PEST or PESTLIED is an acronym that is used to analyse the business environment by looking at the following areas:
Sometimes only the first four factors are considered, hence the name PEST; at other times, all eight are analysed.
What is it used for?
The PEST or PESTLIED model is used for
- Analysing organisations
- Helping you to have a broad perspective and not just look inwards when making decisions
- Planning to try to cover as many angles as possible.
By considering all of the factors covered in the acronym, it is possible to gain a fuller understanding of any given situation. This can be used in conjunction with SWOT, as it helps to identify some of the opportunities and threats that may exist.
How do I use it?
Write down the headings on a piece of paper or a board. Next, brainstorm all the possible aspects that could be affecting your industry or organisation.
- Political could include local, national or even international government actions that affect the way that your business operates. This might be policies in favour of or against your industry.
- Economic includes factors such as interest rates or taxation or other monetary related items that have an impact on your firm.
- Social factors might consist of trends that make people more or less inclined to buy your products.
- Technology comprises anything that changes the way that the organisation operates or things that influence the demand for your products.
- Legal events can change the way that your firm operates, through laws or court rulings.
- International factors might include things such as exchange rate changes or wars or instability in other parts of the world that may influence how your business runs.
- Environmental issues may determine what you can or cannot do – for example with relation to waste products.
- Demographic factors can affect how your business runs. In addition to the availability of staff to work for you, there are also phenomena such as the ‘Grey Pound’ – the fact that people are living longer and having more money to spend. This may influence who you target with your products.
Ideally, it is good to carry out this type of assessment with a wide range of stakeholders from all levels both within and outside the business, so that everything is captured. The more people with different opinions and viewpoints that take part, the best chance you have of carrying out a complete PEST or PESTLIED analysis. The factors that affect your business may be either positive or negative. Both need to be considered.
What are its limitations?
PESTLIED does not give you any sense of the types of risks that are involved with any particular factor that you are analysing, nor does it tell you which factors are more important. Additionally, PESTLIED cannot predict the future. Also, this model is only as good as the analysis that has been carried out using it. If you do not identify all of the possible impacts, the model will be less helpful to you. Finally, there are other factors, outside the PESTLIED assessment, that can impact your business, including competition in your industry.
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