Beginning in the 1950's, research on organisations emphasized the importance of understanding the wider meso- and macro-economic environment in which organisations operate. An organisation on its own cannot affect environmental factors, but environmental factors can affect the profitability of an industry and an organisation. Conducting a strategic analysis entails scanning the general or macro-economic environment to detect and understand the broad, long term trends.

As such a PEST Analysis can be part of a SWOT Analysis to estimate the influence of the environment on the offer (Opportunities and Threats). The second part of the SWOT Analysis, the Stengths and Weaknesses, can be supported by a VRIO Analysis.

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General Explanation

PEST analysis stands for "Political, Economic, Social, and Technological Analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added Legal and rearranged the mnemonic to SLEPT;inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the United Kingdom.The model has recently been further extended to STEEPLE and STEEPLED, adding education and demographic factors. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macroenvironmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. 

Elements of the PEST Analysis

Political Elements

The political elements relate to the pressures and opportunities brought by changes of the government and public attitudes toward the industry, changes in political institutions and the direction of political processes, legal issues, and the overall regulatory climate.

Political factors, are how and to what degree a government plans to change the regulations within the market withn the given timeperiod. Specifically, political factors include areas such as tax policy, trade restrictions, distribution channels, tariffs, pricing and reimbursement, general rebates, and naturally political stability. Political factors may also include goods and services which the government wants to provide to provide itself (tenders) and those that the government does not want to be provided (negative listing, exclusion from reimbursement, negative recommendations).

The economic elements refer to a society's economic structures and such variables impact differently on different industries.

Economic factors include economic growth, interest rates, exchange rates, the inflation rate and taxation rates. These factors have major impacts on how businesses operate and make decisions. For example this may influence the presence of a company within the country for distribution (e.g. New Zealand), research and development or for production. Exchange rates affect the costs of exporting goods and the supply and price of imported goods to and from a given country.

Social Elements

The social elements refer to cultural attitudes, ethical beliefs, shared values, level of differentiation in lifestyle, demographics, education levels, etc. Observing social factors helps organisations maintain their reputation among stakeholders

Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a type of intervention and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).

Technological Elements

The technological elements refere to changes in technology that can alter the firm's competitive position. Industries merge; new strategic groups emerge; currents products improve and the cost of production gets reduced by process innovation. Managerial innovation is part of the technology scan.

Technological factors include technological aspects such as access to universities, RD activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.

Legal Elements

Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.

Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may influenza the health status of the given patient or patient pool. Furthermore, growing awareness of the potential impacts of change is affecting how healthcare providers and authorities regard the need for medication versus alternative measures, like changes in life style.

Educational Elements

Educational elements include the general level of education, the perception of natural science within the population, the means and uptake of new information within the lay public and the professional community. Educational elements are analysed to evaluate compliance, sales models and general understanding of the nature of the health care offer/intervention.

Demographic Elements

Demographic elements include demographic aspects of the target market such as growing or shrinking populations, the general and developing epidemiology of the targeted disease.

This term was defined by: Max Beckmann - Status: May 2011