This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here: http://flevy.com/browse/business-document/pest-analysis-234 PEST (Political, Economic, Social, and Technological) analysis is a framework evaluating macro-environmental factors used in the environmental scanning component of strategic management. The PEST analysis framework has become increasingly popular and relevant as the first decade of the 21st century have given rise to green business and environmental concerns from the public.

1. Business Framework
PEST Analysis
PEST (Political, Economic, Social, and Technological)
analysis is a framework evaluating macro-environmental
factors used in the environmental scanning component of
strategic management. The PEST analysis framework
has become increasingly popular and relevant as the first
decade of the 21st century have given rise to green
business and environmental concerns from the public.
Government and
Regulatory
Intervention
Technological
and Social
Change
Macroeconomic
Influences
Bargaining
Power of
Customers
Direct Rivalry
Among
Competitors
Threat of
Potential
Entrants
Bargaining
Power of
Suppliers
Threat of
Substitutes
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2. 3
PEST analysis—introduction
Why We Use It
• Complement other industry analysis frameworks.
• Explain ongoing changes in the industry.
Strengths & Limitations
Benefits:
• Provides a framework for conducting a scan of the macro-environment in the initial stages of strategic planning and
analysis engagements
• Contributes to the identification of value drivers and critical success factors in an industry
• Provides valuable input to game theory analyses or other strategy development efforts
• Can be conducted at varying levels of detail
• Supports scenario-based strategic planning efforts
Limitations:
• Qualitative and subjective nature of the results can lead to vague, incomplete or inaccurate plans
• Requires considerable data collection and trend verification efforts that can be time-consuming
Further Details

3. 5
The approach to complete Environmental Trend Analysis* has 3 key
components
* Environmental Trend Analysis is an iterative process. Data collection leads to research, which raises additional questions and leads to
additional research. This process continues until the analyst is confident the major macro-environmental trends have been identified.
Data
Collection
Industry
Trend Analysis
Trend
Quantification
1 2 3
• Conduct both primary and
secondary research
• Understand and evaluate the
industry structure
• Analyze the competitive
environment
• Analyze data from clients
and competitors (e.g. sales,
growth)
• Determine trends in data
Approach to Environmental Trend Analysis

4. 7
During Data Collection, the potential economic influences in the market
must be identified
 Potential Economic Influences
 The trends specific to markets under analysis should be identified, including:
 Size and growth rate of the market
 Cyclicality
 Seasonality
 Segmentation
 Product differentiation
 Price sensitivity
Data Collection (2 of 2)
Data
Collection
Industry
Trend Analysis
Trend
Quantification
1 2 3
 Customer needs
 Availability of substitutes
 Potential entrants
 Barriers to entry and exit
 Supplier relationships
 Industry profitability

5. 9
 If possible, the identified trends should be quantified
– Plot the ―raw‖ data over time to identify seasonal or cyclical trends
– Use visual inspections and regression analyses to observe relationships
– Calculate annual growth rate and plot over time
– There are two options for calculating historical growth rate
1. Traditional approach
2. Theoretically correct approach
• The theoretically correct approach overcomes the inherent ―positive skew‖ that results from the
traditional approach*
Given client considerations, the traditional approach is recommended
Trends should be quantified where possible for easier comparison and
ongoing tracking
* The traditional approach indicates that the percentage change from 5 to 10 is greater than the percentage change from 10 to 5, although the absolute
change is the same 5 units. The theoretically correct approach indicates the percentage change is 100 % in both cases.
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V a lu e V a lu e
V a lu e
t
t t
t
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
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1
1
% lnC h a n g e
V a lu e
V a lu e
t
t
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
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1
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Data
Collection
Industry
Trend Analysis
Trend
Quantification
1 2 3Trend Quantification (1 of 2)

6. 11
PEST analysis – top tips
Potential Insights • Reveals key trends and issues in the industry, e.g.:
– Emerging/declining constraints.
– New rules of the game.
Hints and Pitfalls • Do:
– Focus on the most significant aspect if you do not intend to deliver a thorough industry
analysis.
• Don’t:
– Lose sight of factors that truly influence your clients’ business
Data Sources • Analysts’ reports
• Industry reports
• Database searches
• Industry experts
Related Analytics • Porter’s five forces
• Value chain analysis

7. 1
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