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PEST analysis

PEST analysis

PEST Analysis

PEST is one the key situation analysis tools used in strategic planning. PEST stands for the external political, economic, social and technological factors that impact upon a market and the competitors that populate a market. Two other variants of PEST are also used. These are SLEPT (where L is for legal) and PESTEL (where the second E is for environmental).

The great beauty of PEST is that it captures the most important external factors impacting the market on one page. The PEST(EL) factors are:

  • Political factors relates to how and to what extent a government intervenes in the economy or a specific market (i.e. gambling, alcohol, utilities, health, etc.).
  • Economic factors include the health and growth of the economy, inflation rate, interest rates and exchange rates.
  • Social factors include the size and growth of the population, its age distribution, ethnic mix, health consciousness and propensity to work.
  • Technological factors include the impact of new and emergent technologies, research and development. In many markets, these can be disruptive which can simultaneously present both opportunities and threats.
  • Environmental factors include aspects such as consumer attitudes, weather, climate and climate change.
  • Legal factors include employment law, health and safety law, anti-discrimination law, consumer law and competition law. Legal factors can also be considered as part of political factors given politicians make the laws.

The quality of a PEST analysis can be improved in the same way as the quality of a SWOT analysis can be improved by:

  1. Focusing on what’s most important by reducing the number of bullets in each quadrant to no more than six
  2. Listing the bullets in each quadrant in order of priority
  3. Balancing the number of bullets across the quadrants as appropriate to reflect the relative importance of the four (five or six) sets of factors

Best practice is rarely rocket science, merely basic practice executed well.

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