A PEST analysis (also sometimes called a STEP, PESTLE or STEEP analysis) looks at the external business environment. PEST stands for Political, Economic, Sociocultural and Technological. Technological factors in this case, include ecological / environmental aspects - the second E in STEEP and PESTLE, while legislative factors are included under Political (the L in PESTLE). The analysis examines the impact of each of these factors (and their interplay with each other) on the business. The results can then be used to take advantage of opportunities and to make contingency plans for threats. Political Factors.
When examining political factors, you need to look at any political changes that could effect your business. What laws are being drafted? What global changes are occurring? Legislation on maternity rights, data protection, health & safety, environmental policy, should be considered, for example. As an example, take a company employing a large number of women. Changes in maternity rights may have a major impact on such a business - and the aware business will keep an eye out for changes in such legislation. Economic Factors.
Often the political factors spill over into economic factors. For example, tax is usually decided by politicians, based on a mixture of political and economic factors. Interest rates, in many countries are decided by a central bank, but political factors may still be important. The fall of the Soviet Union caught most businesses and Western Governments by surprise - but not all. Some companies - notably Shell Petroleum - had picked up signals that all was not well in Russia. Many of these were related to economic problems within the Soviet Union. Other economic factors include exchange rates, inflation levels, income growth, debt & saving levels (which impact available money) and consumer & business confidence. The current state of world stock markets is a typical example of the volatility of economic factors. These areas are global, but it is also important to look at factors affecting individual industries. Are paper costs rising. For a book, magazine or newspaper publisher, the price of paper is a crucial economic measure. The UK software industry has complained of a shortage of computer programmers - driving up wage costs. Again - the global picture can be important. Some companies are now using programmers in countries like India for software development. This helps them keep costs down - and leads to competitive advantage over companies with higher costs.
Finally, all this influences and is influenced by social factors - the elements that build society. Social factors influence people's choices and include the beliefs, values and attitudes of society. So understanding changes in this area can be crucial. Such changes can impact purchasing behaviour. Typical things to look at for each of these include: • consumer attitudes to your product & industry
• environmental issues (especially if your product involves hazardous or potentially damaging production processes) • the role of women in Society - attitudes to health - attitudes to wealth - attitudes to age (children, the elderly, etc.). Added complications when looking at social and cultural factors are differences in ethnic and social groups. Not all groups have the same attitudes - and this impacts how they view products and services. Demographic changes can also play a major part. Technological Factors.
Advances in technology can have a major impact on business success - with companies that fail to keep up often going out of business. Technological change impacts sociocultural attitudes. For example the way people spend their leisure has changed dramatically over the last 30 or so years. As well as advances in your own industry, think about the likely impact of new technologies - the Internet, nanotechnology, mobile phones, and the increasing advances in computing and computers. Look out for...
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