Harvard University Professor Francis Aguilar was the creator of PEST Analysis.
In the beginning this was a scanning tool called ETPS, which became known in the 1967 book, “Scanning the Business Environment”.
As the years passed, the name was changed to the acronym we know today.
The PEST Analysis is useful for four main reasons…
- It helps you detect business opportunities and you can anticipate incoming threats.
- It also reveals a possible direction of change within your business environment. This helps you to shape what you are doing, so that you work with change, rather than against it.
- It also helps you avoid starting projects that are likely to fail for reasons beyond your control.
- And it can help free you from unconscious assumptions when you enter a new country, region or market; because it helps you develop an objective view of this new environment.
The PEST analysis basically reveals the political, social, economic and technological position of a company, i.e. all these factors influence its activities and business performance.
It is clear that most companies want to prevail over time by adopting a productive approach, thus anticipating changes, rather than making hasty decisions in a reactive manner. This type of analysis is key to this.
To understand the PEST analysis, it is necessary to take into account these environments…
It examines how government regulations and legal issues affect a company’s ability to succeed.
Issues to consider include fiscal guidelines, compliance with copyright and property laws, political stability, trade regulations, employment laws and security regulations.
It studies the external economic issues that play an important role in a company. Goals such as economic growth, exchange, inflation and interest rates, economic stability and other factors to be taken into account.
It analyses the demographic and cultural aspects of the company’s market to help identify consumer needs and determine what drives them to buy.
Demographics, population growth rates, age distribution, attitudes towards work, labour market trends, religious and ethical beliefs and changes in lifestyle are some of the elements to assess.
It examines the technological issues that affect the way an organization delivers its product or service.
Among the points to be considered would be technological advances, government spending on tech research, the life cycle of ITs, the role of the Internet and the impact of possible changes in the digital transformation.
Process for making a PEST analysis in a company
There are three steps in the PEST analysis process:
1.Brainstorm the relevant factors that apply to your product or service.
The following indications are examples that can help you to get an idea. Also apply those that correspond to your business model:
- Type of government and stability
- Freedom of the press, rule of law
- Levels of bureaucracy and corruption
- Fiscal policy and trade and tariff controls
- Unemployment and labour supply
- Labor costs
- Impact of globalization
- Population growth rate and age profile
- Press attitudes, public opinion, social attitudes and taboos
- Lifestyle choices and attitudes towards them
- Technological environment:
- Impact of emerging technologies
- Research and development activity
- Impact of technology transfer
- Identify the information you can apply to the above factors.
- Draw key conclusions from the information obtained.
Advantages of PEST analysis
It is clear that this type of study can help us in different ways, such as:
- Assessment of both internal and external risks: thanks to the data obtained from the PEST analysis, we can assess which are those turning points that may become a problem in the medium or long term. These can be foreign negotiations or product internationalisation, etc.
- You become versatile in the face of change: you can create tactics to help you adapt to trends and changes in your industry.
- You get to take action for your business: after researching and knowing what those characteristics are that highlight your market niche, you can make assertive decisions that help your business.
- It is a study open to all types of sector: If you apply the 3 steps mentioned above, you can obtain a simple understanding and it is adapted to any type of organization: from a startup to a large company.
- It is an analysis that goes very much in line with other strategic techniques: for example, Ansoff’s matrix or SWOT analysis.
- We can work in advance: by understanding the elements that influence our sector, we can see and study what trends exist today, and then anticipate them.
In each PEST analysis we carry out, it is important that we share it with the whole company, as it helps them to have an overview of the business and thus propose key proposals that benefit your team.
What’s more, every study you want to make known, do it directly from a CRM like Efficy 🙂
This tool can help you a lot, as you can automatically create a project that contains all the information from your analysis, thus managing to share it with your whole team. They can even provide you with more information or ideas thanks to its easy documentation management.
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