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Aguilar in a practical way. After reading you will understand the basics of this powerful macro environment analysis. The PEST Analysis describes a framework of macro environmental factors that are important for strategic management.
It is a useful strategic tool for understanding market growth or decline, business position, opportunities and direction for the possibly required actions.
Aguilara Harvard University management professor. He developed this macro environmental analyze tool for scanning the business environment Factors Political factors Political factors indicate to what extent the Government influences in the economy. These factors are of crucial importance for strategic management.
Political factors include areas such as fiscal policy, labour law, environmental law, trade restrictions, rates and political stability. Political factors may also include goods and services the Government wants to provide or does not want to provide or be provided for instance subsidies.
The Government also has great influence on the healthcare, education and infrastructure of a country or nation. Economic factors Economic factors include growth, interest rates and the inflation rate of an economy.
These factors have a major impact on how businesses operate and make decisions. Exchange rates may affect the costs of export goods and the supply and prices of imported goods.
Social factors Social factors are, among other things, cultural aspects and include health consciousness, population growth, age structure, careers and an emphasis on safety.
These social factors influence the demand for the products and services of an organization and how this organization responds to this demand. An ageing population, for example, may imply a smaller and less flexible staff resulting in higher labour costs. Based on social factors, organizations may change their management strategies to adapt to these developments for example by recruiting older staff on account of a shortage of knowledge workers.
Technological factors influence entry barriers, minimum efficient production levels and in-sourcing and outsourcing considerations.
In addition, technological factors affect the costs and the quality of products and services and often lead to innovation. Applicability The factors of the PEST Analysis will vary in importance to a company based on its industry and the products and services it supplies.
For example, consumers and B2B companies tend to be more affected by the social factors, whereas an organization with a specific service provision to the Government would be more affected by political factors.
Factors that are more likely to change in the future or more relevant to an organization will carry greater importance. For example, an organization that has to borrow external capital will find that the economic factors especially interest rates are becoming more important than the political or social factors.
Other acronyms There are more acronyms for the PEST Analysis, also because additions have been made to the four existing factors. It is important to view the PEST Analysis as a part of an external analysis for conducting strategic planning or strategic analysis.
The PEST Analysis provides an overview of the macro environmental factors that are important to an organization. Do you recognize the practical explanation or do you have more suggestions? Share your experience and knowledge in the comments box below. If you liked this article, then please subscribe to our Free Newsletter for the latest posts on Management models and methods.
More information Aguilar, F. Scanning the business environment. Simple tools and techniques for enterprise risk management.
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