A PEST analysis is a strategic business tool used by corporations to discover, evaluate, and track macro-economic factors which can have effects on their business now and in the future. The framework examines opportunities and threats due to Political, Economic, Social, and Technological forces. Results from the analysis helps to direct strategic planning processes and contribute to market research.
Aside from the company’s internal resources and industry factors, there are several other macro-economic factors that can have a profound impact on the performance of a company. In particular situations such as new ventures or product launch ideas, these factors need to be carefully analyzed in order to determine how big their role in the organization’s success would be. One of the most commonly used analytical tools for assessing external macro-economic factors related to particular situation is PEST Analysis.
In his book Good to Great, the business author Jim Collins said “While you can buy your way to growth, you cannot buy your way to greatness.” This is exactly the rationale for
PEST Analysis helps one break free of unconscious expectations when in a new country, region, or market; because it develops an objective view of this new environment. It helps to spot business or personal openings, and helps one avoid starting projects that are likely to nosedive, for reasons beyond control.
Before you go ahead to apply this tool to the peculiarity of your business, it is important to understand the factors that make up the tool;
- Political –Here government regulations and legal factors are assessed in terms of their ability to affect the business environment and trade markets. The main issues addressed in this section include political stability, tax guidelines, trade regulations, safety regulations, and employment laws.
- Economic –Through this factor, businesses examine the economic issues that are bound to have an impact on the company. This would include factors like inflation, interest rates, economic growth, the unemployment rate and policies, and the business cycle followed in the country.
- Social –With the social factor, a business can analyze the socio-economic environment of its market via elements like customer demographics, cultural limitations, lifestyle attitude, and education. With these, a business can understand how consumer needs are shaped and what brings them to the market for a purchase.
- Technological –How technology can either positively or negatively impact the introduction of a product or service into a marketplace is assessed here. These factors include technological advancements, lifecycle of technologies, the role of the Internet, and the spending on technology research by the government.
There are numerous benefits of conducting a PEST analysis, which can reap dividends for your business. The more significant benefits include;
- A greater understanding of your company
- More effective long-term strategic planning
- Heightened attention to potential threats and dangers
- Insight for valuable business opportunities