PEST analysis

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macroenvironmental factors used in environmental scanning. It is also referred to as the STEP, STEEP, PESTEL, PESTLE or LEPEST (or Political, Economic, Socio-cultural, Technological, Legal, Environmental). Recently it was even further extended to STEEPLED, including ethics and demographics.

PEST/PESTLE alongside SWOT can be used as a basis for the analysis of business and environmental factors. PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.

It is a part of the external analysis when doing market research and gives a certain overview of the different macroenvironmental factors that the company has to take into consideration. Political factors include areas such as tax policy, employment laws, environmental regulations, trade restrictions and tariffs and political stability. The economic factors are the economic growth, interest rates, exchange rates and inflation rate. Social factors often look at the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. The technological factors also include ecological and environmental aspects and can determine the barriers to entry, minimum efficient production level and influence outsourcing decisions. It looks at elements such as R&D activity, automation, technology incentives and the rate of technological change.Technological can also affect hoovers in the business

The PEST factors combined with external microenvironmental factors can be classified as opportunities and threats in a SWOT analysis.

PEST analysis with example

A PEST analysis is an investigation of the important factors that are changing which influence a business from the outside. PEST stands for: Political changes - e.g. a change in government, or a change in government policy. Economic changes - relate to changes in the wider economy such as rises in living standards or the general level of demand rises or falls in interest rates, etc. Social changes - relate to changes in wider society such as changes in lifestyles e.g. more women going out to work, changes in tastes and buying patterns. Technological changes - relate to the application of new inventions and ideas such as the development of the Internet and websites as business tools.

The railway industry in this country has changed in many ways in the last 30 years. The industry was privatized by the previous Conservative government (a political decision) moving from being run by British Rail (a public corporation) to a new structure where the track and stations are maintained by Rail track and there are a range of private railway companies seeking to make a profit in the various regions of the UK. As people's living standards have risen (an economic change) most families now have cars, so the rail companies have to compete vigorously with road transport for customers. A major social

change has been that many people are working from home today using home computers to communicate with their offices. This has led to a reduction in demand for rail transport, although many office workers commute by rail on the days when they visit their offices (for example, in London). Changes in technology mean that on some rail lines we are seeing the development of high speed trains, as pioneered for example, by Richard Branson's Virgin Rail. These trains reduce the time taken for long distance travel and are helping to win back customers to rail.

A technological change is one which involves the practical application of scientific or other new ideas in a business or industrial context.