As a business leader, one of the most important parts of the strategic planning process is understanding the environment your business operates in so you can adapt your plans to align with it in the most effective way possible.
PEST analysis is one of the tried-and-true methods to achieve that understanding. When you complete this exercise, you’ll gain the foundation you need to make informed decisions about the future of your business.
Continue reading to learn more, or jump ahead to any section:
What is PEST Analysis?
PEST analysis covers four different categories of external factors that can influence a business: political, economic, social, and technological. This strategic planning exercise helps leaders understand external factors that may impact the business, either by providing new opportunities or posing new threats.
With the help of a PEST analysis, you can create plans that are informed by the current business environment, providing a better chance to achieve long-term goals.
PEST analysis includes four different categories of external factors that can influence a business: political, economic, social, and technological.
However, the specific information for each category will be different for every industry and organization.
Political
First, consider any political factors that could have an effect on the business. Laws and regulations as well as the general political landscape can impact a business, so it’s important to be aware of what’s going on both locally and nationally. A few questions you can ask yourself to gain a better understanding of the political factors are:
- Are there any government regulations that impact your industry?
- Are there any trade policies or restrictions that impact your business?
- Are there any consumer and employee protections you need to consider?
Economic
One of the most important factors for any business to consider is the economy. It impacts not only how customers spend their money, but also can affect how the business itself operates. Some of the questions you can ask yourself to gain a better understanding of the current economic position include:
- What is the current state of the economy – stable, unstable?
- What are the current economic trends and projections?
- How are customer habits affected by the current economy?
Social
An important part of market research is understanding the current population, including both demographic details and user behaviors. To understand the social factors that influence the way customers engage with your business, use these questions as a starting point for your research:
- What are your target customer’s habits and values? Does that align with market demographics?
- How do generational shifts affect the way customers interact with your business?
- What, if any, current cultural attitudes affect your business?
Technological
Technology can affect a business either by having industry-specific implications or simply by changing the way society functions—take for example how common smartphones have become, or more recently, the increase in remote work. Since technology is always changing and developing, you’ll want to continue revisiting questions like these:
- Are there current trends in technology that affect your industry?
- Is there any new technology that you and/or your competitors have access to?
- Are there current trends in technology that affect society as a whole?
Optional Categories
Sometimes, PEST analysis is also called PESTLE analysis. In this case, two categories are added to the acronym: legal and environmental. You can include these categories in your analysis, but it’s not necessary. For simplicity, any legal or environmental factors can be included within other categories.
Back to topHow PEST Analysis Supports Strategic Planning
Strategic planning is an important process that shapes the future of your business, so you want to base your plans on facts, not assumptions. PEST analysis helps you do that.
You’ll be able to prioritize initiatives that have the best chance of succeeding based on the current market and shape your strategy around it so your business flows with the current of external influences instead of trying to fight it. Plus, you’ll be aware of things that may change in the near future so you know to re-evaluate them and adapt your plans again.
PEST analysis is often used in conjunction with other strategic planning exercises, especially SWOT analysis.
While PEST analysis is a broad overview of the market as a whole, and addresses external factors only, SWOT is a more focused view of your individual organization’s competitive placement within the market. It includes consideration of how external factors affect it, but also how its own strengths and weaknesses affect it.
Because of that, both SWOT and PEST are important for different reasons, and your findings from your PEST analysis can easily be used to fill out the opportunities and threats sections of the SWOT. Together, they give you a good picture of the state of the business and everything you need to consider when you are planning.
Want to learn more about SWOT? Check out our blog, How to Do a SWOT Analysis >>
Back to topPEST Analysis Template
You’ll have a lot of information to sort through when you do a PEST analysis. To both organize ideas for yourself and to present your ideas easily to others, try a visual layout that you can incorporate into documentation or presentations. Get started with our PEST analysis template below:
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How to Do a PEST Analysis
Step 1: Research
The first step is to do your research and gather the information you’ll need to fully understand each category of factors. Any political, economic, social, and technological information that might be helpful or informative should be included.
You’ll get the best results from this stage if you take your time and enlist the help of some of your colleagues in different departments. This exercise isn’t quick, but if you do it right, the insights you’ll gain to help you adjust your strategy will be worth it. Don’t be afraid to take a little longer if that’s what it requires to be thorough.
Step 2: Organize Information
Take the research you have gathered and categorize it by which area it belongs to. For example: data on inflation rates? That’s economic. Conflict or unrest in countries where your business operates? Political. New software that can help you automate your processes? Technological.
Lists are a great way to organize information, but if you want to do it visually, you could use an affinity diagram to keep it all in order. Whichever method you use, you’ll want to be able to summarize the highlights of each category so you can communicate it to other stakeholders easily and effectively.
💡 Did you know? It's easy to record and organize ideas during a collaboration session with Gliffy's sticky notes feature!
Step 3: Identify Opportunities and Threats
Now that you have the information, it’s time to apply it to your business. Identify which external factors provide new opportunities, such as new technology you could use to be more efficient or potential new markets to break into, and which ones provide threats, such as economic instability.
Step 4: Apply Your Insights
Using the opportunities and threats you have identified, determine how you can adapt your strategy to address them. You can incorporate your PEST analysis conclusions into your official strategic plan or any other business frameworks you might use, such as a business model canvas.
Back to topStrategic Planning With Gliffy
With Gliffy, you can diagram your way to winning strategies by creating powerful visuals that capture ideas and help you get buy-in from key stakeholders.
Whether you’re an enterprise team or small and growing, Gliffy is here to support you as you put together the strategies that will help you succeed.
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