PEST & PESTEL Analysis
Contents
1. Definition
2. What are PEST & PESTEL analyses?
o PEST variations
3. How to perform the analysis?
o Gathering PEST, PESTEL and
STEEPLED information
o Identifying opportunities and threats
o PEST analysis example
Definition
1. “PEST analysis – an analysis of the political, economic, social and technological factors in the external
environment of an organization, which can affect its activities and performance.”[1]
2. “PESTEL model involves the collection and portrayal of information about external factors which have, or
may have, an impact on business.”[2]
What are PEST & PESTEL analyses?
PEST or PESTEL analysis is a simple and effective tool used in situation analysis to identify the key
external (macro environment level) forces that might affect an organization. These forces can create both
opportunities and threats for an organization. Therefore, the aim of doing PEST is to:
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find out the current external factors affecting 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.
Figure 1. Macro environment forces affecting a firm (PEST forces including legal, environmental, ethical
and demographic forces)
PEST analysis is also done to assess the potential of a new market. The general rule is that the more
negative forces are affecting that market the harder it is to do business in it. The difficulties that will have
to be dealt with significantly reduce profit potential and the firm 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 affecting 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
How to perform the analysis?
The process of carrying out PEST analysis should involve as many managers as possible to get the best
results. It includes the following steps:
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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 firm’s 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 first time the
process may take a little longer and as a beginner you may find 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 affecting an organization. Therefore, when doing
PESTEL or STEEPLED analysis, legal, environmental, ethical and demographic factors may overlap with
PEST factors.
Figure 2. PEST analysis template
PEST analysis template
Political
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Government stability and likely changes
Bureaucracy
Corruption level
Tax policy (rates and incentives)
Freedom of press
Regulation/de-regulation
Trade control
Import restrictions (quality and quantity)
Tariffs
Competition regulation
Government involvement in trade unions and
agreements
Environmental Law
Education Law
Anti-trust law
Discrimination law
Copyright, patents / Intellectual property law
Consumer protection and e-commerce
Employment law
Health and safety law
Economic
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Growth rates
Inflation rate
Interest rates
Exchange rates
Unemployment trends
Labor costs
Stage of business cycle
Credit availability
Trade flows and patterns
Level of consumers’ disposable income
Monetary policies
Fiscal policies
Price fluctuations
Stock market trends
Weather
Climate change
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Data protection law
Laws regulating environment pollution
Socio-cultural
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Technological
Health consciousness
Education level
Attitudes toward imported goods and services
Attitudes toward work, leisure, career and
retirement
Attitudes toward product quality and customer
service
Attitudes toward saving and investing
Emphasis on safety
Lifestyles
Buying habits
Religion and beliefs
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
Average disposable income level
Social classes
Family size and structure
Minorities
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Basic infrastructure level
Rate of technological change
Spending on research & development
Technology incentives
Legislation regarding technology
Technology level in your industry
Communication infrastructure
Access to newest technology
Internet infrastructure and penetration
Figure 3. PESTEL analysis template
PESTEL analysis template
Political
Economic
Socio-cultural
Technological
Environmental (ecological)
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Legal
Weather
Climate change
Laws regulating environment pollution
Air and water pollution
Recycling
Waste management
Attitudes toward “green” or ecological products
Endangered species
Attitudes toward and support for renewable
energy
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Anti-trust law
Discrimination law
Copyright, patents / Intellectual property law
Consumer protection and e-commerce
Employment law
Health and safety law
Data Protection
Figure 4. STEEPLED analysis template
STEEPLED analysis template
Political
Economic
Socio-cultural
Technological
Environmental (ecological)
Legal
Ethical
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Ethical advertising and sales practices
Accepted accounting, management and marketing
standards
Attitude towards counterfeiting and breaking
patents
Ethical recruiting practices and employment
standards (not using children to produce goods)
Demographic
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Population growth rate
Immigration and emigration rates
Age distribution and life expectancy rates
Sex distribution
Average disposable income level
Social classes
Family size and structure
Minorities
Identifying opportunities and threats
Gathering information is just a first 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 affecting or might affect 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 affecting a
firm in its macro environment.
PEST analysis example
Political
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Government has passed legislation which requires
further 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
Import restrictions will increase in 2013
Government is increasing its funding to ‘specific’
industry
Government is easing regulations for employment
Increasing tensions between our government and
our major export partner’s government
Economic
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Socio-cultural
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Positive attitude towards “green” 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 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
GDP will grow by 3% in 2013
Availability of credit for businesses 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 decrease to 7%
Inflation 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
Disposable income level will decrease
Metal and oil prices will increase by 5% and 6%
respectively in 2013
Technological
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New machinery that could reduce production
costs by 20% is in development
Country’s major telecom company announced its
plans to expand its internet infrastructure and
install new optic fiber cables
Driverless cars may be introduced in the near
future
“New” type of table will be introduced into the
market next year
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