Article · 16 June 2016 · 2 min read · Katarzyna Kucia

Find out why PEST analysis helps you prepare for the future

We recently wrote about SWOT analysis on our blog. Today we look in a little more detail at PEST analysis, which is a kind of extension of it.

When analysing the O(pportunities) and T(hreats) factors in SWOT, we focus on the company's environment. This helps us spot emerging opportunities and threats and, in the longer term, respond to them appropriately. A PEST analysis also focuses on the external factors affecting the company, and lets us look at them in a structured and comprehensive way.

What areas does a PEST analysis cover?

A PEST analysis covers four areas of the company's environment: politics, economy, society and technology.

Here are the areas covered by PEST, which also give the method its name. Politics, where we consider how our industry may be affected by current regulations, planned national and international changes in the law, conflicts, pressure from various interest groups and so on. Example: deregulation of many professions as a factor that may increase the supply of services, or the impact of the recent Russian embargo on the Polish food industry.

Economy, that is everything that happens in the economy: its growth rate, current and expected trends, taxes, seasonality, foreign trade and exchange rates. Example: a fall in oil prices on world markets translating into lower fuel prices and lower costs for transport companies.

Society, most often understood as the customers of the business for which the analysis is carried out. Example: an ageing society is an opportunity for companies supplying products and services aimed at seniors. Similarly, the fashion for a healthy lifestyle may open up the market for personal trainers.

Technology, that is, everything we use every day, which keeps reaching new areas of our lives. When analysing these factors, we focus on technologies, inventions, patents and the chances of them entering the market and being well received by consumers. Example: mobile apps are no longer used only for entertainment, work or education. They are also used in therapy, for example for people with autism spectrum disorders. Communication channels are changing too… How many text messages do you send a day now, and how many did you send 20 years ago?

A thorough analysis of all the PEST areas helps you understand your market environment, not only at industry level but also more broadly. This in turn lets you respond in time to a changing situation.