PEST Analysis is a strategic management tool used to evaluate the external environment in which an organization operates. The acronym "PEST" stands for:
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Political: This factor examines how government policies, regulations, and political stability can affect an organization. It includes considerations such as tax policies, trade restrictions, tariffs, and election cycles.
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Economic: This factor looks at the economic conditions that impact an organization's performance. It includes elements like inflation rates, interest rates, economic growth, unemployment rates, and exchange rates.
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Social: This aspect analyzes the social and cultural factors that can influence an organization. It encompasses demographics, cultural trends, lifestyle changes, and societal values, and how they may affect consumer behavior.
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Technological: This factor evaluates the impact of technology on the organization. It includes the rate of technological innovation, automation, research and development activities, and the level of technology adoption in the industry.
By understanding these four categories, organizations can identify potential challenges and opportunities in their external environment, which aids in strategic planning and decision-making. Variations of PEST Analysis, such as PESTLE or STEEPLE, further expand the framework by including additional factors like Legal and Environmental considerations.
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