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PEST Analysis – Strategic Management

By HWA | Publish On: May 29, 2010 | Posted In:

PEST Analysis – Strategic Management

PEST Analysis is a component of Strategic Management. PEST stands for Political; Economic; Social and Technological Analysis of business environment.

An organization’s success is dependent on these factors influencing it. An organization can achieve success when it turns these internal and external factors to its advantage. An organization’s success is also evident from the fact that, it can not only turn these internal and external factors, but also, predict changes approximately and be ready with the required changes.

As for the external factors, they do not directly influence an organization, but they have indirect influences like change in taxation policy, social cost of business, new technologies being implemented and being developed by rival organizations and their increase in the market share are the factors that influence and organization.

A brief analysis of the above factors,

Political factors can influence the organization, as a matter of fact, the whole industry in the following manner;

  • Taxation policy on the industry,
  • Market regulations being introduced, tightened or loosened by the Govt,
  • Legislation on minimum wage rates and other benefits like Insurance and Provident Funds,
  • Industrial Regulations being introduced or modified.

The second element is the study of Economic factors that influence the organization;

  • The global exchange rates of currencies
  • The influence of rate of interest and cost of capital on the business. This in turn influences on the extent of the growth and expansion of business.
  • The rate of inflation on business determines to what extent the organization must invest and how much of return that it can expect from that investment if inflation rate continues to grow, increase abruptly or decrease suddenly.

The social aspects are the third element of PEST analysis;
They include,

  • The cultural aspects of society. For ex: if an organization wants to establish its plant in a place where the people have an attachment towards the near by forest or land, then an uprising might take place opposing the Company’s move.
  • Similarly, the after affects of a plant is endangering the near by flora and fauna.
  • The percentage and distribution of labor in the population. The number of senior citizens in the population and the number of minors and students in the population, the number of educated, uneducated; skilled and unskilled laborers in the population will have an effect on the organization’s workforce.
  • The social cost which the society has to bear for the actions of an organization.

The factors under the technological aspects are as follows;

  • The present technology being used by the organization,
  • The profit being yielded by the use of that technology,
  • The investment of an organization in the Research and Development,
  • New and superior technology being developed and used by rival organizations, etc also influence an organization’s decision.
  • The barriers to entry into an industry, when an organization develops an innovative technology.

So, the decisions that an organization makes are all the more based on the above PEST analysis. The PEST factors have a different influence on different industries during different times. Not all the organizations face the same problems, to the same extent. Thus, it depends on the industry involved in.

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