What is PEST Analysis?

PEST is an acronym that stands for Political, Economic, Social, Technological. PEST analysis is one way that a business can analyze the environment in which it operates.

Political Environment: refers to government laws, regulations, and policies. These are things that impact the business either directly or indirectly.  This may include trade laws, tariffs, labor laws, taxes, environmental regulations, zoning restrictions, etc.  Some of these, if passed recently, may have a long term affect on the economy as well.  While PEST covers the economic environment, some political environment considerations, such as leadership changes that come from elections, may not have impacted the economy yet (this is an example of an indirect impact).  So the analyst should watch for how new government regulations may impact the economy longer term and assess its impact on the business.

Economic Environment: refers to the forces at play within the economy that the business has little control over.  These may include interest rates, inflation rate, exchange rates, increase in Gross Domestic Product (GDP), the financial and stock markets, the job market, etc.  All of these have impacts on the business from the ability to generate revenue to the cost of borrowing money to the salaries they will need to pay employees.

Social Environment: refers to the demographics of the environment that the company operates within. Since demographics are nothing more than characteristics of a human population this could include a nearly infinite number of groups.  Some common demographics that are considered are gender, race, age, income, disabilities, educational attainment, employment status, and religion. Ultimately, if the strategic plans of a business affect a particular group, they may react positively or negatively.  A business may face criticism, negative publicity or even protests based on the decisions it makes. These factors could have an enormous impact on the operations and revenue of the business. 

Technological Environment: refers to the technology that currently exists that the business has accessible to them.  This could include servers, computers, networks, software and software frameworks, database technologies, wireless capabilities, availability of Software as a Service (Saas), and more.  The rate of technological progress should also be considered, particularly if the business has plans to develop a system or product that takes advantage of cutting edge technology.

Chris Adams
LinkedIn Profile

posted @ Friday, February 11, 2011 9:29 PM by Chris Adams