PEST Analysis

Identifying "Big Picture" Opportunities and Threats

(Also Known as PESTLE, PESTEL, PESTLIED, STEEPLE, SLEPT and LONGPESTLE)Changes in
your business environment can create great opportunities for your organization and cause significant
threats.
For example, opportunities can come from new technologies that help you reach new customers, from
new funding streams that allow you to invest in better equipment, and from changed government
policies that open up new markets.
Threats can include deregulation that exposes you to intensified competition; a shrinking market; or
increases to interest rates, which can cause problems if your company is burdened by debt.
PEST Analysis is a simple and widely used tool that helps you analyze the Political, Economic, SocioCultural, and Technological changes in your business environment. This helps you understand the
"big picture" forces of change that you're exposed to, and, from this, take advantage of the
opportunities that they present.
PEST Analysis helps to understand and adapt to your future business environment.
About the Tool
Harvard professor Francis Aguilar is thought to be the creator of PEST Analysis. He included a
scanning tool called ETPS in his 1967 book, "Scanning the Business Environment." The name was
later tweaked to create the current acronym.
PEST Analysis is useful for four main reasons:
1. It helps you to spot business or personal opportunities, and it gives you advanced warning of
significant threats.
2. It reveals the direction of change within your business environment. This helps you shape
what you're doing, so that you work with change, rather than against it.
3. It helps you avoid starting projects that are likely to fail, for reasons beyond your control.
4. It can help you break free of unconscious assumptions when you enter a new country, region,
or market; because it helps you develop an objective view of this new environment.
Note: PEST Analysis is often linked with SWOT Analysis , however, the two tools have different
areas of focus. PEST Analysis looks at "big picture" factors that might influence a decision, a market,
or a potential new business. SWOT Analysis explores these factors at a business, product-line or
product level.
These tools complement one another and are often used together.
How to Use the Tool
Follow these steps to analyze your business environment, and the opportunities and threats that it
presents.
Use PEST to brainstorm the changes happening around you. Use the prompts below to guide your
questioning, and tailor the questions to suit the specific needs of your business.
Brainstorm opportunities arising from each of these changes.
Brainstorm threats or issues that could be caused by them.
Take appropriate action.
Our worksheet guides you through these steps.

Step 1: Brainstorm Factors

Political Factors to Consider
When is the country's next local, state, or national election? How could this change
government or regional policy?
Who are the most likely contenders for power? What are their views on business policy, and
on other policies that affect your organization?
Depending on the country, how well developed are property rights and the rule of law, and
how widespread are corruption and organized crime? How are these situations likely to
change, and how is this likely to affect you?
Could any pending legislation or taxation changes affect your business, either positively or
negatively?
How will business regulation, along with any planned changes to it, affect your business? And
is there a trend towards regulation or deregulation?
How does government approach corporate policy, corporate social responsibility,
environmental issues, and customer protection legislation? What impact does this have, and is
it likely to change?
What is the likely timescale of proposed legislative changes?
Are there any other political factors that are likely to change?
Economic Factors to Consider
How stable is the current economy? Is it growing, stagnating, or declining?
Are key exchange rates stable, or do they tend to vary significantly?
Are customers' levels of disposable income rising or falling? How is this likely to change in
the next few years?
What is the unemployment rate? Will it be easy to build a skilled workforce? Or will it be
expensive to hire skilled labor?
Do consumers and businesses have easy access to credit? If not, how will this affect your
organization?
How is globalization affecting the economic environment?
Are there any other economic factors that you should consider?
Tip: Use Porter's Diamond to align your strategy with your country's business conditions.
Socio-Cultural Factors to Consider
What is the population's growth rate and age profile? How is this likely to change?
Are generational shifts in attitude likely to affect what you're doing?
What are your society's levels of health, education, and social mobility? How are these
changing, and what impact does this have?
What employment patterns, job market trends, and attitudes toward work can you observe?
Are these different for different age groups?
What social attitudes and social taboos could affect your business? Have there been recent
socio-cultural changes that might affect this?
How do religious beliefs and lifestyle choices affect the population?
Are any other socio-cultural factors likely to drive change for your business?
Tip: Values take a central role in any society. Use the Competing Values Framework to
identify your organization's values, and Hofstede's Cultural Dimensions to explore the
values of your customers.
Technological Factors to Consider
Are there any new technologies that you could be using?

 Are there any new technologies on the horizon that could radically affect your work or your
industry?
Do any of your competitors have access to new technologies that could redefine their
products?
In which areas do governments and educational institutions focus their research? Is there
anything you can do to take advantage of this?
How have infrastructure changes affected work patterns (for example, levels of remote
working)?
Are there existing technological hubs that you could work with or learn from?
Are there any other technological factors that you should consider?
Note: There are variations of PEST Analysis that bring other factors into consideration. These include:
PESTLE/PESTEL: Political, Economic, Socio-Cultural, Technological, Legal, Environmental.
PESTLIED: Political, Economic, Socio-Cultural, Technological, Legal, International, Environmental,
Demographic.
STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical.
SLEPT: Socio-Cultural, Legal, Economic, Political, Technological.
LONGPESTLE: Local, National, and Global versions of PESTLE. (These are best used for
understanding change in multinational organizations.)
Choose the version that best suits your situation.
Step 2: Brainstorm Opportunities
Once you've identified the changes that are taking place in your business environment, it's time to
look at each change, and brainstorm the opportunities that this could open up for you. For example,
could it help you develop new products, open up new markets, or help you make processes more
efficient?
Step 3: Brainstorm Threats
It's also important to think about how these changes could undermine your business. If you understand
this early enough, you may be able to avoid these problems, or minimize their impact.
For example, if a core part of your market is in demographic decline, could you open up other areas of
the market? Or if technology is threatening a key product, can you master that technology and
improve the product? (Risk Analysis can help you to assess these threats and devise strategies to
manage them.)
Step 4: Take Action
Where you have identified significant opportunities, build the actions you'll take to exploit them into
your Business Plan . Where you've identified significant risks, take appropriate action to manage or
eliminate them.
Key Points
PEST Analysis helps you understand the Political, Economic, Social, and Technological changes that
will shape your business environment.
You can use these headings to brainstorm the "big picture" characteristics of a business environment
(this could be a country, a region, or a new or existing market), and, from this, draw conclusions about
the significant forces of change operating within it.

This provides a context for more detailed planning, within which you will be able to minimize risk
and take full advantage of the opportunities that present themselves.

The outcome of PEST is an understanding of the overall picture surrounding the company.
Figure 1. Macro environment forces affecting a firm (PEST forces including legal,
environmental, ethical and demographic forces)

PEST analysis is also done to assess the potential of a new market. The general rule is that the
more negative forces are affecting that market the harder it is to do business in it. The
difficulties that will have to be dealt with significantly reduce profit potential and the firm can
simply decide not to engage in any activity in that market.

PEST variations
PEST analysis is the most general version of all PEST variations created. It is a very dynamic
tool as new components can be easily added to it in order to focus on one or another critical
force affecting an organization. Although following variations are more detailed analysis than
simple PEST, the additional components are just the extensions of the same PEST factors.
The analysis probably has more variations than any other strategy tool:

STEP = PEST in more positive approach.

PESTEL = PEST + Environmental + Legal
PESTELI = PESTEL + Industry analysis
STEEP = PEST + Ethical
SLEPT = PEST + Legal
STEEPLE = PEST + Environmental + Legal + Ethical
STEEPLED = STEEPLE + Demographic
PESTLIED = PEST + Legal + International + Environmental + Demographic
LONGPEST = Local + National + Global factors + PEST

Using the tool

The process of carrying out PEST analysis should involve as many managers as possible to
get the best results. It includes the following steps:

Step 1. Gathering information about political, economic, social and technological

changes + any other factor(s).

PEST analysis template

Political factors

Economic factors

Government stability and likely changes

Growth rates

Bureaucracy

Inflation rate

Corruption level

Interest rates

Tax policy (rates and incentives)

Exchange rates

Freedom of press

Unemployment trends

Regulation/de-regulation

Labor costs

Trade control

Stage of business cycle

Import restrictions (quality and quantity)

Credit availability

Tariffs

Trade flows and patterns

Competition regulation

Level of consumers disposable

income

Government involvement in trade unions and

agreements

Monetary policies

Environmental Law

Fiscal policies

Education Law

Price fluctuations

Anti-trust law

Stock market trends

Discrimination law

Weather

Copyright, patents / Intellectual property law

Climate change

Consumer protection and e-commerce

Employment law

Health and safety law

Data protection law

Laws regulating environment pollution

Socio-cultural factors

Technological factors

PEST analysis template

Health consciousness

Basic infrastructure level

Education level

Rate of technological change

Attitudes toward imported goods and services

Attitudes toward work, leisure, career and

retirement

Spending on research &

development
Technology incentives

Attitudes toward product quality and customer

Legislation regarding technology

Technology level in your industry

Communication infrastructure

Access to newest technology

service

Attitudes toward saving and investing

Emphasis on safety

Lifestyles

Buying habits

Religion and beliefs

Attitudes toward green or ecological products

Attitudes toward and support for renewable

Internet infrastructure and

penetration

energy

Population growth rate

Immigration and emigration rates

Age distribution and life expectancy rates

Sex distribution

Average disposable income level

Social classes

Family size and structure

Minorities

Step 2. Identifying which of the PEST factors represent opportunities or threats.

Gathering PEST, PESTEL and STEEPLED information

In order to perform PEST (or any other variation of it) managers have to gather as much
relevant information as possible about the firms external environment. Nowadays, most
information can be found on the internet relatively easy, fast and with little cost. When the
analysis is done for the first time the process may take a little longer and as a beginner you
may find yourself asking What changes do I exactly look for in politics, economic, society
and technology? The following templates might be useful when gathering information for
PEST, PESTEL and STEEPLED analysis.

NOTE: PEST covers all macro environment forces affecting an organization. Therefore, when doing
PESTEL or STEEPLED analysis, legal, environmental, ethical and demographic factors may overlap
with PEST factors.

Figure 2. PEST analysis template

Figure 3. PESTEL analysis template

PESTEL analysis template

Political

Economic

Socio-cultural

Technological

Environmental (ecological)

Legal

Weather

Anti-trust law

Climate change

Discrimination law

Laws regulating environment pollution

Air and water pollution

Recycling

Waste management

Attitudes toward green or ecological

products

Endangered species
Attitudes toward and support for
renewable energy

Copyright, patents / Intellectual

property law
Consumer protection and ecommerce
Employment law
Health and safety law
Data Protection

STEEPLED analysis template

Political

Economic

Socio-cultural

Technological

Environmental (ecological)

Legal

Ethical

Demographic

Ethical advertising and sales

practices

Population growth rate

Immigration and emigration rates

Accepted accounting,
management and marketing standards

Age distribution and life

expectancy rates

Attitude towards counterfeiting

and breaking patents

Sex distribution

Ethical recruiting practices and

employment standards (not using children
to produce goods)

Average disposable income level

Social classes

Family size and structure

Minorities

Figure 4. STEEPLED analysis template

Identifying opportunities and threats

Gathering information is just a first important step in doing PEST analysis. Once it is done,
the information has to be evaluated. There are many factors changing in the external
environment but not all of them are affecting or might affect an organization. Therefore, it is
essential to identify which PEST factors represent the opportunities or threats for an
organization and list only those factors in PEST analysis. This allows focusing on the most
important changes that might have an impact on the company.

PEST analysis example

The following table shows PEST analysis example. It lists opportunities and threats that are
affecting a firm in its macro environment.

PEST analysis example

Political

Government has passed legislation

which requires further reductions of CO2,
HC and NC emissions for vehicles until

Economic
GDP will grow by 3% in 2013
Availability of credit for businesses will

PEST analysis example

2015

New political forces, which are

against tax reductions, may be elected in the

next years elections

slightly grow or remain unchanged in 2013. The

same applies for the cost of credit in the 1 half of
the year
Unemployment is expected to decrease to
7%

Import restrictions will increase in

Inflation will fall to 3% or 2% in 2013

Government is increasing its funding

to specific industry

Corporate tax rate will decrease by 2%

next year to 23%

Government is easing regulations for

employment

Dollar exchange rates are expected to

decrease compared to euro

Increasing tensions between our

government and our major export partners

government

2013

Socio-cultural

Disposable income level will decrease

Metal and oil prices will increase by 5%
and 6% respectively in 2013

Technological

Positive attitude towards green

vehicles

Number of individuals and

companies buying through the Internet is

67% and 45% respectively and is expected to
grow

Immigration is increasing

Countrys major telecom company

announced its plans to expand its internet
infrastructure and install new optic fiber cables

Increasing attitude toward jobs with

shorter work hours

New type of table will be introduced

into the market next year

People tend to buy more domestic

rather than foreign products

People change their eating habits and

now tend to eat healthier food

New machinery that could reduce

production costs by 20% is in development

Driverless cars may be introduced in the

near future

The Political forces. First of all, political factors refer to the stability of the political environment and the
attitudes of political parties or movements. This may manifest in government influence on tax policies, or
government involvement in trading agreements. Political factors are inevitably entwined with Legal
factors such as national employment laws, international trade regulations and restrictions, monopolies and
mergers rules, and consumer protection. The difference between Political and Legal factors is that Political

refers to attitudes and approaches, whereas Legal factors are those which have become law and regulations.
Legal needs to be complied with whereas Political may represent influences, restrictions or opportunities, but
they are not mandatory.
Economic factors represent the wider economy so may include economic growth rates, levels of employment
and unemployment, costs of raw materials such as energy, petrol and steel, interest rates and monetary
policies, exchange rates and inflation rates. These may also vary from one country to another.
Socio-cultural factors represent the culture of the society that an organization operates within. They may
include demographics, age distribution, population growth rates, level of education, distribution of wealth and
social classes, living conditions and lifestyle.
Technological factors refer to the rate of new inventions and development, changes in information and mobile
technology, changes in internet and e-commerce or even mobile commerce, and government spending on
research. There is often a tendency to focus Technological developments on digital
and internet-related areas, but it should also include materials development and new methods
of manufacture, distribution and logistics.