structure of an organization in order to identify strengths and weaknesses in its internal
politics, economic outlook, social climate, and technology base. The results of this analysis can facilitate changes or improvements in areas identified
as subpar
● 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 comprehensive result. Conducting a comparison between these completed analyses can provide a very solid
basis for informed decision-making.
P (political environment)
● The “P” in the analysis refers to the political factors that help or hinder a business. 
● “We see this currently in the U.S., particularly in the area of international business,” said Donna Lubrano, a lecturer in the Northeastern University
College of Professional Studies. “We look at tariffs, trade deals as they are developed not only by the economics or business side but what political
relationships influence those decisions.”
E (economic)
● The “E” in the PEST analysis refers to the outside economic issues that can play a role in a company’s success. It’s important to look at what the Fed
is doing in terms of the tax rate, as “this is what your pocketbook/wallet lives on every day,” Lubrano said. Also look at interest rates, exchange
inflation, unemployment, gross domestic product, credit availability, and the rise and fall of the middle class. 
S (social)
● The “S” in the PEST analysis relates to the socioeconomic environment of a given industry’s market for a business to understand how consumer
needs are shaped and what brings them to the market for a purchase. 
● “We look at what changes in culture and society are taking place,” Lubrano said. “The drive to eat healthier, the drive to care for the environment,
baby boomers staying in the workforce longer, adults having fewer children, later in life. All of these impact how consumers buy houses, cars, etc.”
T (technology)
● Technology plays a huge part in business and can have both positive and negative effects. Some businesses may have a difficult time adjusting to 
new products, technologies and services, so it’s important to assess the technology from all angles.
Elements of a PEST analysis
● A PEST analysis examines the following political factors:
• Employment regulations. Will it become more expensive to employ staff because of minimum-wage legislation, safety-at-work legislation, pension
contributions, healthcare contributions and so on? Are tax authorities classifying more contractors as employees?
• Environment. Can profit levels be maintained if authorities demand a less-polluting production process or if they levy a charge on companies in
your sector for post-use cleanup of your products?
• Government policy. Are laws a government passes in general conducive to businesses, specifically your business?
• Intellectual property protection. Do the law and court system in a country recognize the rights of intellectual property (IP) holders? In addition,
how hard is it to seek redress against IP and copyright theft?
• Property rights. Do you have sufficient rights to protect and exploit resources and your assets?
• Stability. Unstable political environments, particularly countries with regular (and often forced) changes of government, make planning difficult. In
more stable countries, will a particular party coming to power materially affect your business and its profitability?
• Tariffs. If you import materials for production and/or export finished products to customers, how will any tariffs affect areas of your business, such
as the cost of production and pricing competitiveness?
• Taxation. What does the tax policy of the current government mean for your business’s cash flow, tax deductions and profit margins? Trade
restrictions. Are there sanctions (or likely sanctions) against doing business with a country you’re targeting?
Elements of a PEST analysis

● PEST analysis examines the following economic factors:

• Access to credit. For higher-ticket products and services, can consumers or business customers get ready access to competitively priced credit to
purchase from your company?
• Business investment levels. Do companies in your target market regularly replace their machinery and equipment, or do they try to make them last
as long as possible?
• Cost of living. Higher prices affect business competitiveness because of increased housing costs and the need to pay staff more to mitigate those
costs.
• Economic growth or decline. If an economy is improving, consumers and businesses are likely to have more cash to purchase products or services.
Economic growth triggers higher levels of investment by businesses in general.
• Exchange rates and interest rates. Countries with more robust economies suffer less from fluctuations in currency values (which is important if
you import or export products). In addition, these countries are more likely to have higher interest rates that dampen local inflation (although this has
not always been the case since the Great Recession of 2008-2009).
• Globalization. Globalized countries in which tariffs and restrictions have (largely) been removed enjoy faster economic growth and improved
socioeconomic conditions for customers and staff.
• Inflation. Higher levels of inflation erode the value of money faster. In some cases, businesses may not be eager to pass on higher costs to
customers, so profits fall.
• Labor costs and workforce skill levels. A shortage of workers with the skills required to perform a role will lead to rising labor costs that will hurt
profitability. Sometimes, a shortage may be severe enough to require companies to spend more on training.
• Market conditions. How fast is a market growing? How big is the total market? How many competitors are in this market, and how does this affect
pricing and costs?
• Spending habits. Are the consumers or businesses you are targeting spending more money on your products and services? Are they spending a
different way (for example, moving from real-world to online spending)?
• Tax levels. Given the choice between two states or countries where almost every other PEST consideration is equal, a company may be more likely
to target lower-tax countries first for investment.
Elements of a PEST analysis
● A PEST analysis examines these social factors:
• Attitude toward work (productivity). The more productive a workforce is, the more competitively they can price their products or services or
increase profit margins.

• Consumer trends/tastes/fashions. There is often a substantial gap in time between the creation of a product and its launch, so tracking trends, tastes
and fashions are important to ensuring the success of any new product.
• Diversity, inclusion and equality. It’s increasingly important to Gen Z and millennials that their brands of choice support their values. Should you
launch a corporate social responsibility program and a diversity, equity and inclusion policy? 
• Division of wealth. Economic inequality has a negative impact on organizational performance, a 2015 study in the journal Human Relations found.
It also affects growth in consumption rates during periods of economic decline.
• Education. The quality of education varies among states and countries; lower levels of education require a greater investment in staff training.
Lower levels of education are normally matched by lower levels of pay.
• Employment patterns and job market trends. There has been a shift toward part-time work and self-employment in many states and countries,
making it harder to recruit. In addition, the type of staff you wish to recruit may be in particular demand, leading to higher employment costs.
• Generational attitude shifts. Expectations from an employer may differ among generations, necessitating a change in the way staff are rewarded,
targeted and remunerated.
• Health of the population. Many companies now invest in the mental and physical well-being of their staff to reduce absenteeism and to 
improve productivity.
• Population demographics. Does a state or a market contain the types of staff and customers you are looking for in relative abundance?
• Population growth rate. States or countries whose population is growing primarily through immigration may experience slower growth in pay rates
as a result of increased competition.
● Social mobility. States or countries with larger middle classes that are easier to enter often have higher rates of economic growth and lower rates of
income inequality.
● Unionization. Many employers believe that more highly unionized workforces cost more and are less flexible, although this is disputed.
Elements of a PEST analysis
● A PEST analysis examines these technological factors:
• Artificial intelligence (AI). A company may be able to optimize efficiency and productivity through investment in AI.
• Automation and robotics. Many sectors now automate as many of their processes as possible to use raw materials more efficiently, offer better
service to clients, and manufacture more products at a cheaper cost per unit.
• Cybersecurity and data protection. Cyberattacks continue to affect businesses, so companies should collect only the data they need for operation
and should protect that data robustly.
• Disruptive technologies. Disruptive technologies, like smartphone apps, may open a company to new markets, particularly in the financial sector.
• Innovation. Given the accelerated rate of technological innovation affecting many sectors, should you invest in innovation now to stay ahead of the
curve, or react to the innovations of competitors?
• Remote work. Do the existing technology and infrastructure allow staff to work remotely? 
• Research and development. Should a company invest in R&D in jurisdictions where significant tax breaks are offered for this type of work?
• Social networking. Should your company invest in social networks for promoting its products and services and to hire staff? And should you invest
in apps like Slack and Asana to enable smoother communication among employees in different locations?
• Tech hubs. Should the company (or part of the company) relocate to tech hubs where technological innovation is more likely because of the
availability of staff, investors, suppliers, educational establishments and service providers?
Benefits of PEST analysis
● The benefits of performing a PEST analysis include the following:
• A greater understanding of your company. No company is an island; each business is intricately connected to its customers and society. By
understanding the factors that have a positive or negative effect on your business success, you can get a sense of how your business can make a
difference in other people’s lives. 
• More effective long-term strategic planning. Conducting a PEST analysis every year informs your decisions for the future and prevents you from
being caught by surprise. You can prepare for changes in the market and society in general. This will save you money, prevent lost revenue and
position you well against competitors.
• Heightened attention to potential threats and dangers. When you are aware of potential threats, you can either deal with them or prevent them
altogether. Proactively implement policies to gain a competitive edge, devote resources to influencing laws that may potentially hurt your business or
make strategic alliances that give you a stronger market position.
• Insight into valuable business opportunities. Be the first in your field to take advantage of beneficial government policies or market opportunities.
By keeping your finger on the pulse of the market, you can be in the right place with the right message. Bolster your company’s reputation and
goodwill by instituting policies that are viewed as ethical and responsible.
● When it’s done right, a PEST analysis gives your company the ability to successfully navigate changes in the world around it. As well as alerting you
to potential threats, it can signal brand-new opportunities to expand into different markets and territories. 
● In some cases, a PEST analysis may cause a company to shift some of its operations from one country to another as many U.S. automobile
manufacturers have done.
PEST analysis disadvantages and limitations
● Although there are many potential benefits of a PEST analysis, it can have limitations as well. Consider the following drawbacks:
• Ever-changing environments. Because these environments are so dynamic, your analysis could be outdated within days or even hours. 
• A lot of guesswork. You’ll have to make assumptions about some factors, so there’s always a chance of miscalculation.
• Data overload. Because a PEST analysis involves such large data sets, it takes careful analysis to parse the data and decide how to use it to your
advantage. 
• Risk of inaccuracy. Most of the time, you’ll be getting your information from outside sources, so you can’t be certain it’s 100% accurate.
Tip
● Limit your PEST analysis to the factors that are likely to have a material impact on your business. This will speed up the process and lead to a clearer
course of action.
How to conduct a PEST analysis
● 1. Identify the political factors.
● Conduct internal research to identify what types of laws or policies affect you. These factors may include the following:
• Material or product sourcing (import quotas, tariffs, price supports and subsidies, and preferences)
• Human resources (visas, EEOC requirements, vaccine requirements)
• Manufacturing/operations (OSHA requirements)
• Accounting and finance (IRS requirements; tax hikes, breaks and deductions; and SEC reporting requirements)
• Marketing and customer demand
● 2. Identify the economic factors.
● Determine which economic factors will affect your business. For example, consider the following:
• If you sell consumer goods and services, look at the consumer price index, inflation, employment, consumer confidence, disposable income and
wages.
• If you sell high-ticket items that require financing, look at interest rates.
• If you sell business-to-business (B2B) services, such as marketing or consulting, look at unemployment and other recession measures.
• If you sell or buy products as components, look at supply chain issues and tariffs.
• If you employ relatively low-wage workers, look at salaries and employment to see if you will need to raise wages to attract talent.
● 3. Identify the social factors.
● If you have done market research on customer or target market perceptions and demographics, this step is at least partially done. It’s also a good idea
to read industry publications, which frequently highlight social factors that affect the industry as a whole. Talk to your customer service and sales
staff to get feedback from customers on why they buy and why they return or cancel. If you have a local business, periodically 
conduct an area market analysis to understand your potential customers.
● 4. Identify the technological factors.
● This is particularly important if you are in a tech industry such as software, but technological factors affect every industry in some way. Look for the
following updates:
• New programming languages and methods that will make your product or service faster, more accurate or more detailed
• New apps that deliver your products or services in different ways
• New technology or processes you can use to make your products stronger, smarter, cheaper, more convenient or readily available
Read the Starbucks article on the previous
page
1) Convert each letter into a picture to help you remember

2) Read through the article

3) Reduce each letter into three key points

4) Which is the most important letter and why?

5) Least important letter and why

PESTLE analysis

● Starbucks example PESTLE analysis here

 Political P
• A business should examine how they may be affected by:
– A change in government, BBC article here
– Tax rates (e.g. increase in VAT here)
 Social S
• A business should analyse how they may be affected by
changes in social factors
– A change in demographics and its impact on products produced and
markets, here
– Culture mix changes in the UK, here
– Social trends e.g. Vaping here
 Economic E
• A business should analyse how they may be affected by
– An increase in interest rates here
– Unemployment rates video here