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PEST & PESTEL Analysis

PEST & PESTEL Analysis

Ovidijus Jurevicius | February 13, 2013

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Denition
PEST analysis is an analysis of the political, economic, social and technological
factors in the external environment of an organization, which can aect its activities
and performance.[1]
PESTEL model involves the collection and portrayal of information about external
factors which have, or may have, an impact on business.[2]

Understanding the tool

PEST or PESTEL analysis is a simple and eective tool used in situation analysis to
identify the key external (macro environment level) forces that might aect an
organization. These forces can create both opportunities and threats for an
organization. Therefore, the aim of doing PEST is to:
nd out the current external factors aecting an organization;
identify the external factors that may change in the future;
to exploit the changes (opportunities) or defend against them (threats) better
than competitors would do.
The outcome of PEST is an understanding of the overall picture surrounding the
company.

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Macroforces
Political

Economic

Legal

Social

Company
Demographic

Ethical
Technological

Environmental

PEST analysis is also done to assess the potential of a new market. The general rule
is that the more negative forces are aecting that market the harder it is to do
business in it. The diculties that will have to be dealt with signicantly reduce
prot potential and the rm can simply decide not to engage in any activity in that
market.

PEST variations
PEST analysis is the most general version of all PEST variations created. It is a very
dynamic tool as new components can be easily added to it in order to focus on one
or another critical force aecting an organization. Although following variations are
more detailed analysis than simple PEST, the additional components are just the
extensions of the same PEST factors. The analysis probably has more variations
than any other strategy tool:
STEP = PEST in more positive approach.
PESTEL = PEST + Environmental + Legal
PESTELI = PESTEL + Industry analysis
STEEP = PEST + Ethical
SLEPT = PEST + Legal
STEEPLE = PEST + Environmental + Legal + Ethical
STEEPLED = STEEPLE + Demographic
PESTLIED = PEST + Legal + International + Environmental + Demographic
LONGPEST = Local + National + Global factors + PEST

Using the tool

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The process of carrying out PEST analysis should involve as many managers as
possible to get the best results. It includes the following steps:
Step 1. Gathering information about political, economic, social and
technological changes + any other factor(s).
Step 2. Identifying which of the PEST factors represent opportunities or threats.

Gathering PEST, PESTEL and STEEPLED information

In order to perform PEST (or any other variation of it) managers have to gather as
much relevant information as possible about the rms external environment.
Nowadays, most information can be found on the internet relatively easy, fast and
with little cost. When the analysis is done for the rst time the process may take a
little longer and as a beginner you may nd yourself asking What changes do I
exactly look for in politics, economic, society and technology? The following
templates might be useful when gathering information for PEST, PESTEL and
STEEPLED analysis.
NOTE: PEST covers all macro environment forces aecting an organization.
Therefore, when doing PESTEL or STEEPLED analysis, legal, environmental,
ethical and demographic factors may overlap with PEST factors.

PEST analysis template

Political factors

Economic factors

Government stability and likely

changes
Bureaucracy
Corruption level
Tax policy (rates and incentives)

Growth rates
Ination rate
Interest rates
Exchange rates
Unemployment trends

Freedom of press
Regulation/de-regulation
Trade control
Import restrictions (quality and

Labor costs
Stage of business cycle
Credit availability
Trade ows and patterns

quantity)
Taris
Competition regulation
Government involvement in trade

Level of consumers disposable

income
Monetary policies
Fiscal policies

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unions and agreements

Environmental Law

Price uctuations
Stock market trends

Education Law
Anti-trust law
Discrimination law
Copyright, patents / Intellectual

Weather
Climate change

property law
Consumer protection and ecommerce
Employment law
Health and safety law
Data protection law
Laws regulating environment
pollution

Socio-cultural factors

Technological factors

Health consciousness
Education level

Basic infrastructure level

Rate of technological change

Attitudes toward imported goods

and services
Attitudes toward work, leisure,
career and retirement

Spending on research &

development
Technology incentives
Legislation regarding technology

Attitudes toward product quality

and customer service
Attitudes toward saving and
investing

Technology level in your industry

Communication infrastructure
Access to newest technology
Internet infrastructure and

Emphasis on safety
Lifestyles
Buying habits
Religion and beliefs

penetration

Attitudes toward green or

ecological products
Attitudes toward and support for
renewable energy
Population growth rate
Immigration and emigration rates
Age distribution and life
expectancy rates
Sex distribution
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Average disposable income level

Social classes
Family size and structure
Minorities

PESTEL analysis template

Political

Economic

Socio-cultural

Technological

+
Environmental (ecological)

Legal

Weather

Anti-trust law

Climate change
Laws regulating environment
pollution
Air and water pollution

Discrimination law
Copyright, patents / Intellectual
property law
Consumer protection and e-

Recycling
Waste management
Attitudes toward green or
ecological products

commerce
Employment law
Health and safety law
Data Protection

Endangered species
Attitudes toward and support for
renewable energy

STEEPLED analysis template

Political

Economic

Socio-cultural

Technological

Environmental (ecological)

Legal

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Ethical

Demographic

Ethical advertising and sales

practices
Accepted accounting,
management and marketing
standards
Attitude towards counterfeiting

Population growth rate

Immigration and emigration rates
Age distribution and life
expectancy rates
Sex distribution
Average disposable income level

and breaking patents

Ethical recruiting practices and
employment standards (not using
children to produce goods)

Social classes
Family size and structure
Minorities

Identifying opportunities and threats

Gathering information is just a rst important step in doing PEST analysis. Once it is
done, the information has to be evaluated. There are many factors changing in the
external environment but not all of them are aecting or might aect an
organization. Therefore, it is essential to identify which PEST factors represent the
opportunities or threats for an organization and list only those factors in PEST
analysis. This allows focusing on the most important changes that might have an
impact on the company.

PEST analysis example

The following table shows PEST analysis example. It lists opportunities and threats
that are aecting a rm in its macro environment.

PEST analysis example

Political
Government has passed
legislation which requires further
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Economic
GDP will grow by 3% in 2013
Availability of credit for businesses
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reductions of CO2, HC and NC

emissions for vehicles until 2015
New political forces, which are
against tax reductions, may be
elected in the next years elections

will slightly grow or remain

unchanged in 2013. The same
applies for the cost of credit in the
1 half of the year
Unemployment is expected to

Import restrictions will increase in

2013
Government is increasing its
funding to specic industry
Government is easing regulations
for employment
Increasing tensions between our
government and our major export

decrease to 7%
Ination will fall to 3% or 2% in
2013
Corporate tax rate will decrease by
2% next year to 23%
Dollar exchange rates are
expected to decrease compared to
euro

partners government

Disposable income level will

decrease
Metal and oil prices will increase
by 5% and 6% respectively in 2013

Socio-cultural

Technological

Positive attitude towards green

New machinery that could reduce

vehicles
Number of individuals and
companies buying through the
Internet is 67% and 45%
respectively and is expected to
grow
Immigration is increasing
Increasing attitude toward jobs

production costs by 20% is in

development
Countrys major telecom company
announced its plans to expand its
internet infrastructure and install
new optic ber cables
Driverless cars may be introduced
in the near future

with shorter work hours

People tend to buy more domestic
rather than foreign products
People change their eating habits
and now tend to eat healthier food

New type of table will be

introduced into the market next
year

Sources
1. Thompson, J. and Martin, F. (2010). Strategic Management: Awareness &
Change. 6th ed. Cengage Learning EMEA, p. 86-88, 816
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2. Rothaermel, F. T. (2012). Strategic Management: Concepts and Cases. McGrawHill/Irwin, p. 56-61

3. David, F.R. (2009). Strategic Management: Concepts and Cases. 12th ed. FT
Prentice Hall, p. 104-114
4. Johnson, G, Scholes, K. Whittington, R. (2008). Exploring Corporate Strategy. 8th
ed. FT Prentice Hall, p. 55-57
5. Oxford Learning Lab (2012). PESTLE - Macro Environmental Analysis. Available
at: http://www.oxlearn.com/arg_Marketing-Resources-PESTLE---MacroEnvironmental-Analysis_11_31
6. Wikipedia (2013). PEST analysis. Available at: http://en.wikipedia.org/wiki/
PEST_analysis

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