PEST, Strategic Tools
Nowadays the rapid changing in the business environment leads to create great opportunities for organizations and cause significant threats as well.
In 1967 in his book, "Scanning the Business Environment.", Harvard professor Francis Aguilar created PEST, which is an acronym for political, economic, social and technological that describes a framework of macro-environmental factors used as a strategic tool for understanding market growth or decline, direction for operations, potential and business position. That in addition to a SWOT analysis, it is as part of risk management and strategy design.
Also known as PESTLE, PESTEL, PESTLIED, STEEPLE, SLEPT and LONGPESTLE)
• PESTLE: Political, Economic, Socio-Cultural, Technological, Legal, Environmental
• PESTLIED: Political, Economic, Socio-Cultural, Technological, Legal, International, Environmental, Demographic.
• STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal, and Ethical.
• SLEPT: Socio-Cultural, Legal, Economic, Political, And Technological.
• LONGPESTLE: Local, National, and Global versions of PESTLE. (For multinational organizations.)
PEST is helping in understanding the "big picture" forces of changes that business may face it and take advantage of the opportunities that they present or dealing well with any threads.
P – Political Environment
Government regulations and legal issues affect a corporation's ability to be profitable and successful. This includes tax guidelines, copyright, and property law enforcement, political stability, trade regulations, social and environmental policy, employment laws and safety regulations.
E – Economic
Outside economic can play a role in a business's success such as interest rates, exchange inflation, unemployment, gross domestic product, credit availability and rise and fall of the middle class.
S – Social
Understand how consumer requirements are shaped and what brings them to the market for a purchase and to examined are demographics, population growth rates, age distribution, attitudes toward work and job market trends.
T – Technology
Technology can affect business either negatively or positively. With new technologies and services, a certain marketplace can have a tough time adjusting so it is important to assess the technology from all angles and the impact of potential information technology changes.
A similar and related analysis, called PESTLE, includes two more factors: Legal and Environmental. For the legal factor is the changes and interpretations affect directly or indirectly
The environmental evolutions and regulations to determine how they could affect a business. Look closely at ecological regulations and restrictions as well as endangered species.
For each of PEST factors should be include Analyzing Marks such as importance (high, medium, low), Type (positive or negative), Time (immediate, short or long term), Direction (increasing or decreasing) and Potential influence (low, medium or high).
There are numerous benefits of conducting a PEST analysis, which can reap dividends for your business. The more significant benefits include:
• Heightened attention to potential threats and risks.
• A better understanding of long-term strategy.
• Insight for valuable business opportunities
• Can be part of :
- SWOT (strengths, weaknesses, opportunities, and threats).
- SCRS (strategy, current state, requirements, solution) analyses.
- MOST (mission, objective, strategies, tactics).
• Based on expectations/ assumptions (May happen or not)
• Required huge data (Accuracy issue?)
• Time and experts to analyze and track.
For our business in Saudi Arabia if we are looking for growth PEST is one of the best analyzing tools as it includes most the consideration factors.