How to do PEST analysis (PESTLE analysis): A simple guide

Change can be scary. Oftentimes, the best way to deal with change is to understand it. Breaking down the causes for—and potential effects of—any unexpected changes can help your team digest what's happening and come up with an action plan that fits your needs.

That's where PEST analysis and PESTLE analysis come in. Use these tools to better understand how external changes are impacting your business—and what you should do about it.

What is a PEST analysis?

A PEST analysis is a research tool that helps you analyze the external political, economic, socio-cultural, and technological changes that can affect your business. This is a shortened version, as sometimes the acronym is lengthened to PESTEL to include legal and environmental factors in addition to the first four. 

Both PESTLE analysis and PEST analysis are useful for four main reasons:

1. Helps spot business opportunities and provides a warning in advance of any 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 so your business can avoid any 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 tools like SWOT analysis (strengths, weaknesses, opportunities, and threats). Combining these insights strengthens business strategies with the full picture—a clearer view of risks, opportunities, and trends.

What do PEST and PESTLE analyses cover?

PESTLE and PEST analyses help businesses get a big-picture view of what’s happening outside their walls that could impact their success. It breaks things down into six key areas: political, economic, social, technological, legal, and environmental factors.

While both PEST and PESTLE analyses examine these external influences, PESTLE includes legal and environmental factors for a more comprehensive view. Let’s look at each PEST factor to see why they matter.

Political

Politics isn’t just about elections and debates—it directly affects businesses too. Governments make decisions that can help or hurt companies, so it’s important to stay on top of things like:

• Government stability: Are leadership changes causing uncertainty?

• Tax policy and tariffs: Will new laws impact 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 plays a giant role in how businesses thrive (or struggle). Keeping an eye on these economic factors can help companies make smarter moves:

• 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 constantly changing, and businesses need to adapt. 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 moves fast, and companies that don’t keep up get left behind. Here’s what 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

Nobody wants to get caught up in legal trouble. Companies need to follow laws and regulations that impact their industry, including:

• 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 in the spotlight, businesses are under pressure to go green. Environmental factors include:

• Climate policies: Are new rules coming that will impact 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 framework and PESTLE model are both useful for strategic planning and market research, PESTLE offers a broader view by including legal and environmental factors.

How to conduct a PEST analysis

Want to stay ahead in business? Learning how to do PEST analysis—or a PESTLE analysis—helps you uncover the external factors shaping your success. The best part? It’s simple. This guide will show you how to do a PEST analysis in four simple steps.

Step 1: Identify key external factors

Start by brainstorming the political, economic, socio-cultural, technological, environmental, and legal factors that could impact your business. This is where the PESTLE and PEST abbreviations come into play:

• 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—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 impact 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

Once you’ve mapped out external environment factors, investigate how to capitalize on them. A SWOT analysis can help pinpoint how these forces create growth potential.

For instance, during the COVID-19 pandemic, companies had to adapt their decisions due to sudden shifts in business environment factors. Remote work led to the rise of virtual collaboration tools, creating a new market that companies like Zoom leveraged for massive expansion.

Step 3: Identify potential threats

Similar to the business analysis in a SWOT analysis, this step of the PEST model assesses risks. Consider worst-case scenarios and how they might disrupt your supply chain, profitability, or operations.

For example, election cycles create uncertainty. How will political stability (or instability) affect your business? Will shifts in tax policy or labor costs require adjustments to hiring, pricing, or investments? Businesses that plan for these shifting PEST factors can adapt more effectively.

Step 4: Take action

Now it’s time to translate insights into action. Use your findings to inform your strategic planning processes and make data-driven business decisions.

Pro Tip: When documenting your strategy, highlight how specific external factors influence your choices. For instance, if your business is in a college town, you might prioritize entry-level hiring due to an influx of young workers.

By applying PEST in strategic management, you’ll gain a more profound understanding of the macro environment and make informed decisions that drive long-term success.

PESTLE analysis and PEST analysis examples

Exploring PEST and PESTLE analysis examples in action shows how companies adapt to shifting markets and external 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 impact 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 impact 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 leveraging PEST and PESTLE analyses, Apple and Starbucks can anticipate external challenges, seize opportunities, and refine their business strategies for long-term success.

When to use a PEST analysis

Both PEST and PESTLE analysis help you make sense of the outside forces shaping your business. Whether you're reacting to sudden shifts or planning your next big move, it gives you a clearer picture of what’s happening beyond your control. Here’s when it can be especially useful.

1. When external forces drastically change

Unexpected events can disrupt the business landscape without warning. A PEST analysis helps break down political, economic, socio-cultural, technological, environmental, and legal changes to understand their impact and adjust accordingly.

• 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 influences on your ideal customer profile (ICP) is important when introducing a product. 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, all while allowing your team to access important information asynchronously.