PEST analysis -
seeing the big picture

PEST analysis is a major part of the opportunities and threats appraisal. It is the second half of the Strengths Weaknesses Opportunities and Threats (SWOT) analysis.

The SWOT analysis is the central stage of the strategic planning process.

It is wise to take a broad look at what is going on in the wider world, at the local, national, and international level. After this, one can make a detailed analysis of the specific industry or community sector of the organization.

This environmental scan should cover four areas of possible change -

  • Politics
  • Economy
  • Society
  • Technology

Briefly P E S T, hence PEST analysis.

Political changes

Begin the analysis with changes likely in laws related to the activities of the firm. These may include safety, products, employment, liability, and labeling.

Other possible changes could be in taxes, environment, tariffs, quotas, or trade sanctions.

Review changes in international relations, and crises like piracy, terrorism, wars, and revolutions. Look not just at formal statements of legislative change. Check out also what interest groups, activists, and lobbyists may be up to!

Economic changes

The next step is to review possible changes in the economy. This could include -

  • growth rates, inflation, unemployment, interest rates, exchange rates
  • costs of labor, materials, capital equipment
  • disposable incomes, consumer demand, prices
  • stock markets, availability of debt finance and venture capital
  • world trade, balance of trade, trading bloc behavior
  • subsidies, grants, price of energy and key resources such as oil, and gold

Social changes

After studying politics and economics, turn to changes in society. Areas for review could include -

  • population trends, age distribution, sex, ethnic migration and composition
  • health, education, housing
  • mobility, equality, class, life-styles, leisure, sport, religion, holidays
  • part-time work, working hours, conditions of employment, attitudes to work, to management, to wealth creation
  • use of transport and communication
  • crime, security

Technological changes

The next stage in the analysis is a look at technological change. Review -

  • Incremental technical improvements, industry-disrupting innovations, old technologies jumping into new areas
  • Possible design trends, new products, new processes, new materials, and new methods
  • Biotechnology, in information and communication technology, in engineering, retailing, banking, aerospace, etc.
  • Whatever else may seem even distantly related to what the organization is doing and might do in the future?
  • Costs and volume of research and development generally and by competitors, rising cost of technological sophistication
  • Environmental effects of technological change.

PEST Analysis - other changes

The PEST becomes the PESTI analysis with the addition of a fifth area of change to look into - changes in your own industry.

This review could look at trends such as -

  • more or fewer competitors, larger or smaller companies, more or less competition overall
  • mergers, demergers, failures, new entrants, the cost of entry
  • margins, discounts, market segmentation, specialization, niches, prices, market shares, maturity of the market, profitability, distribution patterns, marketing techniques
  • new customers, customer groupings
  • suppliers, supplier groupings, cartels, rings, etc.

If you feel that the five main categories listed above do not include some major areas of concern to your particular organization, simply add a category. Perhaps you could list them as ‘other’; then we have PESTIO analysis.

It is your environmental scan!

Some other resources you may find useful

You can find a free PEST analysis template at Businessballs, a free learning and development resource for people and organizations, run by Alan Chapman, in Leicester, England.

IBISWorld industry research reports are business tools that provide strategic insights and analysis on over hundreds of industries.

Also, check the link to Synergyst Reports in the right hand column, and check out the books listed below.

Return from PEST Analysis to SWOT Analysis.

Return from PEST Analysis to Simply Strategic Planning Home Page.

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