What is a PEST analysis?
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What is a PEST analysis, and when is it helpful?
If we could see into the future, every business person would keep a crystal ball or magic mirror on their desk. Unfortunately, there is no sure way to know what tomorrow holds.
However, we can make educated guesses based on a few key cultural and economic factors and prepare our strategic business plans accordingly. One of the best ways to ensure you accurately anticipate upcoming changes is to perform a PEST analysis.
A PEST analysis is crucial to any successful business’s planning process, whether it’s a brand-new startup or an established institution. A PEST analysis allows companies to judge how they fit into a bigger picture, find new opportunities, and dodge upcoming risks.
In this article, we’ll examine two real-world examples of a PEST analysis and provide a guide for performing your own using a PEST analysis template.
What is a PEST analysis?
A PEST analysis looks beyond the borders of your business or project to assess outside factors that may impact operations. PEST is an acronym for the four types of external factors examined during the analysis. These four factors don’t break down into cleanly separate areas of concern but often blend into each other.
The four factors are Political, Economic, Social, and Technological. Together, they can cover most of the ways the world will change in the near future. A few alternatives add to or change the focus, which we’ll also discuss in this article.
Regulations, laws, and even elections can significantly impact a business positively or negatively. Assessing the political situation can help a business anticipate upcoming changes to the playing field. Some sectors of business may be significantly influenced by changes in the political landscape, but any business can be affected.
For example, tariffs or tax policy changes may be important if you export goods or import raw materials. It’s a good idea for business owners to track political conditions, particularly as changes are usually signaled before they are implemented.
An economic assessment considers factors like fluctuations in exchange rates or interest rates, availability of workforce skills, and economic performance. Economic factors may be closely tied to political factors but can include various considerations. Both inflation rates and agricultural productivity may play into financial analysis.
Social factors, or sometimes socioeconomic factors, include things like labor movements, population growth rates, consumer trends, education levels of workers, and wealth disparity. Social issues or changing cultural movements can affect your business, so it’s a good idea to investigate them dispassionately when considering their impact.
Socioeconomic factors affect the cost of labor, the type of workers available to you, and your market and customers.
Technological factors continue to transform how business is done on many levels. These factors can range from logistical issues to new business opportunities.
In some places, you may need to be concerned about internet access or even the electrical grid. You may need to assess how you take advantage of new technologies. Your competitors may also use technology in a way that can affect you.
To help you think about how these external factors might impact you, use out this PEST analysis template to guide you.
PEST analysis benefits and drawbacks
Before investing in a PEST analysis, you should know what they’re good for and where they may fall short. While an analysis of this type is often a vital decision-making tool, it does have some drawbacks.
Classifies a wide range of issues in a basic framework
Can reveal external opportunities and risks before they affect your business
Vital for strategic planning
Provides a context for your company
Can be expensive in time and resources
May be based on invalid assumptions
Potential to miss important trends
How to do a PEST analysis
A PEST analysis is ultimately a type of in-depth research project that looks at a wide range of factors. As a result, performing a PEST analysis will require time and resources to be truly useful.
1. Prepare for research
Preparing for a PEST analysis can be as simple as clearing time on your schedule or as complicated as assembling a dedicated research team. A PEST analysis requires knowledge in several areas, such as social trend spotting and the local political climate. The analysis will therefore benefit from having a team with members well-informed in each area.
An important step is to identify the sources worth your attention, as there is no shortage of opinions on how the world is changing. Some examples include reliable media outlets, a country’s census bureau, academic research, and other highly credible sources.
Remember that this is a starting point, and you’ll expand your sources once your focus narrows.
2. Outline areas of concern
You could spend your life researching trends and new developments. However, a PEST analysis is ultimately about how those developments will impact your business.
You can begin by brainstorming topics in each PEST category to give yourself a place to start researching. However, be sure to keep the scope of your research limited to relevant factors.
Learning about international trade restrictions may not be vital for a local business but trending nearby social and economic factors might matter a lot. Some research may be performed at this point to provide background and a baseline.
Keep in mind that you may need to examine each category of factors at a different scope. Economic analysis can be less precise on smaller scales, but you may want to focus on workforce availability in a specific area.
3. Perform research
Once you’re ready, you’ll need to start researching the issues you’ve identified as relevant. Good research usually consists of these few steps:
Review the status quo - Review the current situation and the history that led to it. Background research has probably already started at this stage, but you may want to go more in-depth. If employment laws are changing, it might help to understand how they currently shape the market.
Discover evolving trends - Learn about current and developing trends in the political, economic, social, and technological spheres. It may be worth paying particular attention to the aspects that are changing, like new laws and changing tastes. For example, artificial intelligence may have permanently altered how some aspects of business are conducted.
Find supporting or conflicting information - Once you’ve started drawing some conclusions or spotting trends, testing your understanding is essential. There will almost always be conflicting opinions, but it may be helpful to focus on the consensus.
During this stage you can add all your research to an interactive board using the PEST Analysis Template, so everyone can collaborate using a single source of information.
4. Draw conclusions
Eventually, you’ll have to turn your research into a final product. Doing so will require reaching conclusions about how things are changing and what that means for your business.
You’ll probably want to focus on two areas: new opportunities for your business and threats to its bottom line. It’s crucial to prioritize findings according to when and how trends will affect your business.
Miro’s SWOT Analysis Template can help your team develop a path forward based on the PEST analysis findings.
A PEST analysis provides insight for a particular timespan, specifically when the research was being conducted, and the analysis was compiled. Events will continue to unfold, and your business's context is ever-evolving. As a result, it's important to perform this sort of analysis regularly.
Regularly performing a PEST analysis may also be a good idea because it can provide a useful baseline for analysis. You may also wish to perform an analysis in response to specific events, such as unexpected economic growth or changes in the market.
PEST analysis examples
A real-world PEST analysis can often resemble a dense research paper that delves deeply into complex topics. As a result, the analysis may be difficult for people who aren’t experts to follow. We dove into these examples of actual PEST analysis and broke them down to help you understand how they were performed and how they reached their conclusions.
Libraries in Higher Education
Higher education has changed in the last twenty years, moving toward a more consumerist model where education is providing a service and extracting revenue. The factors that drive those changes impact how libraries operate and the materials they include in their collections.
The structure of this particular example may be worth paying attention to, as it examines factors at different levels. It first identifies the specific trends that fall under each category. It then expands on how that trend may affect the industry concerned. Finally, the impact on the specific organization is examined.
Political - Higher education institutions often depend heavily on government funding. Policies have shifted, reducing funding and increasing competition for resources.
Additionally, certain modern political trends may clash with traditional library values. For example, libraries are an expression of the idea that education is a public good, while educational institutions may now see it as their primary commodity.
Economic - The Great Recession and pandemic have both impacted the economic outlook of higher education, leading to a focus on open access and simpler subscription models to access publications. Due to less government support, libraries are driven to those models to reduce costs while increasing revenues.
Social factors - Demographic changes impact the student makeup, including an upcoming drop in the college-aged population. Students' mental health is a growing concern, as are issues with gender and ethnic equity. Libraries may see their resources further strained by supporting mental health and serving diverse students.
Technological - Online learning and the ubiquity of the internet have changed learning and how people access library materials. In some ways, technology has lifted many burdens from libraries. However, they are often leaders in making educational technology accessible.
Biofuels in Europe
This example is actually a PESTLE analysis, a variation we’ll explore in more detail. Essentially, it’s adding two factors to a PEST analysis, Legal and Environmental. Those are both highly relevant areas of concern, as they can have a big impact on the development of biofuels.
Political and legal factors - The sources of biofuels are agricultural, so they are often heavily influenced by incentives and restrictions set by the government. A particular focus of this study was the EU renewable energy directive (RED).
Economic factors - Biofuel is an alternative to petroleum fuel, so its success is linked closely with petroleum’s economic performance. Unsurprisingly, as petroleum becomes more expensive, interest in biofuels grows. However, it's also important to consider the effects of environmental factors, including growing season and fuel demands.
Social - The first social concern that may leap to mind is the public perception of climate change and popular activism around that topic. However, there may be unexpected factors to consider. For example, biofuels compete with food supply for land use and crops.
Technological - Biofuel production technology continues to be developed, affecting business basics like production costs. At the same time, there is growing competition from other areas of technological development, like electric vehicles.
Environmental - While biofuels may reduce CO2 emissions, their production may negatively impact environmental factors like land use and biodiversity. Water use may also be a consideration.
Both these examples are truly academic research, so they don’t come with specific suggestions for businesses based on the analysis performed. However, they do describe some consequences they predict for each of their areas of focus.
PEST analysis alternatives
The PEST acronym may be the best-known example of this sort of analysis, but it’s not the only option. We discussed one example that used PESTLE, which included legal and environmental factors in the analysis. Other options include:
PESTLIED - Political, Economic, Social, Technological, Legal, International, Environmental, and Demographic
STEEPLE - Social, Technological, Economic, Environmental, Political, Legal, Ethical
SLEPT - Social, Legal, Economic, Political, Technological
LONGPESTLE - A PESTLE analysis done on a LOcal, National, and Global scale.
Each alternative offers different areas of focus. For example, SLEPT teases apart legal and political factors, as a court’s opinion may matter as much as government policy. LONGPESTLE offers several levels of scale so that you can assess both local trends in government as well as broader political stability.
Use Miro for your next PEST analysis
In many ways, a PEST analysis may seem more like an academic exercise than useful business research. However, the results of a PEST analysis can allow you to spot developing opportunities and risks before they impact your business.
The saying is that knowledge is power. When it comes to a PEST analysis and the future of your business, it might be more accurate to say that knowledge is a stepping stone to success – whatever that success means to you.
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