Definition

PEST analysis
is an analysis of the political, economic, social and technological factors in the
external environment of an organization, which can affect its activities and
performance.
[1]

PESTEL model
involves the collection and portrayal of information about external factors which
have, or may have, an impact on business.
[2]

Understanding the tool

PEST or PESTEL analysis is a simple and effective tool used in situation analysis to identify
the key external (macro environment level) forces that might affect an organization. These
forces can create both opportunities and threats for an organization. Therefore, the aim of
doing PEST is to:

 find out the current external factors affecting an organization;

 identify the external factors that may change in the future;
 to exploit the changes (opportunities) or defend against them (threats) better than
competitors would do.

The outcome of PEST is an understanding of the overall picture surrounding the company.

PEST analysis is also done to assess the potential of a new market. The general rule is that
the more negative forces are affecting that market the harder it is to do business in it. The
difficulties that will have to be dealt with significantly reduce profit potential and the firm
can simply decide not to engage in any activity in that market.

PEST variations

PEST analysis is the most general version of all PEST variations created. It is a very dynamic
tool as new components can be easily added to it in order to focus on one or another critical
force affecting an organization. Although following variations are more detailed analysis than
simple PEST, the additional components are just the extensions of the same PEST factors.
The analysis probably has more variations than any other strategy tool:

STEP = PEST in more positive approach.

PESTEL = PEST + Environmental + Legal
PESTELI = PESTEL + Industry analysis
STEEP = PEST + Ethical
SLEPT = PEST + Legal
STEEPLE = PEST + Environmental + Legal + Ethical
STEEPLED = STEEPLE + Demographic
PESTLIED = PEST + Legal + International + Environmental + Demographic
LONGPEST = Local + National + Global factors + PEST

Using the tool

The process of carrying out PEST analysis should involve as many managers as possible to
get the best results. It includes the following steps:

 Step 1. Gathering information about political, economic, social and technological

changes + any other factor(s).
 Step 2. Identifying which of the PEST factors represent opportunities or threats.

Gathering PEST, PESTEL and STEEPLED information

In order to perform PEST (or any other variation of it) managers have to gather as much
relevant information as possible about the firm’s external environment. Nowadays, most
information can be found on the internet relatively easy, fast and with little cost. When the
analysis is done for the first time the process may take a little longer and as a beginner you
may find yourself asking “What changes do I exactly look for in politics, economic, society
and technology?” The following templates might be useful when gathering information for
PEST, PESTEL and STEEPLED analysis.

NOTE: PEST covers all macro environment forces affecting an organization. Therefore,
when doing PESTEL or STEEPLED analysis, legal, environmental, ethical and demographic
factors may overlap with PEST factors.

PEST analysis template

Political factors Economic factors
 Government stability and likely changes
 Bureaucracy
 Growth rates
 Corruption level
 Inflation rate
 Tax policy (rates and incentives)
 Interest rates
 Freedom of press
 Exchange rates
 Regulation/de-regulation
 Unemployment trends
 Trade control
 Labor costs
 Import restrictions (quality and quantity)
 Stage of business cycle
 Tariffs
 Credit availability
 Competition regulation
 Trade flows and patterns
 Government involvement in trade unions
 Level of consumers’ disposable
and agreements
income
 Environmental Law
 Monetary policies
 Education Law
 Fiscal policies
 Anti-trust law
 Price fluctuations
 Discrimination law
 Stock market trends
 Copyright, patents / Intellectual property
 Weather
law
 Climate change
 Consumer protection and e-commerce
 Employment law
 Health and safety law
  Data protection law
 Laws regulating environment pollution

Socio-cultural factors Technological factors

 Health consciousness
 Education level
 Attitudes toward imported goods and
services
 Attitudes toward work, leisure, career and
retirement
 Attitudes toward product quality and
customer service  Basic infrastructure level
 Attitudes toward saving and investing  Rate of technological change
 Emphasis on safety  Spending on research &
 Lifestyles development
 Buying habits  Technology incentives
 Religion and beliefs  Legislation regarding technology
 Attitudes toward “green” or ecological  Technology level in your industry
products  Communication infrastructure
 Attitudes toward and support for renewable  Access to newest technology
energy  Internet infrastructure and
 Population growth rate penetration
 Immigration and emigration rates
 Age distribution and life expectancy rates
 Sex distribution
 Average disposable income level
 Social classes
 Family size and structure
 Minorities

PESTEL analysis template

Political Economic
Socio-cultural Technological
+
Environmental (ecological) Legal
 Weather
 Climate change  Anti-trust law
 Laws regulating environment pollution  Discrimination law
 Air and water pollution  Copyright, patents / Intellectual
 Recycling property law
 Waste management  Consumer protection and e-
 Attitudes toward “green” or ecological commerce
products  Employment law
 Endangered species  Health and safety law
 Attitudes toward and support for  Data Protection
renewable energy

STEEPLED analysis template

 Political Economic
Socio-cultural Technological
Environmental (ecological) Legal
+
Ethical Demographic
 Population growth rate
 Immigration and emigration
 Ethical advertising and sales practices rates
 Accepted accounting, management and  Age distribution and life
marketing standards expectancy rates
 Attitude towards counterfeiting and breaking  Sex distribution
patents  Average disposable income
 Ethical recruiting practices and employment level
standards (not using children to produce goods)  Social classes
 Family size and structure
 Minorities

Identifying opportunities and threats

Gathering information is just a first important step in doing PEST analysis. Once it is done,
the information has to be evaluated. There are many factors changing in the external
environment but not all of them are affecting or might affect an organization. Therefore, it is
essential to identify which PEST factors represent the opportunities or threats for an
organization and list only those factors in PEST analysis. This allows focusing on the most
important changes that might have an impact on the company.

PEST analysis example

The following table shows PEST analysis example. It lists opportunities and threats that are
affecting a firm in its macro environment.

PEST analysis example

Political
 Government has passed legislation
which requires further reductions
of CO2, HC and NC emissions for
vehicles until 2015
 New political forces, which are
against tax reductions, may be
elected in the next years’ elections
 Import restrictions will increase in
2013
 Government is increasing its
funding to ‘specific’ industry
 Government is easing regulations
for employment
Economic
 GDP will grow by 3% in 2013
 Availability of credit for businesses will
slightly grow or remain unchanged in
2013. The same applies for the cost of
credit in the 1 half of the year
 Unemployment is expected to decrease to
7%
 Inflation will fall to 3% or 2% in 2013
 Corporate tax rate will decrease by 2%
next year to 23%
 Dollar exchange rates are expected to
decrease compared to euro
 Disposable income level will decrease
  Increasing tensions between our  Metal and oil prices will increase by 5%
government and our major export and 6% respectively in 2013
partner’s government

Socio-cultural Technological
 Positive attitude towards “green”
vehicles
 New machinery that could reduce
 Number of individuals and
production costs by 20% is in
companies buying through the
development
Internet is 67% and 45%
 Country’s major telecom company
respectively and is expected to
announced its plans to expand its internet
grow
infrastructure and install new optic fiber
 Immigration is increasing
cables
 Increasing attitude toward jobs
 Driverless cars may be introduced in the
with shorter work hours
near future
 People tend to buy more domestic
 “New” type of table will be introduced
rather than foreign products
into the market next year
 People change their eating habits
and now tend to eat healthier food

Sources
1. Thompson, J. and Martin, F. (2010). Strategic Management: Awareness & Change.
6th ed. Cengage Learning EMEA, p. 86-88, 816
2. Rothaermel, F. T. (2012). Strategic Management: Concepts and Cases. McGraw-
Hill/Irwin, p. 56-61
3. David, F.R. (2009). Strategic Management: Concepts and Cases. 12th ed. FT Prentice
Hall, p. 104-114
4. Johnson, G, Scholes, K. Whittington, R. (2008). Exploring Corporate Strategy. 8th ed.
FT Prentice Hall, p. 55-57
5. Oxford Learning Lab (2012). PESTLE - Macro Environmental Analysis. Available at:
http://www.oxlearn.com/arg_Marketing-Resources-PESTLE---Macro-Environmental-
Analysis_11_31
6. Wikipedia (2013). PEST analysis. Available at:
http://en.wikipedia.org/wiki/PEST_analysis