PEST Analysis
PEST analysis is a method used in business analytics for examination of macro factors that have an impact on companies. PEST is an acronym for political, economic, social, and technological factors that are analyzed.
The first variant of the term was suggested by Francis J. Aguilar in 1967. Originally, the letter order was different – it was ETPS analysis. Afterwards the acronym was changed to PEST analysis. New term is now similar to the word “pest” (unrelated to its meaning), thereby is easier to memorize.
Also, there is a British variant of the term – PESTLE analysis. The last letters refer to legal and environmental factors.
Factors of the PEST Analysis
Each letter of the acronym in the term PEST(LE) analysis refers to the different factors of influence:
- Political factors reflect the current internal and external policy of a country and government interference in the economy.
- Economic factors include current market conditions, economic growth or recession, exchange rates, etc.
- Social factors represent the general demographic situation in the country, cultural peculiarities, dominant lifestyle, etc.
- Technological factors assess the technological development of the country, business area, and the company itself.
- Legal factors include different laws that define costs and requirements for the company’s products or services.
- Environmental factors reflect ecological aspects that can influence business processes such as climate or weather.
All these factors can influence the development of the company and its profitability.
Functions of PEST Analysis
PEST analysis is more efficient for big companies which are more sensitive to the aforementioned factors. Analysis of these areas of influence helps companies to prepare for the possible changes on the market and to act in adherence with these changes.
The results of PEST analysis can be used for building strategic plans for a company in the fast-changing conditions. Subsequently, the planning can help the company to find opportunities to increase its profitability and outmatch the competitors.
Overall, PEST analysis serves the following purposes:
- to identify business opportunities;
- to analyze possible risks and prepare the company for them;
- to adapt the company to the challenges of the macro environment;
- to outperform competitors.
PEST analysis is frequently used along with SWOT analysis, which is short for strengths, weaknesses, opportunities, and threats. Comparable results of these analyses might consolidate the company's position in the market by getting more extensive information on major factors.
