What is a PEST analysis?

Political factors

A shift in the political climate can have significant implications for all types of businesses, and the political climate is constantly changing. For example, new government leadership can change regulations and consumer habits. Leadership changes can also lead to changes in consumer protection laws and foreign trade and policy, which has a massive impact on international businesses.

Even something as simple as a period of political unrest can seriously affect your business. A strategic planning framework helps you prepare for potential shifts in politics and laws.

Economic factors

Whether you’re a consumer or a business owner, every economic change significantly impacts your life. The economy's overall health can determine your business's potential success, with factors like inflation and rising unemployment making it harder for business owners to protect their bottom line.

Many businesses scale down operations when the economy is in poor health or inflation is high. As demand for products falls, so does production.

Social factors

With the internet and social media, social movements are stronger than ever. Shifts in consumer behavior and cultural attitudes can affect your business in several ways, and in the information age, those shifts happen quickly.

Changes in populations and demographics are also essential to consider. The population's average age naturally shifts, changing the demand for various products and services. If your demographic grows, you must increase production to meet higher demand.

Technological factors

It seems like we’re constantly discovering groundbreaking technology, and that technology can benefit your business in several ways. However, technological changes can also introduce new threats and potential business risks. For example, cloud services are efficient and affordable, but cloud security can be challenging.

Understanding technological factors and how they impact your business is a key part of project collaboration. When your IT, sales, and executive teams focus on correctly implementing technology, cyber threats are less of a concern.

Identify the external factors

Once you’ve set goals you can define and measure, it’s time to start gathering data. You can research market trends, recent changes in government policies, trends in consumer behavior, and recent technological advancements. Use as many sources as possible to discover new information, including government stats, industry reports, expert interviews, and market research. The more data you collect, the better.

Analyze the gathered data

This is a difficult stage where project collaboration can help. Now that you’ve researched and identified your external factors, you have to figure out how those factors affect your business. Will you become less competitive if you don’t adopt new technology? If you do adopt new technology, will it present a threat to your business? Answering simple questions like these can help you understand how your business might be affected.

Prioritize key findings

When you finish analyzing your data, prioritize key findings that could significantly impact your business. For example, you may find that inflation will negatively affect your business if you don’t plan accordingly. Other companies may find that certain technological factors have the most significant effect. Figure out what’s essential to your business and make a note of it.

Develop actionable strategies

The final step is to use the knowledge you gained from your PEST analysis to develop an action plan. Your goal with this actionable strategy is to minimize the negative impacts of political, economic, social, and technological factors. Conducting an annual PEST analysis helps you stay prepared for the future.

Example of a PEST analysis

Looking at a PEST analysis example might give you a better understanding of how PEST analysis is used to drive business decisions. In this example, we’ll look at a PEST analysis of a technology business:

• Political: The business benefits from free-trade policies, but trade disputes pose a potential threat.
• Economic: A lack of disposable income is a threat, but rapid economic growth in developing countries offers opportunities.
• Social: Negative consumer sentiments have altered the perception of the brand.
• Technological: As competitors innovate and develop new technology, it presents a challenge.

The business stays ahead of the curve by continuously innovating and supporting social programs to improve public perception. As developing countries grow, the company expands its reach, leading to increased sales.

Streamline your PEST analysis with Confluence

Do you want to know more about your business and industry so you can better prepare for the future? Conducting a PEST analysis is a great place to start. A PEST analysis helps companies identify and organize external factors that affect their business, and following project collaboration best practices ensures the process is efficient and effective.

With Confluence, it’s easy to get everyone on the same page. You can use Confluence whiteboards to brainstorm external factors and work with teammates in real-time to determine how those factors affect your business. You can also embed pages within Confluence whiteboards to provide more context and improve project collaboration. By leveraging Confluence's collaborative features, you can streamline your analysis and make better decisions that drive your business forward.