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- PEST Analysis
An organisation’s success is influenced by factors operating in
it’s internal and external environment; an organisation can increase
it’s success by adopting strategies which manipulate these factors
to it’s advantage. A successful organisation will not only understand
existing factors but also forecast change, so that it can take advantage
of change within the environments in which it operates.
PEST & Micro environmental Factors
The following type of forces influence an organisation’s operating
• Pest Factors – These are external forces which the organisation
does not have direct control over these factors. PEST is an acronym
and each letter represents a type of factor (Political, Economical Social
• Micro environmental factors – These are internal factors,
which the organisation can control.
PEST & PESTLE analysis
A PEST analysis is used to identify the external forces affecting an
organisation .This is a simple analysis of an organisation’s Political,
Economical, Social and Technological environment. A PEST analysis incorporating
legal and environmental factors is called a PESTLE analysis.
The first element of a PEST analysis is a study of political factors.
Political factors influence organisations in many ways. Political factors
can create advantages and opportunities for organisations. Conversely
they can place obligations and duties on organisations. Political factors
include the following types of instrument:
- Legislation such as the minimum wage or anti discrimination laws.
- Voluntary codes and practices
- Market regulations
- Trade agreements, tariffs or restrictions
- Tax levies and tax breaks
- Type of government regime eg communist, democratic, dictatorship
Non conformance with legislative obligations can lead to sanctions
such as fines, adverse publicity and imprisonment. Ineffective voluntary
codes and practices will often lead to governments introducing legislation
to regulate the activities covered by the codes and practices.
The second element of a PEST analysis involves
a study of economic factors.
All businesses are affected by national and global economic factors.
National and global interest rate and fiscal policy will be set around
economic conditions. The climate of the economy dictates how consumers,
suppliers and other organisational stakeholders such as suppliers and
creditors behave within society.
An economy undergoing recession will have high unemployment, low spending
power and low stakeholder confidence. Conversely a “booming” or growing economy will have low unemployment, high spending power and
high stakeholder confidence.
A successful organisation will respond to economic conditions and stakeholder
behaviour. Furthermore organisations will need to review the impact
economic conditions are having on their competitors and respond accordingly.
In this global business world organisations are affected by economies
throughout the world and not just the countries in which they are based
or operate from. For example: a global credit crunch originating in
the USA contributed towards the credit crunch in the UK in 2007/08.
Cheaper labour in developing countries affects the competitiveness
of products from developed countries. An increase in interest rates
in the USA will affect the share price of UK stocks or adverse weather
conditions in India may affect the price of tea bought in an English
A truly global player has to be aware of economic conditions across
all borders and needs to ensure that it employs strategies that protect
and promote its business through economic conditions throughout the
The third aspect of PEST focuses its attention on forces within society
such as family, friends, colleagues, neighbours and the media. Social
forces affect our attitudes, interest s and opinions. These forces shape
who we are as people, the way we behave and ultimately what we purchase.
For example within the UK peoples attitudes are changing towards their
diet and health. As a result the UK is seeing an increase in the number
of people joining fitness clubs and a massive growth for the demand
of organic food. Products such as Wii Fit attempt to deal with society’s
concern, about children’s lack of exercise.
Population changes also have a direct impact on organisations. Changes
in the structure of a population will affect the supply and demand of
goods and services within an economy. Falling birth rates will result
in decreased demand and greater competition as the number of consumers
fall. Conversely an increase in the global population and world food
shortage predictions are currently leading to calls for greater investment
in food production. Due to food shortages African countries such as
Uganda are now reconsidering their rejection of genetically modified
In summary organisations must be able to offer products and services
that aim to complement and benefit people’s lifestyle and behaviour.
If organisations do not respond to changes in society they will lose
market share and demand for their product or service.
Unsurprisingly the fourth element of PEST is technology, as you are
probably aware technological advances have greatly changed the manner
in which businesses operate.
Organisations use technology in many ways, they have
1. Technology infrastructure such as the internet and other information
exchange systems including telephone
2. Technology systems incorporating a multitude of software which help
them manage their business.
3. Technology hardware such as mobile phones, Blackberrys, laptops,
desktops, Bluetooth devices, photocopiers and fax machines which transmit
and record information.
Technology has created a society which expects instant results. This
technological revolution has increased the rate at which information
is exchanged between stakeholders. A faster exchange of information
can benefit businesses as they are able to react quickly to changes
within their operating environment.
However an ability to react quickly also creates extra pressure as
businesses are expected to deliver on their promises within ever decreasing
For example the Internet is having a profound impact on the marketing
mix strategy of organisations. Consumers can now shop 24 hours a day
from their homes, work, Internet café’s and via 3G phones
and 3G cards. Some employees have instant access to e-mails through
Blackberrys but this can be a double edged sword, as studies have shown
that this access can cause work to encroach on their personal time outside
The pace of technological change is so fast that the average life of
a computer chip is approximately 6 months. Technology is utilised by
all age groups, children are exposed to technology from birth and a
new generation of technology savvy pensioners known as “silver
surfers” have emerged. Technology will continue to evolve and
impact on consumer habits and expectations, organisations that ignore
this fact face extinction.
A PEST analysis is sometimes expanded to incorporate legal and environmental
factors; this is known as a pestle analysis. There are many statutes
books containing company law as almost every aspect of an organisation’s
operation is controlled through legislation from treatment of employees
through to health and safety. Legal factors are important as organisations
have to work within legislative frameworks. Legislation can hinder business
by placing onerous obligations on organisations. On the other hand legislation
can create market conditions that benefit business.
Diagram: PEST analysis and the marketing mix.
For information regarding environmental factors please refer to environmental
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