The Basics of a PEST / PESTLE Analysis: A Complete Guide (Plus FREE Template)
The Basics of a PEST / PESTLE Analysis: A Complete Guide (Plus FREE Powerpoint and Googel SlidesTemplate)
PEST analysis is an acronym that stands for Political, Economic, Social, and Technological factors. PESTLE or PESTEL analysis includes Legal factors and Environmental factors.
It is a strategic planning tool used to identify external market forces that have the potential to impact an organization. A PEST analysis can help business leaders identify opportunities and risks to achieve the optimum performance of their company.
In this article, we will discuss the fundamentals of PEST analysis and its uses in the business world. Read on to learn more about this useful tool for businesses! At the end of the article, you can download the FREE and fully editable PowerPoint and Google Slides templates.
What Is PEST Analysis?
PEST stands for Political, Economic, Social, and Technological factors. It is a strategic planning tool used to identify external market forces that have the potential to impact an organization. When conducting a PEST analysis, analysts examine current and expected conditions in the political, economic, social, and technological environments, as well as the public policy environment.
PEST analysis helps business leaders identify opportunities and risks to achieve the optimum performance of their company. A PEST analysis is a very broad-based and general assessment of external factors that may affect an organization. By identifying these general factors, a company can better understand the forces that are likely to affect its operations, and can therefore make better strategic decisions.
What are the 4 factors of PEST analysis?
The *four factors * in this method are:
- Political factors like education, infrastructure, health level and how the government and political environment intervenes in business
- Economic factors like inflation, interest rates, economic growth and exchange rate and their effect on how the business can operate
- Social factors like population and population growth, age distribution, culture and health consciousness which have a great impact on demand for company’s products and how the business can operate
- Technological factors include R&D spending, technology level, automation, all factors which have a great effect on the efficiency and production level of the business
What are the 2 additional elements of PESTLE analysis?
Often, the PEST Analysis is extended by the Legal and Environmental factors: PESTLE or PESTEL analysis):
- Legal factors include employment law, consumer protection law, or discrimination law; these factors often have a great impact on the cost level and approval requirements
- Environmental factors include geological aspects like climate, weather, and climate change - all factors with great impact on how the company can operate and the cost level
How to Use PEST analysis
The first step in doing a PEST analysis is to determine which factors are most relevant to the organization. Ideally, the PEST factors should be broad enough to cover all of the organization’s major external factors, but narrow enough to provide useful information.
Once the factors are selected, the next step is to collect information. Sources of information include newspapers and magazines, government publications, trade journals, and reports from industry associations. Now that information has been collected, it must be analyzed and interpreted.
The final step is to use the analysis to form conclusions, identify trends, and make strategic decisions. An organization practicing the PEST analysis can determine the impact of various political factors, economic factors, social factors, and technological factors on its business environment, as well as the impact of its own operations on its external environment. Armed with this information, the organization can set more effective and realistic goals, and make better strategic decisions.
In addition, you can extend the PEST analysis by legal and environmental factors to realize a PESTLE analysis.
What is a PEST analysis example?
Political factors
Political factors affect the business environment by influencing government policies, trade restrictions, and social concerns. These may also include the threat of war, political instability, government actions, and changes in government leadership or social laws.
Economic factors
Economic factors affect a business by driving demand, prices, and costs. They also affect the availability of capital and the ability of a business to manage its cash flow. These forces may include inflation, economic growth or recession, monetary policies, and changes in interest rates.
Social factors
Social factors have an effect by changing the preferences and lifestyles of customers, suppliers, and staff. These forces may include demographic changes, cultural trends, public health concerns, social laws, changes in the availability and cost of labor, and technological advances.
Technological factors
Technological forces affect a business by changing the types of products, services, and technologies available. They may also include advances in information technology and telecommunications, potential breakthroughs, and government funding.
Benefits of a PEST analysis
A PEST analysis can also help companies identify opportunities and risks in their environments, and determine how the company can effectively respond to these opportunities and risks.
The PEST analysis can be used to determine which markets are best for expansion, which industries are more profitable, and which technologies are more promising. It can also be used to assess threats and opportunities in the political, economic, social, and technological areas, as well as the public policy environment.
PEST analysis disadvantages and limitations
Although useful in many situations, PEST analysis is a very broad-based assessment of external factors. Therefore, it does not provide as much detail as a more specific analysis might.
Although PEST analysis can help companies identify opportunities and risks in their external environments, it cannot be used to assess internal issues. For example, it cannot be used to assess management problems, or other issues relating to the organization’s operations. To assess internal issues, you can use our SWOT PowerPoint template.
Advantages of PEST Analysis for a Marketing Brief
PEST analysis is an effective marketing tool as it can help marketers understand the general market conditions and the customer's behavior and expectations. It is used to analyze the external factors that can have an impact on the business and the internal factors that can help the business thrive.
It can help companies understand the cultural, political, economic, and technological aspects of the target region. This can help companies understand their target customers and the general market conditions. PEST Analysis can be used for formulating an effective marketing brief for a brand.
Which part of the SWOT analysis is related to PEST analysis?
Although PEST analysis is broader in scope than a SWOT analysis, it is related to it in a sense. The political, economic, social, and technological factors of a PEST analysis are similar to the internal strengths and weaknesses of a SWOT analysis.
Therefore, it can be said that PEST analysis is related to a SWOT analysis. The strengths and weaknesses of a business are internal issues related to its operations.
To complete your strategic analysis please feel free to use our free SWOT PowerPoint template.
PEST / PESTLE Analysis Conclusion
PEST analysis is a very broad-based and general assessment of external factors that may affect an organization. The factors listed in a PEST analysis are very broad categories that are common to almost every country in the world. By identifying these general factors, a company can better understand the forces that are likely to affect its operations, and can therefore make better strategic decisions. A PEST analysis can help companies identify opportunities and risks in their external environment, as well as how to respond to them.
PEST / PESTLE Analysis Template
FREE and fully editable PowerPoint and Google Slides template
PEST / PESTLE Analysis Google Slides Template:
