What is a PEST Analysis and Why You Need One

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What is it A PEST analysis is an examination of four different external forces that may act on your business.  These four areas are the political environment, the economic environment, the social environment, and the technological environment. When performing the evaluation you will want to look as far out as you can, so that the analysis is useful for your long term pan and in the near term, you should be able to be more accurate.

Political Environment In the Political environment, we want to think about what issues may shape future elections.  What would the different parties most likely do that impact your business?  Which candidate is most likely to win the election, at each level? In addition to the politics involved in the elections, what are the other factors from the political environment that may affect your business?  Will taxes go up or down?  Will the minimum wage change? What about changes to environmental laws?  Will customer protection rules change?

Economic Environment When we start to analyze the Economic environment, we have more questions to think about.  What is the economy like now?  How will it change?  Where are interest rates headed?  Is the economy shrinking or growing and will that change? What is the prospect for inflation?  What impact will inflation have on your ability to sell your product or service?   If you deal internationally, you want to think about the exchange rate?  This will impact you if you buy products made overseas, or sell into foreign markets.   What does the labor market look like, and what will the trend be? Tighter labor markets usually mean higher labor prices.  Higher unemployment usually makes hiring easier, but it may affect the potential sales of your product or service.

Social Environment When we talk about the Social environment, we are talking about people, what they are doing and thinking.  This can be a huge factor in your success, or contribute to your failure. How will changing cultures affect your market? Is your product something that people need and will always use or buy, or will changing attitudes affect your sales? As people’s views on health change, will that impact you?  Will the change in age of your target market affect sales?  As new generations enter the workforce, how will that affect your business? Will attitudes about environmental concerns affect your business?  If so what it the most likely change in attitude that will occur. Is the demand for your product more likely to increase or decrease?

Technological Environment Changes in technology can have a huge impact on businesses.  For example, the advent of computers and printers into the office, decimated the typewriter industry.   Where is the product you sell, or the service you provide in its lifecycle? Most technologies have a limited life span, and so if what you sell has been around for a significant period of time, ask what might replace it?   Think about what opportunities new technology might provide and be ready to pivot if something disrupts your current offering. Do your competitors have a technological advantage?  Will the infrastructure change in a way that will help or hurt your business? What new products or theories are the universities and other research facilities exploring that might have an impact on your business?