A PEST Analysis is a useful framework to help you understand how external forces impact your business. As much as you can work on improving the internal elements of your business, having a solid understanding of how the areas outside of your control will affect you is important for any company to learn.
Discover below exactly what a PEST Analysis is and how you can use it to benefit your business practices.
The PEST Analysis was first created by Harvard professor, Francis Aguilar, in 1967. PEST is an acronym that stands for four key areas: Political, Economic, Social and Technological. Conducting a PEST Analysis requires you to analyze each of these factors and how they can affect your business. By taking time to understand how each of these elements will have an impact on you, it will help you to identify new opportunities to stand out in the market, as well as any potential threats to your business.
A PEST Analysis (also sometimes called SLEPT, PESTEL and PESTLE, among other names) is a framework that allows you to analyze the macro elements that affect your business, thus helping you consider these factors as part of the bigger picture. Therefore, businesses will often conduct a PEST Analysis alongside a SWOT Analysis, which is a framework that enables you to conduct a more in-depth, micro-analysis of the internal and external factors that may affect your business.
There are many advantages to using a PEST Analysis. The nature of the framework means that it can be used by a variety of teams across your business, from marketing departments planning their next campaign to development teams working on improvements to your product or service.
A PEST Analysis helps to provide valuable information and insight into what factors beyond your control may have an effect on your business. This ultimately will help you to stay ahead of the curve and prepare for any potential threats or opportunities that you anticipate arising.
Not only does conducting a PEST Analysis allow you to gain a greater understanding of your company, but it also allows you to develop more effective long-term strategic plans that you can benefit from in years to come.
Top tip: It can be useful to review your PEST Analysis once a year (or more frequently if needed) to ensure that you stay on top of changing patterns in your industry and pay heightened attention to any emerging opportunities or dangers.
The best way to use a PEST Analysis is to work through each of the 4 factors and brainstorm your answers for each one. Try using a mind map or an online whiteboard to easily break up each of these areas and keep your analysis in one place.
Top tip: Looking for a quick and easy way to get started with your PEST Analysis? Use our free PEST Analysis template to help you get yours off the ground quickly!
P – Political
For this stage, consider how political factors affect your business. Politically-motivated factors that could impact your business can include changes in legislation, tax policy and trade restrictions, as well as funding, initiatives, corporate social responsibility, and customer protection legislation. Upcoming elections may also have an impact on current policies, so it’s important to consider these as part of your analysis.
E – Economic
Economic factors include any external economic issues that can have an effect on your company’s success. For example, interest rates, inflation, unemployment and credit availability all fall under this category. Be sure to consider how stable the current economy is – do your customers have access to high amounts of disposable income at this time? Consider how much impact these may have upon your business.
S – Social
Social factors refer to the socio-economic environment of your industry’s market and understanding your consumers’ needs, how they are shaped and what leads them to make a purchase. At this stage, consider consumer demographics, age distribution, job market trends and population growth rates. Employment trends and lifestyle choices of your consumers may also have an impact on your business.
T – Technological
Finally, technological factors require you to consider any technological advances that can affect the way you produce and deliver your products or services to your customers. Consider the life cycle of current technology, the role of the internet in your business and the impact that new emerging technologies could have upon your business. How often does technology in your field get updated? Understanding the role technology plays in your market will help you to continue shaping your products and services to suit the changing needs and expectations of your customers.
Ready to conduct a PEST Analysis as part of your business plan? Ayoa has a host of dynamic mind mapping and whiteboard features to help you easily pull together your analysis and share these instantly with others in your team. Our task management capabilities then allow you to take any items that emerge from your analysis and turn them directly into tasks that you can track and manage to completion. Sign up for FREE to get started with our PEST Analysis template!
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