The PEST Analysis

Understanding political, economic, social and technological forces at play in the overall picture surrounding the company

PEST analysis is a vital business analysis tool used to identify the key external factors (political, economic, social and technological) that can affect an organization, its projects and/or its strategy.

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What's it about?

First used by Francis J. Aguilar (1967), Harvard professor, strategic planning and general management expert, PEST analysis had become well known  as a useful tool used to identify the key external factors (political, economic, social and technological) that can affect an organization, its projects and/or its strategy.

The outcome of PEST is an understanding of the overall picture surrounding the company.

 PEST Analysis can be performed in three phases:

1. Gathering information about political, economic, social and technological forces at play on the business, project or strategy you are considering;

2. Identifying which of the PEST factors represent opportunities;

3. Identifying which of the PEST factors represent threats.

In order to perform a thorough PEST analysis, it is critical to fully understand each of the letters completely.

POLITICAL

The factors in that category help you determine the extent to which a government may influence some specific industries.

ECONOMIC

These factors take into view the economic conditions in place in a country and how the global economic scenarios might have an effect in the future.

SOCIAL

These factors examine the social environment of the country, and look into the cultural trends, demographics, population analytics and so on.

TECHNOLOGICAL

These factors relate to innovations in technology that may affect the industry and the market favorably or unfavorably.

Who should use it

To be sure the PEST analysis brings up valuable information, it should include a wide panel of stakeholders holding critical knowledge/experience to the table. Indeed, the results have a better chance to be qualitative when several managers, experts and people with different points of views. PEST Analysis is often used by strategists, C-level managers, and consultants, in scenarios where:

a new location, product or service is considered;

a potential acquisition or merger is judged;

or the current relationship of a business, product or service is evaluated.

Who made it?

Francis Aguilar

Francis J. Aguilar (1967) is the originator of many of the earliest tools and techniques for “Scanning the Business Environment.” PEST Analysis and its augmented variations such as PESTLE Analysis are also attributed to the strategic planning and general management genius of this Harvard professor.

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