Definitions

PESTLE analysis

PEST analysis

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macroenvironmental factors used in the environmental scanning component of strategic management. It is a part of the external analysis when conducting a strategic analysis or doing market research and gives a certain overview of the different macroenvironmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.

The growing importance of environmental or ecological factors in the first decade of the 21st century have given rise to green business and encouraged widespread use of an updated version of the PEST framework. STEER analysis systematically considers Socio-cultural, Technological, Economic, Ecological, and Regulatory factors.

History

According to the site RapidBI The term PEST was originally called the 'ETPS' and was quoted inAguilar, Francis (1967). Scanning the Business Environment. New York: Macmillan.. , who discusses ‘ETPS’ - a mnemonic for the four sectors of what he calls his taxonomy of the business environment: Economic, Technical, Political, and Social. Sometime after this initial publication, Arnold Brown for the Institute of Life Insurance reorganized it as ‘STEP’ as a way to organise the results of his environmental scanning. Over time by academics and others in business it was modified yet again to become a so-called STEPE analysis (the Social, Technical, Economic, Political, and Ecological taxonomies).

In the 1980s, several other authors including Fahey, Narayanan, Morrison, Renfro, Boucher, Mecca and Porter included variations of the taxonomy classifications in a variety of orders: PEST, PESTLE, STEEPLE etc. Due to the negative connotations of PEST, a STEP analysis (re-ordering of the acronym letters) also exists, but is used to a lesser extent.

Some academics claim that STEP or PEST still contain headings which are appropriate for all situations and do not require additional elements, other claim that the additional breakdown of some factors to help individuals and teams undertaking an environmental scan.

Overview

It is also referred to as the STEER, STEEP, DESTEP, STEP, PESTE, PESTEL or PESTLE (or Political, Economic, Socio-cultural, Technological, Legal, Environmental). Recently it was even further extended to STEEPLE and STEEPLED, including education and demographics.

  • Political factors include areas such as tax policy, employment laws, environmental regulations, trade restrictions and tariffs and political stability.
  • Economic factors are economic growth, interest rates, exchange rates and inflation rate.
  • Social factors often look at the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety.
  • Technological factors include ecological and environmental aspects and can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Technological factors look at elements such as R&D activity, automation, technology incentives and the rate of technological change.

The PEST factors combined with external microenvironmental factors can be classified as opportunities and threats in a SWOT analysis. PEST/PESTLE alongside SWOT and SLEPT can be used as a basis for the analysis of business and environmental factors.

References

Aguilar, Francis (2006). Scanning the Business Environment. New York: Macmillan..

External links

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