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{{Strategy}}
'''PEST analysis''' (political, economic, socio-cultural and technological) describes a framework of macro-environmental factors used in the [[environmental scanning]] component of [[strategic management]]. It is part of an external analysis when conducting a strategic analysis or doing [[market research]], and gives an overview of the different macro-environmental factors to be taken into consideration. It is a strategic tool for understanding market growth or decline, business position, potential and direction for operations.
Variants that build on the PEST framework include:
* '''PESTEL''' or '''PESTLE''', which adds legal and environmental factors. Popular in the United Kingdom.<ref>[http://www.cipd.co.uk/subjects/corpstrtgy/general/pestle-analysis.htm PESTLE analysis history and application], CIPD. Retrieved 2009-10-21.</ref>
* '''SLEPT''', adding legal factors.
* '''STEPE''', adding ecological factors.<ref>Richardson, J. [http://polaris.gseis.ucla.edu/jrichardson/STEPE.htm A Brief Intellectual History of the STEPE Model or Framework (i.e., the Social, Technical, Economic, Political, and Ecological)], accessed 18 October 2017</ref>
* '''STEEPLE''' and '''STEEPLED''', adding ethics and demographic factors.
* '''DESTEP''', adding demographic and ecological factors.
* '''SPELIT''', adding legal and intercultural factors. Popular in the United States since the mid-2000s.<ref>[https://www.amazon.com/Spelit-Power-Matrix-Organizational-Environment/dp/141967191X/], SPELIT Power Matrix. Retrieved 2015-08-21.</ref>
There is also '''STEER''', which considers sociocultural, technological, economic, ecological, and [[Regulatory compliance|regulatory]] factors, but does not specifically include political factors.<ref name="CarrJr.2009">{{cite book|author1=Lawrence P. Carr|author2=Alfred J. Nanni Jr.|title=Delivering Results: Managing What Matters|url=https://books.google.com/books?id=VxE5rnqJq4cC&pg=PA44|date=28 July 2009|publisher=Springer Science & Business Media|isbn=978-1-4419-0621-2|pages=44}}</ref>
== Composition ==
The basic PEST analysis includes four factors:
* '''Political''' factors are basically how the [[government]] intervenes in the economy. Specifically, political factors have areas including [[tax policy]], [[labour law]], [[environmental law]], [[trade restriction]]s, [[tariffs]], and political stability. Political factors may also include goods and services which the government aims to provide or be provided ([[merit good]]s) and those that the government does not want to be provided ([[demerit good]]s or merit bads). Furthermore, governments have a high impact on the [[health]], [[education]], and [[infrastructure]] of a nation.
* '''Economic''' factors include [[economic growth]], [[interest rate]]s, [[exchange rate]]s, [[inflation rate]]. These factors greatly affect how businesses operate and make decisions. For example, interest rates affect a firm's [[cost of capital]] and therefore to what extent a business grows and expands. Exchange rates can affect the costs of exporting goods and the supply and price of imported goods in an economy.
* '''Social''' factors include the cultural aspects and health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. High trends in social factors affect the demand for a company's products and how that company operates. For example, the ageing population may imply a smaller and less-willing workforce (thus increasing the cost of labour). Furthermore, companies may change various management strategies to adapt to social trends caused from this (such as recruiting older workers).
* '''Technological''' factors include technological aspects like [[R&D]] activity, [[automation]], technology incentives and the rate of [[technological change]]. These can determine [[barrier to entry|barriers to entry]], minimum efficient production level and influence the [[outsourcing]] decisions. Furthermore, technological shifts would affect costs, quality, and lead to [[innovation]].
Expanding the analysis to PESTLE or PESTEL adds:
* '''Legal''' factors include [[discrimination law]], [[consumer law]], [[antitrust law]], [[employment law]], and [[health and safety law]]. These factors can affect how a company operates, its costs, and the demand for its products.
* '''Environmental''' factors include ecological and environmental aspects such as weather, climate, and [[climate change]], which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones.
Other factors for the various offshoots include:
* '''Demographic''' factors include gender, age, ethnicity, knowledge of languages, disabilities, mobility, home ownership, employment status, religious belief or practice, culture and tradition, living standards and income level.
* '''Regulatory''' factors include acts of parliament and associated regulations, international and national standards, local government by-laws, and mechanisms to monitor and ensure compliance with these.
More factors discussed in the SPELIT Power Matrix include:
* '''Inter-cultural''' factors considers collaboration in a global setting.
* Other specialized factors discussed in chapter 10 of the SPELIT Power Matrix include the '''Ethical, Educational, Physical, Religious, and Security''' environments. The security environment may include either personal, company, or national security.
* Other business-related factors that might be considered in an environmental analysis include '''Competition, Demographics, Ecological, Geographical, Historical, Organizational, and Temporal (schedule).'''<ref>Schmieder-Ramirez, J. and Mallette, L., [http://insciencepress.org/wp-content/uploads/2015/05/ISP_Education-Applications-Developments-Book.pdf Using the SPELIT Analysis Technique for Organizational Transitions], Chapter 28 of "Education Applications and Developments" edited by Mafalda Carmo, Science Press, 2015 Retrieved 2015-08-21.</ref>
== Applicability of the factors ==
The model's factors will vary in importance to a given company based on its industry and the goods it produces. For example, consumer and [[Business-to-business|B2B]] companies tend to be more affected by the social factors, while a global defense contractor would tend to be more affected by political factors. Additionally, factors that are more likely to change in the future or more relevant to a given company will carry greater importance. For example, a company which has borrowed heavily will need to focus more on the economic factors (especially interest rates).
Furthermore, conglomerate companies who produce a wide range of products (such as Sony, Disney, or BP) may find it more useful to analyze one department of its company at a time with the PESTEL model, thus focusing on the specific factors relevant to that one department. A company may also wish to divide factors into geographical relevance, such as local, national, and global.
== Use of PEST analysis with other models ==
The PEST factors, combined with external micro-environmental factors and internal drivers, can be classified as opportunities and threats in a [[SWOT analysis]]. A graphical method for PEST analysis called "PESTLEWeb" was developed at [[Henley Business School]] in the UK; research showed that PESTLEWeb diagrams are considered by users to be more logical, rational, and convincing than traditional PEST analysis.<ref>{{cite web|last1=Collins|first1=Rob|title=A Graphical Method for Exploring the Business Environment|url=http://users.ox.ac.uk/~kell0956/docs/PESTLEWeb.pdf|accessdate=19 June 2014}}</ref><ref>{{cite web|last1=Collins|first1=Rob|title=Is there a better way to analyse the business environment?|url=http://users.ox.ac.uk/~kell0956/docs/pestleweb_thesis.pdf|accessdate=19 June 2014}}</ref>
== See also ==
* [[Business analysis]]
* [[Enterprise planning systems]]
* [[Macromarketing]]
* [[Six Segment Analysis]] - an alternative term for PEST analysis
* [[SWOT analysis]]
* [[VRIO]]
== References ==
{{reflist}}
== External links ==
* [http://www.businessballs.com/pestanalysisfreetemplate.htm PEST analysis method and examples], Businessballs.com
* [http://www.cipd.co.uk/subjects/corpstrtgy/general/pestle-analysis.htm PESTLE analysis factsheet], Chartered Institute of Personnel and Development (CIPD)
* [https://www.youtube.com/watch?v=mCdcdf-b8AU PEST Analysis], discusses how a PEST analysis can help determine the risks and opportunities associated with entering a foreign market.
{{Strategic planning tools}}
[[Category:Strategic management]]
[[Category:Analysis]]
'''PEST analysis''' (political, economic, socio-cultural and technological) describes a framework of macro-environmental factors used in the [[environmental scanning]] component of [[strategic management]]. It is part of an external analysis when conducting a strategic analysis or doing [[market research]], and gives an overview of the different macro-environmental factors to be taken into consideration. It is a strategic tool for understanding market growth or decline, business position, potential and direction for operations.
Variants that build on the PEST framework include:
* '''PESTEL''' or '''PESTLE''', which adds legal and environmental factors. Popular in the United Kingdom.<ref>[http://www.cipd.co.uk/subjects/corpstrtgy/general/pestle-analysis.htm PESTLE analysis history and application], CIPD. Retrieved 2009-10-21.</ref>
* '''SLEPT''', adding legal factors.
* '''STEPE''', adding ecological factors.<ref>Richardson, J. [http://polaris.gseis.ucla.edu/jrichardson/STEPE.htm A Brief Intellectual History of the STEPE Model or Framework (i.e., the Social, Technical, Economic, Political, and Ecological)], accessed 18 October 2017</ref>
* '''STEEPLE''' and '''STEEPLED''', adding ethics and demographic factors.
* '''DESTEP''', adding demographic and ecological factors.
* '''SPELIT''', adding legal and intercultural factors. Popular in the United States since the mid-2000s.<ref>[https://www.amazon.com/Spelit-Power-Matrix-Organizational-Environment/dp/141967191X/], SPELIT Power Matrix. Retrieved 2015-08-21.</ref>
There is also '''STEER''', which considers sociocultural, technological, economic, ecological, and [[Regulatory compliance|regulatory]] factors, but does not specifically include political factors.<ref name="CarrJr.2009">{{cite book|author1=Lawrence P. Carr|author2=Alfred J. Nanni Jr.|title=Delivering Results: Managing What Matters|url=https://books.google.com/books?id=VxE5rnqJq4cC&pg=PA44|date=28 July 2009|publisher=Springer Science & Business Media|isbn=978-1-4419-0621-2|pages=44}}</ref>
== Composition ==
The basic PEST analysis includes four factors:
* '''Political''' factors are basically how the [[government]] intervenes in the economy. Specifically, political factors have areas including [[tax policy]], [[labour law]], [[environmental law]], [[trade restriction]]s, [[tariffs]], and political stability. Political factors may also include goods and services which the government aims to provide or be provided ([[merit good]]s) and those that the government does not want to be provided ([[demerit good]]s or merit bads). Furthermore, governments have a high impact on the [[health]], [[education]], and [[infrastructure]] of a nation.
* '''Economic''' factors include [[economic growth]], [[interest rate]]s, [[exchange rate]]s, [[inflation rate]]. These factors greatly affect how businesses operate and make decisions. For example, interest rates affect a firm's [[cost of capital]] and therefore to what extent a business grows and expands. Exchange rates can affect the costs of exporting goods and the supply and price of imported goods in an economy.
* '''Social''' factors include the cultural aspects and health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. High trends in social factors affect the demand for a company's products and how that company operates. For example, the ageing population may imply a smaller and less-willing workforce (thus increasing the cost of labour). Furthermore, companies may change various management strategies to adapt to social trends caused from this (such as recruiting older workers).
* '''Technological''' factors include technological aspects like [[R&D]] activity, [[automation]], technology incentives and the rate of [[technological change]]. These can determine [[barrier to entry|barriers to entry]], minimum efficient production level and influence the [[outsourcing]] decisions. Furthermore, technological shifts would affect costs, quality, and lead to [[innovation]].
Expanding the analysis to PESTLE or PESTEL adds:
* '''Legal''' factors include [[discrimination law]], [[consumer law]], [[antitrust law]], [[employment law]], and [[health and safety law]]. These factors can affect how a company operates, its costs, and the demand for its products.
* '''Environmental''' factors include ecological and environmental aspects such as weather, climate, and [[climate change]], which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones.
Other factors for the various offshoots include:
* '''Demographic''' factors include gender, age, ethnicity, knowledge of languages, disabilities, mobility, home ownership, employment status, religious belief or practice, culture and tradition, living standards and income level.
* '''Regulatory''' factors include acts of parliament and associated regulations, international and national standards, local government by-laws, and mechanisms to monitor and ensure compliance with these.
More factors discussed in the SPELIT Power Matrix include:
* '''Inter-cultural''' factors considers collaboration in a global setting.
* Other specialized factors discussed in chapter 10 of the SPELIT Power Matrix include the '''Ethical, Educational, Physical, Religious, and Security''' environments. The security environment may include either personal, company, or national security.
* Other business-related factors that might be considered in an environmental analysis include '''Competition, Demographics, Ecological, Geographical, Historical, Organizational, and Temporal (schedule).'''<ref>Schmieder-Ramirez, J. and Mallette, L., [http://insciencepress.org/wp-content/uploads/2015/05/ISP_Education-Applications-Developments-Book.pdf Using the SPELIT Analysis Technique for Organizational Transitions], Chapter 28 of "Education Applications and Developments" edited by Mafalda Carmo, Science Press, 2015 Retrieved 2015-08-21.</ref>
== Applicability of the factors ==
The model's factors will vary in importance to a given company based on its industry and the goods it produces. For example, consumer and [[Business-to-business|B2B]] companies tend to be more affected by the social factors, while a global defense contractor would tend to be more affected by political factors. Additionally, factors that are more likely to change in the future or more relevant to a given company will carry greater importance. For example, a company which has borrowed heavily will need to focus more on the economic factors (especially interest rates).
Furthermore, conglomerate companies who produce a wide range of products (such as Sony, Disney, or BP) may find it more useful to analyze one department of its company at a time with the PESTEL model, thus focusing on the specific factors relevant to that one department. A company may also wish to divide factors into geographical relevance, such as local, national, and global.
== Use of PEST analysis with other models ==
The PEST factors, combined with external micro-environmental factors and internal drivers, can be classified as opportunities and threats in a [[SWOT analysis]]. A graphical method for PEST analysis called "PESTLEWeb" was developed at [[Henley Business School]] in the UK; research showed that PESTLEWeb diagrams are considered by users to be more logical, rational, and convincing than traditional PEST analysis.<ref>{{cite web|last1=Collins|first1=Rob|title=A Graphical Method for Exploring the Business Environment|url=http://users.ox.ac.uk/~kell0956/docs/PESTLEWeb.pdf|accessdate=19 June 2014}}</ref><ref>{{cite web|last1=Collins|first1=Rob|title=Is there a better way to analyse the business environment?|url=http://users.ox.ac.uk/~kell0956/docs/pestleweb_thesis.pdf|accessdate=19 June 2014}}</ref>
== See also ==
* [[Business analysis]]
* [[Enterprise planning systems]]
* [[Macromarketing]]
* [[Six Segment Analysis]] - an alternative term for PEST analysis
* [[SWOT analysis]]
* [[VRIO]]
== References ==
{{reflist}}
== External links ==
* [http://www.businessballs.com/pestanalysisfreetemplate.htm PEST analysis method and examples], Businessballs.com
* [http://www.cipd.co.uk/subjects/corpstrtgy/general/pestle-analysis.htm PESTLE analysis factsheet], Chartered Institute of Personnel and Development (CIPD)
* [https://www.youtube.com/watch?v=mCdcdf-b8AU PEST Analysis], discusses how a PEST analysis can help determine the risks and opportunities associated with entering a foreign market.
{{Strategic planning tools}}
[[Category:Strategic management]]
[[Category:Analysis]]
