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PEST Analysis.

Authors:

Walsh, John, PhD

Source:

Salem Press Encyclopedia, 2019. 2p.

Document Type:

Article

Subject Terms:

PEST analysis (Business)

Abstract:

Political, economic, sociocultural, and technological (PEST) analysis is a widely used tool in management and related studies with a broad range of applications. The basic concept is to contextualize a firm, a product, a transaction, or another unit of analysis within the world around it. Everything external to the unit of analysis is considered part of the environment, which does not, therefore, refer just to the world of nature. Events that occur in the environment can have significant impacts on the unit of analysis, so environmental analysis is an important area of study. For example, changes in an import tariff can suddenly make an import cheaper and hence a competitor to a homegrown product that had been a market leader, while a natural or economic disaster in one part of the world might make a product produced there hard for international consumers to obtain.

Full Text Word Count:

1092

Accession Number:

89677606

Database:

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PEST Analysis

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Political, economic, sociocultural, and technological (PEST) analysis is a widely used tool in management and related studies with a broad range of applications. The basic concept is to contextualize a firm, a product, a transaction, or another unit of analysis within the world around it. Everything external to the unit of analysis is considered part of the environment, which does not, therefore, refer just to the world of nature. Events that occur in the environment can have significant impacts on the unit of analysis, so environmental analysis is an important area of study. For example, changes in an import tariff can suddenly make an import cheaper and hence a competitor to a homegrown product that had been a market leader, while a natural or economic disaster in one part of the world might make a product produced there hard for international consumers to obtain.

89677606-58581.jpgMap of Overall EPI Country Scores by Quintile 2006 By Yale Center for Environmental Law & Policy, Yale University (http://www.yale.edu/epi/2006EPI_MainReport.pdf) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons

Overview

PEST analysis is an important strategic marketing and strategic analysis tool for a company, both in overall monitoring and with respect to specific projects. It is used to as part of a company's competitive strategy in order to identify and evaluate the important external forces that might positively or negatively affect the company. External forces, or factors, are analyzed and monitored in the macro-environmental, or external marketing environment. Because there are a multitude of external factor that can support or hinder the growth of a company, it is convenient and more efficient to divide the external analysis into more manageable portions. This is achieved through the four components of PEST analysis, which with the addition of the legal and environmental (ecological) factors, is also known as PESTEL or PESTLE analysis.

Analysis consists of obtaining data that are used to create and refine theoretical models of how the internal environment works, which can be tested by how well the model predicts the changes that are observed in the external environment and the results of those changes. The models that may be used range from a few straightforward principles to very complex multivariable quantitative systems, such as those used in econometrics . Those who want to use PEST analysis should have a reasonable grasp of the resource implications of models at different levels of complexity and select the one best suited to their particular interests. The components of PEST and PESTEL will be more or less important to various companies depending on the product produced as well as the immediate market goals. Corporations who produce a variety of different products may find that analyzing individual departments using PEST or PESTEL analysis is more efficient in developing a marketing strategy than attempting to use PEST or PESTEL to analyze the entire corporation's marketing strategy.

The ability of people to obtain data about the external world has undergone an enormous transformation since the 1990s, as the Internet has changed the way that people and organizations work. Data analysis no longer involves scarcity of information but rather too much information. To a certain extent, the development of data-mining techniques, such as semi-autonomous algorithms that trawl through datasets to discover emergent trends and structure, reduces the problem of information overload, but very often in the business world, quick and simple answers are needed.

The four component parts of PEST analysis are usually conducted independently, as are the two additional parts that make up PESTEL analysis, although many events or occurrences transcend the borders of a single category. Integration of the component reports into a synthesis report that allows for an overall assessment of the company is conducted at a later date.

PEST and SWOT

PEST analysis is related to and often used in conjunction with SWOT analysis , which stands for strengths, weaknesses, opportunities, and threats. Like PEST, SWOT is used to evaluate a company, project, or other entity as part of strategic planning. SWOT has a broader focus than PEST, taking into account a company's existing, internal factors—the strengths and weaknesses—as well as external or potential factors. The "threats" aspect of SWOT can be seen as encompassing the political, economic, social, and technological factors that make up PEST, and running a PEST analysis may therefore be part of a SWOT analysis. Likewise, the external factors of PEST may also be identified as "opportunities" within SWOT. Businesses typically use the distinct but intertwined methods of PREST and SWOT together to improve their business on as many scales and through as many factors as possible.

Bibliography

Bensoussan, Babette E., and Craig S. Fleisher. Analysis without Paralysis: 12 Tools to Make Better Strategic Decisions. 2nd ed. Upper Saddle River: Pearson Education, 2013. Print.

Burt, George, George Wright, Ron Bradfield, George Cairns, and Kees van der Heijden. “The Role of Scenario Planning in Exploring the Environment in Views of the Limitations of PEST and Its Derivatives.” International Studies of Management and Organization 36.3 (2006): 50–76. Print.

Carruthers, Harvey. “Using PEST Analysis to Improve Business Practice.” In Practice 31 (2009): 37–39. Print.

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Ha, Huong, and Ken Coghill. “E-Government in Singapore—A SWOT and PEST Analysis.” Asia-Pacific Social Science Review 6.2 (2006): 103–30. Print.

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Jurevicius, Ovidijus. "PEST & PESTEL Analysis." Strategic Management Insight. Strategic Management Insight, 13 Feb. 2013. Web. 10 Oct. 2014.

Kokemuller, Neil. "Relationships Between PEST and SWOT." Houston Chronicle. Hearst Newspapers, 2015. Web. 10 Mar. 2015.

Peng, Guo Chao Alex, and Miguel Baptista Nunes. “Using PEST Analysis as a Tool for Refining and Focusing Contexts for Information Systems Research.” Proceedings of the 6th European Conference on Research Methodology for Business and Management Studies. Reading: Academic Conferences, 2007. 229–36. Print.

"PESTLE—Macro Environment Analysis." Oxlearn. Oxford Learning Lab, 2012. Web. 10 Oct. 2014.

Rothaermel, F. T. Strategic Management: Concepts and Cases. New York: McGraw-Hill, 2012. 56–61. Print.

Schrader, G., et al. "Consistency in PEST Risk Analysis—How Can It Be Achieved and What Are the Benefits?" EPPO Bulletin 42.1 (2012): 3–12. Print.

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