The PESTA analysis (acronym for Political, Economic, Sociocultural, Technological and Environmental) is a simple and widely used tool that helps to analyze political, economic, sociocultural, technological and environmental changes in the business environment.
The environmental factor was added only a few years ago, as the importance of this factor has been growing. This helps you understand the large-scale forces of change you are exposed to and, from there, take advantage of the opportunities that arise..
It is part of the external analysis when a strategic analysis or market research is carried out, offering a global vision to consider of the different macro-environmental factors. It is a strategic tool to understand the position of the business, the development or decline of the market and the potential of operations.
Harvard professor Francis Aguilar is the creator of the PESTA Analysis. In his 1967 book, Scanning the business environment, it included a scanning tool called ETPS. The name was later modified to create the current acronym PEST.
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PESTA analysis is useful for four main reasons:
- Helps detect business or personal opportunities, and provides early warning of significant threats.
- It reveals the direction of change within your business environment. This helps shape what is being done so that you work with change rather than against it..
- Helps avoid starting projects that are likely to fail, for reasons that are out of control.
- It can help to free from unconscious assumptions when entering a new country, region or market, because it helps to develop an objective view of this new environment.
The factors of the model will vary in importance for a given company depending on its type of industry and the goods it produces..
For example, manufacturing and commercial companies tend to be more affected by social factors, while a global defense contractor tends to be more affected by political factors..
In addition, the factors that are more likely to change in the future or are most relevant to a given company will be more important..
For example, a company that has borrowed heavily will need to focus more on economic factors (especially interest rates)..
Corporate companies that produce a large scale of products (such as Disney, Sony or BP) may find it more useful to analyze one department at a time with the PESTA model, thus concentrating specifically on the factors most relevant to that department..
The following steps must be followed to analyze the business environment, as well as the opportunities and threats that arise.
- PESTA is used to brainstorm about the changes happening around you. First, brainstorm the opportunities that arise from each of these changes..
- Then they brainstorm the threats or problems that may be caused by them..
- Subsequently appropriate actions are taken.
- When is the country's next local or national election? How might government or regional policy change this??
- Who are the possible contenders for power? What are your views on company policy and other policies that affect the company??
- Could pending legislation or tax changes affect the business, either positively or negatively?
- How will trade regulation affect the business? Is there a trend towards regulation or deregulation?
- How does the government address corporate social responsibility, environmental issues, and customer protection legislation? What impact does this have? Is it likely to change?
- How stable is the current economy? Is it growing, stagnant or declining?
- Are key exchange rates stable or do they tend to vary significantly??
- Are clients' disposable income levels increasing or decreasing? How is it possible that this will change in the next few years?
- What is the unemployment rate? Will it be easy to raise a qualified workforce? Will it be expensive to hire skilled labor?
- Do consumers and businesses have easy access to credit? If not, how will this affect the business?
- How is globalization affecting the economic environment?
- What is the population growth rate and age profile? How is this possible to change?
- What are the levels of health, education and mobility in society? How are they changing and what impact are they having?
- What employment patterns, labor market trends and attitudes towards work can be observed? Are they different for different age groups?
- What attitudes and social taboos could affect the business? Have there been recent sociocultural changes that may affect this?
- Is there any other sociocultural factor that can generate changes for the business?
- Is there any new technology that could be used?
- Is there any new technology that could radically affect work or industry?
- Do any of your competitors have access to new technologies that could redefine your products?
- In which areas do educational institutions focus their research? Is there anything that can be done to take advantage of this?
- How have infrastructure changes affected work patterns (e.g. levels of remote work)?
- Are there technology centers with which you could work or learn?
- Are there any other technological factors to consider?
They are all those factors that influence the environment and impact on ecological aspects. It is crucial for certain industries, particularly tourism and agriculture, among others..
They include geographic location, global changes in climate, recycling procedures, environmental offsets, waste disposal, etc..
After the changes taking place in the business environment have been identified, it is time to analyze each change and think about the opportunities this could bring.
For example, could you help develop new products, open new markets, or help make processes more efficient??
It is also important to think about how these changes could undermine the business. If this is understood well in advance, these issues may be avoided or their impact minimized..
Where significant opportunities have been identified, the actions to be taken to exploit them are developed in the business plan. Where significant risks have been identified, appropriate measures must be taken to manage or eliminate them.
Here is an example of the PESTA analysis, which can give a clear understanding of how it works:
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