External Environment Analysis

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PEST Analysis

Summary of External Environment Analysis. Abstract

PEST Analysis is a framework that strategy consultants use to scan the external macro-environment in which a firm operates. PEST is an acronym for the following factors:

• Political factors

• Economic factors

• Social factors, and

• Technological factors.

PEST factors play an important role in the value creation opportunities of a strategy. However they are usually beyond the control of the corporation and must normally be considered as either threats or opportunities. Remember macro-economical factors can differ per continent, country or even region, so normally a PEST analysis should be performed per country.

In the table below you find examples of each of these factors.

Political (incl. Legal)	Economic	Social	Technological
Environmental regulations and protection	Economic growth	Income distribution	Government research spending
Tax policies	Interest rates & monetary policies	Demographics, Population growth rates, Age distribution	Industry focus on technological effort
International trade regulations and restrictions	Government spending	Labor / social mobility	New inventions and development
Contract enforcement law Consumer protection	Unemployment policy	Lifestyle changes	Rate of technology transfer
Employment laws	Taxation	Work/career and leisure attitudes Entrepreneurial spirit	Life cycle and speed of technological obsolescence
Government organization / attitude	Exchange rates	Education	Energy use and costs
Competition regulation	Inflation rates	Fashion, hypes	(Changes in) Information Technology
Political Stability	Stage of the business cycle	Health consciousness & welfare, feelings on safety	(Changes in) Internet
Safety regulations	Consumer confidence	Living conditions	(Changes in) Mobile Technology

 

Completing a PEST analysis is relatively simple, and can be done via workshops using brainstorming techniques. Usage of PEST analysis can vary from business and strategic planning, marketing planning, business and product development to research reports.

Sometimes extended forms of PEST analysis are used, such as SLEPT (plus Legal) or the STEEPLE analysis: Social/demographic, Technological, Economic, Environmental (natural), Political, Legal and Ethical factors. Also Geographical factors may be relevant.

T I P : Here you can discuss and learn a lot more about macro-environments and PEST Analysis.

Compare also: SWOT analysis  |  OODA Loop  |  Simulation  |  Five Competitive Forces  |  Benchmarking  |  Scenario Planning  |  Diamond Model

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