What is the meaning of PEST analysis?

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Explains the basic method

PEST analysis is a framework that focuses on the macro environmental factors surrounding the company and utilizes them in business strategy planning. PEST is a composite of the acronyms Politics (political / legal factors), Economy (economic factors), Society (social / cultural / lifestyle factors), and Technology (technical factors). By analyzing these, you can find out the business needs, changes in the market, and the impact on your company. This time, I will explain this PEST analysis in detail.

What is the meaning of PEST analysis?

What is the meaning of pest analysis?
What is the meaning of pest analysis?

PEST analysis attracted attention because it was advocated by marketing tycoon Philip Kotler. Kotler is also known as redefining the market, and he says that new markets can be discovered by changing the frame of perspective and way of thinking.

PEST analysis is also used in conjunction with 3C analysis and SWOT analysis, which are frameworks for exploring opportunities and issues in the business. In business activities and business management, no matter how hard you try, if the results do not match the external environment, you will not be accepted in the market. On the other hand, if you respond quickly to changes in the external environment, you can take advantage of the momentum of growth fields and expand your business.

PEST analysis is one of the most desirable techniques in many frameworks and should be done at a fairly early stage. However, when actually trying to perform PEST analysis, many people may wonder how much information should be collected and how to organize it. It is also possible that, although organized, no meaningful hints or conclusions can be found. Furthermore, even if you can analyze the four areas indicated by PEST, you may not know how to link each of them and stop there. The framework is just a box as it is, and when it is filled with information, it is no different from a fill-in-the-blank test. Therefore, from the next chapter, we will explain how to perform PEST analysis.

Why you need PEST analysis

why you need pest analysis
why you need pest analysis

Why is PEST analysis necessary for your companys strategy planning? The success or failure of your business always depends heavily on the state and changes of the world, that is, the macro environment.

For example, if the law changes, what could have been sold until yesterday may not be sold from tomorrow. If the consumption tax rises, it is expected that there will be a refrain from buying and there will be a last-minute demand before the tax increase. While this information works for those who know it, it has disadvantages for those who do not. Therefore, it is indispensable to collect information on a regular basis. However, it is quite possible that this level of information that anyone can know will not make a difference.

Therefore, it is important to analyze the macro environment broadly and deeply to discover opportunities and risks hidden in the market before other companies are aware of it. If you know the opportunities and issues, you will be able to quickly enter the market that is advantageous to your company, and you will be able to make management decisions such as withdrawing from the market that is becoming disadvantageous.

In making such predictions and judgments, even if we collect information vaguely, we cannot keep up with the organization and analysis, and it becomes inefficient. Also, different people may see different angles and the discussions may not engage. In such a case, PEST analysis is a great weapon.

About each element of PEST analysis

Now, lets take a step-by-step guide on what kind of information is targeted for each of the four fields that make up PEST, and how to organize and analyze them.

1. P (Politics)


Political factors include all of the sometimes enforceable administrative trends, such as laws and ordinances, deregulation and changes in the tax system, and the political movements that lead to them. Changing the rules that determine how to compete in the market is a compelling change for companies. Also, rule changes in markets that are not related to your company are basically excluded, but if it affects the billiards, it will not be negligible.

For example, in the food industry, for foods for specified health use and foods with nutritional function that had to be approved and certified until then, due to deregulation, foods with functional claims that anyone can label as long as they are notified I set it up. As a result, the market that was previously divided by presence or absence of labeling has disappeared, creating a new competitive environment. In this way, in PEST analysis, it is important to make predictions in anticipation that changes in the macro environment will change the structure of the market itself, and sometimes the market will divide or merge.

2. E (Economy)


As for economic factors, environmental changes related to the economy, such as economic conditions, growth rates, changes in prices and exchange rates, are the subject of research and analysis. Depending on the business content of the company, it is necessary to keep track of changes in the growth rate and interest rates of each country. If the purchasing power of the partner country is increasing, you may have the option of shifting the center of gravity to high-priced products accordingly. In a business field with a lot of imports and exports, even if the value of one dollar fluctuates by one yen, it will have a big impact on profits, so long-term forecasting is indispensable.

In terms of economic factors, it is necessary to observe not only these superficial numbers but also from a more in-depth perspective and pick up the numbers from there. In the free market, its price and profit are determined by the balance between supply and demand. Therefore, from the perspective of cost, not only the price of raw materials but also labor costs cannot be ignored. As labor shortages increase, labor costs will gradually increase. It is necessary to prepare for various measures such as passing on the price, automating it, or eliminating some services. From the perspective of sales, for example, wage trends and consumer indexes cannot be overlooked. Lower wages are a disadvantage for selling high-priced products, but may be beneficial for selling low-priced products.

3. S (Society)


Social factors refer to the entire society surrounding businesses and consumers, and trends, customs, lifestyles, etc. are the subjects of research and analysis. These are different from the political and economic factors that can be concretely grasped by laws and numbers, and the targets are vague and extremely wide. However, from the perspective, what we are chasing is change. Blindly analyzing the current state of countless targets is not enough time. Therefore, we do not deal with things that do not change, but focus only on things that move and analyze the target.

Possible social factors include changes in population balance, lifestyle changes, new trends, changes in social infrastructure, social events that change peoples consciousness, and major events. For example, the World Cup and the Olympic Games in soccer have the impact of changing consumer behavior accordingly.

As a major trend, the declining birthrate and aging population in Japan and the recent increase in single-person households have not stopped. At convenience stores, small pieces of vegetables and prepared foods are popular, and at restaurants, etc., there are an increasing number of forms that are easy for one person to use.

4. T (Technology)


The last is the technical factor. As for technological factors, environmental changes brought about by technology, such as the loss of competitiveness that had been accepted until then due to technological progress and innovation, and the creation of new markets by the technology itself, are the subjects of research and analysis. There are various things that technology changes, such as those that cannot be seen from the general market such as product development and production processes, and those that are reflected in new products and services and spread.

For example, in the automobile industry, technological development for the next generation, such as electric vehicles, hybrid cars, and self-driving cars, has been underway for many years. As a result, the merger of major manufacturers is progressing worldwide with the purpose of integrating the technologies owned by each company. In addition, any industry can no longer be free from IT and digital technology. The evolution of smartphone functions, which are becoming more widespread, directly affects consumer behavior and continues to create new market opportunities. Cashless payments will continue to progress. Furthermore, in recent years, AI has evolved, making it possible to shop with just voice and eliminate the need for customer service, which was previously necessary.

Basic method of PEST analysis

I will briefly explain how to actually perform PEST analysis.

1. Confirmation of purpose

The first thing to do is to confirm the purpose of the analysis. Simply investigating PEST cannot produce meaningful results.
Frameworks that include PEST analysis are said to be tools for finding opportunities and challenges and opportunities and risks. And PEST analysis is also an analysis of macro factors surrounding the market. In other words, the principle is to anticipate changes in the market and find opportunities for your company, or to find risks for your company.

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2. Information gathering

Once you have an image of your goal, we will collect information from each field of PEST. Information refers to data and reports from public institutions and experts that are as credible as possible. In a society where lifestyles are included, vague information may be collected, but even phenomena such as Recently, the penetration rate of Instagram is increasing even for middle-aged women does not end with news from the press. , It is important to look for specific survey results.

3. Organize information

The collected information is divided into environmental changes and the accompanying opportunities and risks. The individual information gathered does not always point in the same direction. You cant tell the difference in importance just by arranging them. Among many, which are the key environmental factors that drive stronger changes in the market? Also, if multiple factors are pointing in the same direction, you can take them out and clarify the direction of change.

4. Precautions for PEST analysis

As you can see, PEST analysis is very comprehensive and efficiently designed, but there are some caveats. First of all, as I have introduced many times so far, PEST analysis is a method that targets large-scale external changes. It would be irrelevant to use it for efficiency of internal work or for analysis of user interviews conducted with 10 people.

Similarly, the time axis is suitable for medium- to long-term planning. It is not suitable for short-term things such as Next months business plan. This is because the macro-environmental changes handled by PEST analysis often change over the years as the scale increases. For example, the Olympics are transient events in appearance, but if preparations and their heritage are included, they will have a light impact on society over a time axis of more than 10 years.

In addition, just performing a formal analysis will not make a difference from other companies that use similar data. Changes in the external environment are just materials for thinking about countermeasures. What is important is the future prediction of how the changes will affect the market and change the shape and shape of the market. For example, with the advent of digital cameras, the film market has almost disappeared. Kodak, Inc., which predicted that the market will still remain to some extent, went bankrupt, and Fujifilm, which predicted that the market will disappear, survived through a business transformation. In this way, predicting the future as accurate as possible will determine the future of the enterprise. PEST analysis is a strong proof for that.

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