PEST

A model for assessing the forces that shape your business

PEST is an acronym that describes four external forces that shape the business environment – political, economic, social and technological. One of the first mentions of the four factors was by Francis Aguilar, a professor at Harvard Business School who, in 1967, wrote a book entitled Scanning The Business Environment, in which he discussed various factors affecting a business. He gave them the acronym ETPS, referring to economic, technical, political and social factors. It was left to others to reassemble the order of the acronym into the more memorable PEST.

The PEST tool is used to examine the macro and micro factors that determine threats and opportunities within the marketplace. 

A list (not exhaustive) of factors that can be considered in the PEST analysis are:

Political

•    The political stability of a region 
•    Taxes on goods 
•    Taxes on people and companies 
•    Government policy
•    Labour laws 
•    Pricing regulations 
•    Environmental laws 


Economic

•    The GDP (gross domestic product) of the region 
•    The GDP per head
•    Average incomes and disposable incomes
•    Employment and unemployment rates
•    Labour skills and costs
•    Distribution and channels into the market
•    Comparative cost advantages of the region 
•    The growth of the economy 
•    Credit availability
•    Exchange rates and their stability
•    Inflation
•    Interest rates
 

Social

•    Population size and growth rates
•    Language
•    The demographics of the population
•    Class structures within the country
•    Media that reaches the population
•    Average length of life and the health of the population 
•    Attitudes to safety
•    The culture of the population and its willingness/ability to work
•    Ethical considerations
 

Technological

•    Technical infrastructure in the region 
•    Speed of technological change within the market
•    Types of technological change that are taking place
•    Technological skills and interest that exist in the region
•    The willingness of the population to adopt innovations 
•    Research and development spend 
•    Patent protection

 

Like Porter’s Five Forces or a SWOT analysis, PEST is used to assess the market environment for a business when planning a strategy, writing a marketing plan or thinking about future scenarios. It is normally used before a SWOT as it provides an understanding of the opportunities and threats. The PEST framework can be used to examine the market for a company, product or brand. It is an analysis worth carrying out at least once a year (more frequently if some forces have changed). 

Take time to build up a deep understanding of each of the PEST factors. Work out which of these forces are the most important influences on your company. Set up alerts to inform you of any changes on these factors. Pay particular attention to the threats and opportunities that arise from the analysis. Work out an action plan in response to these.

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