For companies, analyses that drive the decision-making process are especially important when considering external factors. In this guide, we explain in detail what PEST analysis is.
What is PEST Analysis?
PEST analysis is a type of analysis that examines the political, economic, social, and technological factors affecting a company and provides an assessment in line with these factors. This analysis helps companies anticipate challenges and opportunities resulting from environmental factors and take action accordingly.
What Areas Does PEST Analysis Examine?
PEST analysis focuses on environmental factors, which include political or governmental, economic, social, and technological aspects. Below is detailed information about the areas examined by PEST analysis:
Political: The political aspect of PEST analysis examines the impact of government policies and legislative changes on the economy, industry, or organization. Key elements include tax regulations, labor and employment laws, political stability, international relations, government changes, trade relations, and environmental laws.
Economic: The economic focus of PEST analysis examines areas such as interest and exchange rates, economic growth, supply and demand, employment rates, inflation, and consumer purchasing power. These factors directly affect business operations and profitability.
Social: The social aspect of PEST analysis examines elements such as demographic characteristics, cultural attitudes, lifestyle trends, and societal norms.
Technological: The technological aspect of PEST analysis examines the impact of technological advancements on company operations and helps businesses adapt their strategies accordingly. Sometimes, government research is also included in this analysis.
How is PEST Analysis Conducted?
PEST analysis, often used in conjunction with SWOT analysis, helps your team, department, or company make informed decisions. The five steps of PEST analysis in the business world are:
Assessing Current Conditions: PEST analysis provides an overview of current conditions, helping you maximize opportunities for revenue, profit, and competitive advantage.
Organizational Assessment: It allows you to evaluate your company’s organizational structure, internal policies, economic situation, social atmosphere, and technological perspective.
Strategic Decision-Making: It highlights internal and external opportunity areas for effective planning or strategic business decisions.
Competitive Advantage: It helps you gain an advantage over your competitors.
Increasing Revenue and Reducing Costs: It assists in developing appropriate strategies to increase your revenue or reduce your costs.
What Are Some Examples of PEST Analysis?
In this example, let’s consider a fictional company called Turkuaz Airlines. Turkuaz Airlines is a Turkey-based low-cost airline focused primarily on domestic and short-haul international flights.
Political: The political and regulatory environment in Turkey can directly affect Turkuaz Airlines’ operations. Turkey’s relations with the European Union may impact flight permits and airport slot allocations.
Economic: The general state of the Turkish economy can influence Turkuaz Airlines’ revenue. During periods of economic growth, passenger demand may increase, while economic downturns may lead to a decrease in passenger numbers. As a low-cost airline, Turkuaz Airlines may face significant pressure on ticket prices, which can affect profitability.
Social: The travel habits and preferences of the Turkish population can influence Turkuaz Airlines’ market strategies. Increasing urbanization, the expansion of the middle class, and the growing demand for international travel can create opportunities for Turkuaz.
Technological: Turkuaz Airlines is making significant investments in digital transformation and automation. New aircraft technologies can improve fuel efficiency and reduce environmental impact. Additionally, the development of online booking systems and mobile apps enhances customer experience and increases operational efficiency.
