PEST analysis: Definition, steps, examples + PESTLE

Change can feel intimidating. One of the best ways to handle it is by understanding what’s happening. If you break down the reasons behind unexpected changes and their possible effects, your team can process the situation and create a plan that works for you.

This is where PEST and PESTLE analysis can help. These tools let you see how outside changes impact your business and guide you on what steps to take next.

What is a PEST analysis?

A PEST analysis is a way to look at outside factors that affect a business: Political, Economic, Social, and Technological. The expanded version, called PESTLE, also includes Legal and Environmental factors for a fuller picture.

What does PEST stand for?

PEST stands for political, economic, socio-cultural, and technological. These are outside factors your team should think about when making decisions. Sometimes you’ll see PESTEL analysis, which adds environmental and legal factors to the list.

PESTLE and PEST analysis are helpful for four main reasons:

1. Helps spot business opportunities and provides advanced warning of potential dangers or threats to your business.

2. Reveals how the external business environment is changing so your team can practice workplace adaptability.

3. Analyzes risks in your current environment to help your business avoid projects that are likely to fail.

4. Creates an objective view of new or different markets based on quantifiable facts, instead of pre-existing assumptions on a specific region or market.

Tip: PEST and PESTLE analyses pair well with other strategic planning models like SWOT analysis (strengths, weaknesses, opportunities, and threats). Combining these insights strengthens business strategies by providing a fuller picture, giving you a clearer view of risks, opportunities, and trends.

What do PEST and PESTLE analyses cover?

PESTLE and PEST analysis help businesses see the bigger picture of outside factors that could impact their success. They break things down into six main areas: political, economic, social, technological, legal, and environmental.

Both PEST and PESTLE look at these outside influences, but PESTLE also covers legal and environmental factors for a more complete view. Here’s a closer look at each PEST factor and why it matters.

• Framework: PEST

• Factors covered: Political, Economic, Social, Technological

• Best for: Quick environmental scans and general strategic planning

• Framework: PESTLE

• Factors covered: Political, Economic, Social, Technological, Legal, Environmental

• Best for: Comprehensive analysis including regulatory and sustainability factors

Political

Politics is more than just elections and debates; it also directly affects businesses. Governments make choices that can help or hurt companies, so it’s important to pay attention to things like:

• Government stability: Are leadership changes causing uncertainty?

• Tax policy and tariffs: Will new laws affect profits or pricing?

• Trade restrictions: Are there roadblocks to importing or exporting?

• Public opinion and policies: How do government initiatives align with social expectations?

Economic

The economy has a big impact on whether businesses succeed or struggle. Watching these economic factors can help companies make better decisions:

• Economic growth: Is the market expanding or slowing down?

• Interest rates: Are borrowing costs going up?

• Exchange rates: How will currency fluctuations affect international business?

• Unemployment and wages: Are people spending money or tightening their belts?

• Disposable income: Are consumers in a position to buy?

Social

People’s behaviors, values, and lifestyles are always changing, so businesses need to keep up. Social factors include:

• Demographics: What's the age breakdown of the population? Who's buying what?

• Cultural trends: How are attitudes shifting around things like sustainability or tech?

• Consumer behavior: Are people shopping online more? Are they health-conscious?

• Education levels: Does the workforce have the skills companies need?

Technological

Technology changes quickly, and companies that don’t keep up can fall behind. Here are some things to watch:

• Automation and AI: How are machines changing the way businesses operate?

• New technologies: Are there breakthroughs that could shake up an industry?

• Cybersecurity: Is data protection a growing concern?

• Tech infrastructure: Do businesses have access to the tools they need to compete?

Legal

No one wants to run into legal problems. Companies need to follow the laws and rules that affect their industry, such as:

• Employment laws: How do hiring, wages, and workplace rules affect business?

• Consumer protection: What rights do customers have?

• Intellectual property: Are patents and trademarks being respected?

• Competition laws: Are there restrictions on how businesses can operate?

Environmental

With climate change and sustainability getting more attention, businesses are expected to be more environmentally friendly. Environmental factors include:

• Climate policies: Are new rules coming that will affect operations?

• Sustainability initiatives: Are companies prioritizing eco-friendly practices?

• Energy use and waste: Are businesses being responsible with resources?

• Supply chain ethics: Are materials sourced in an environmentally friendly way?

A PESTLE analysis gives businesses a heads-up on external shifts that help them adapt before challenges turn into setbacks. While the PEST approach and PESTLE model are both useful for strategic planning and market research, PESTLE offers a broader view by including legal and environmental factors.

Benefits of PEST analysis

Knowing the outside factors that shape your business gives you an advantage. Here’s why PEST and PESTLE analysis are helpful for planning:

• Supports strategic thinking: A PEST analysis encourages you to step back and consider the bigger picture, helping you anticipate shifts rather than react to them.

• Identifies risks early: By systematically reviewing external factors, you can spot potential threats before they become problems, prioritize them with a risk matrix, and build contingency plans.

• Reveals new opportunities: External changes aren't always negative. A PEST analysis can uncover emerging markets, new customer segments, or technological advancements.

• Provides objective data for decision-making: Rather than relying on assumptions, a PEST analysis provides research-based insights that make it easier to secure stakeholder buy-in.

How to conduct a PEST analysis

Looking to stay ahead in business? Learning how to do a PEST or PESTLE analysis helps you find the outside factors that affect your success. This guide explains how to do a PEST analysis in four easy steps.

Step 1: Identify key external factors

Begin by listing the political, economic, socio-cultural, technological, environmental, and legal factors that could impact your business. This is where the PESTLE and PEST terms are useful:

• Political factors: How do upcoming elections, government policies, or regulatory changes affect your industry? Are there new tariffs, trade restrictions, or initiatives that could alter your business environment?

• Economic factors: What's the state of the economy, such as economic growth, stagnation, or decline? How do exchange rates, interest rates, and the inflation rate influence your costs, pricing, or customer spending habits?

• Socio-cultural factors: What demographics and lifestyle trends shape consumer behavior? Is the population growth rate changing your target audience? How do age distribution and generational shifts affect decision-making?

• Technological factors: What new technologies or innovations, such as automation and artificial intelligence, are reshaping your industry? Are competitors using cybersecurity advancements or technological change to gain an edge?

• Environmental factors: Do the climate, geography, or sustainability concerns affect your operations? How does corporate social responsibility (CSR) fit into your strategy?

• Legal factors: Are there new employment laws, intellectual property concerns, or regulatory updates that affect compliance? Do you have a plan in case of legal challenges?

Step 2: Brainstorm business opportunities

After you’ve listed the outside factors, look for ways to take advantage of them. A SWOT analysis can help you find growth opportunities. For example, during the COVID-19 pandemic, remote work trends opened new markets that companies like Zoom used to grow quickly.

Step 3: Identify potential threats

This step assesses risks by considering worst-case scenarios. Think about how disruptions might affect your supply chain, profitability, or operations by using a business impact analysis.

For example, election cycles create uncertainty around political stability, tax policy, and labor costs. Businesses that plan for these shifting factors can adapt more effectively.

Step 4: Take action

Now it’s time to turn your insights into action. Use what you’ve learned to guide your planning and make decisions based on data.

Pro Tip: When you write down your strategy, keep track of top risks in a risk register and note how outside factors affect your decisions. For example, a business in a college town might focus on hiring entry-level workers because there are many young people in the area.

PESTLE analysis and PEST analysis examples

Looking at real examples of PEST and PESTLE analysis shows how companies adjust to changing markets and outside pressures.

PEST analysis example: Apple Inc.

A PEST analysis helps Apple identify external factors that influence its business strategy and operations.

• Political: Trade policies between the U.S. and China affect manufacturing; data privacy regulations shape product features.

• Economic: Global economic fluctuations affect demand for premium products; currency exchange rates influence international revenue.

• Social: Consumers prefer sustainable electronics; remote work trends drive demand for personal computing devices.

• Technological: AI advancements enhance Apple's products; 5G evolution expands mobile capabilities.

PESTLE analysis example: Starbucks Corporation

A PESTLE analysis provides Starbucks with a broader perspective by including legal and environmental factors.

• Political: Food safety regulations and trade restrictions affect coffee imports; political stability in coffee-growing regions affects supply chains.

• Economic: Economic downturns influence discretionary spending; commodity price fluctuations affect raw material costs.

• Social: Consumers prefer ethically sourced coffee; health-conscious trends drive demand for nutritious menu options.

• Technological: Mobile payment advancements improve convenience; data analytics enable personalized marketing.

• Legal: Labor laws affect wages and benefits; environmental laws dictate waste disposal and sustainability practices.

• Environmental: Carbon footprint reduction initiatives lower energy consumption; sustainable sourcing ensures ethical coffee production.

By using PEST and PESTLE analysis, Apple and Starbucks can spot outside challenges early, find new opportunities, and improve their business strategies for long-term success.

When to use a PEST analysis

PEST and PESTLE analysis both help you understand the outside forces that shape your business. Here are some times when these tools are especially helpful.

1. When external forces drastically change

Unexpected events can shake up the business world without warning. A PEST analysis helps you break down political, economic, socio-cultural, technological, environmental, and legal changes so you can understand their effects and adjust your plans.

• Example: In April 2022, COVID-19 lockdowns in China caused worldwide shipping delays, affecting countless businesses. A PEST analysis would help companies anticipate supply chain disruptions and develop contingency plans.

2. Expanding into a new market

A PESTLE analysis uncovers external factors, such as economic conditions and cultural norms, that influence success in a new market. Understanding these factors helps prevent costly mistakes.

• Example: In the 1960s, General Mills launched cake mix in Japan, marketing it for use in rice cookers. However, rice held cultural significance, and many consumers resisted using their rice cookers for anything apart from rice. Both a PESTLE and PEST analysis could have highlighted this cultural roadblock before launch.

3. Developing a new product

Researching external factors that influence your ideal customer profile (ICP) is important when planning a product launch. A PESTLE analysis helps you consider how external factors shape customer decision-making processes and industry trends.

• Example: An independent coffee company sourcing beans from a new region must evaluate political stability, labor laws, economic conditions, and technological advancements to ensure ethical and sustainable sourcing aligns with their business model.

By applying a PEST analysis in business, teams can stay ahead of market changes, minimize risks, and make informed decisions that support long-term success.

Document your PEST analysis with a work management tool

Both PESTLE analysis and PEST analysis are best used when your entire team has access to the information. Consider housing your PEST analysis in a project management tool like Asana. Asana helps your team organize tasks and mark dependencies, while allowing them to access important information asynchronously. Ready to get started? Get started with Asana today.

Frequently asked questions about PEST analysis