Tools of Trade IC Lecture No 03

Tools of Trade
Business Environment Analysis Tools:
• External environment – Pest(le)

• Internal environment- SWOT
What Is PEST Analysis?
• PEST Stands for:
• Political, Economic, Social and Technological Factors
• It is a management tool by which an organization can assess major
external factors that influence its operation in order to become more
competitive in the market.
• As described by the acronym, those four areas are central to this
model.
• It is believed that PEST Analysis was first introduced under the name
ETPS by Harvard professor Francis J. Aguilar. In the 1967 publication
"Scanning the Business Environment," Aguilar presented the
economic, technical, political, and social factors as being major
influences on the business environment. Subsequently, the letters
were rearranged to create a convenient and quirky acronym used
today.2
• A now popular variation on the PEST Analysis format, especially in the
U.K., is the PESTLE strategic planning approach, which includes the
additional aspects of Legal and Environmental.
PEST(LE)
• PESTLE stands for Political, Economic, Social, Technological, Legal
and Environmental factors. PESTLE analysis is a tool used to gain a
macro picture of an industry environment.
• A PESTLE analysis allows a strategic and systematic evaluation of a
business's prospects, risks and opportunities in a new environment.
• It allows a company to form an impression of the factors that might
impact a new business or industry. Some factors will be more
important to different types of businesses, and a PESTLE analysis will
help identity risk factors for the SWOT analysis.
KEY TAKEAWAYS
• PEST(LE) analysis stands for political, economic, social,
technological, Environmental and Legal.
• This type of analysis is used to evaluate external factors that could
impact the viability of the business.
• Generally, it is more effective with larger organizations that are more
likely to experience the effects of macro events.
• PEST(LE) analysis is commonly used in conjunction with SWOT
analysis, which stands for strengths, weaknesses, opportunities, and
threats.
The Areas Assessed by PEST(LE) Analysis
The Political Environment Analysis

• Focuses on the areas in which government policy and/or changes in
legislation affect the economy, the specific industry, and the
organization in question.
• Areas of policy that may particularly affect an organization include tax
and employment laws.
• The general political climate of a nation or region, as well
as international relations, can also greatly influence the organization.
• The political environment can affect an industry through a range of
factors, including:
· Trade Tariffs
· Conflicts
· Taxation
· Fiscal policies
The Economic Environment Analysis
• This focuses on the key factors of interest and exchange rates,
economic growth, supply and demand, inflation, and recession.
• Economic factors a have direct impact on a company’s long-term

prospects in a market. The economic environment may affect how a
company prices their products or influence the supply and demand
model. Economic Environmental factors can include
· Inflation rate
· Disposable income
· Unemployment rate
· Interest rates
· Foreign exchange rates
· Economic growth patterns
The Social Environment Analysis
• Social Environment factors analysis of demographics and age
distribution, cultural attitudes, and workplace and lifestyle trends.
• Social factors, such as demographics and culture can impact the
industry environment by influencing peak buying periods, purchasing
habits, and lifestyle choices.
• Society is important as people’s culture and lifestyle can influence
when, where and how they are likely to engage with products and
services.
• Social Environment factors can include:
· Religion and Ethics
· Consumer buying patterns
· Demographics
· Health
· Opinions and attitudes
· Media
· Brand preferences
· Education
The Technological Environment Analysis
• Technological analysis considers the specific role and development of

technologies within the sector and organization, as well as the wider
uses, trends, and changes in technology. Government spending on
technological research may also be a point of interest in this area.
• Technological factors may have a direct or an indirect influence on an
industry.
• While some industries will be affected by technology than more others,
innovations in technology may affect the market and consumer
choices and buying power.
• Technological factors can include:
· Automation
· Technological development
· Patents
· Licensing
· Communication
· Information technology
· Research and Development
· Technological awareness
Legal Environment Analysis
• Legal factors may affect both the internal and external environment of
a company.
• The legal and regulatory environment can affect the policies and
procedures of an industry, and can control employment, safety and
regulations. Legal factors can include:
· Employment laws
· Consumer protection
· Industry specific regulations
· Regulatory bodies
· Environmental regulations
Environmental Analysis
• Environmental analysis includes all factors relating to the physical

environment and to general environmental protection requirements.
• While the environment is more important to some industries, such as
tourism, agriculture or food production, these factors may influence a
range of different industries and are worth giving attention to.
• Environmental factors include:
· Climate
· Geographical location
· Stakeholder and consumer values
· Environmental offsets
· Weather
· Global climate change
Applications of PEST Analysis
• PEST(LE) Analysis can assist an organization in recognizing and

thereby capitalizing on opportunities offered by existing conditions in
the business environment.4 It can also be used for identifying current
or possible future challenges, allowing for effective planning of how to
best manage these challenges.
• PEST Analysis can be used in conjunction with other forms of strategic
business analysis, such as the SWOT (strengths, weaknesses,
opportunities, and threats) model, for an even more comprehensive
result. Conducting a comparison between these completed analyses
can provide a very solid basis for informed decision-making.

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Tools of Trade

Business Environment Analysis Tools:

• External environment – Pest(le)

The Political Environment Analysis

• Economic factors a have direct impact on a company’s long-term

• Technological analysis considers the specific role and development of

• Environmental analysis includes all factors relating to the physical

• PEST(LE) Analysis can assist an organization in recognizing and

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