PEST is a methodology for analysing the external factors that affect the sector an organisation operates in. The letters stand for:
These factors are normally beyond an organisation's control. However, they can have a profound impact on the organisation, either as threats or as opportunities.
You may also have heard it described as a PESTLE analysis. This longer acronym also includes legal and environmental factors.
So why is it important to do a PEST analysis? The answer is that we need to be aware of the context within which we operate if we are to avoid being caught out by events beyond our control, and are going to make ourselves ready to take advantage of opportunities. We spend so much of our time looking inwards, analysing what we do and how we can do it better, that the opportunity to look up and outwards is valuable.
The common theme appears to be the process of globalisation and the extent to which this is undermined by the battle for supremacy between the US and China, and the rise of populism in many parts of the world. The collateral damage of trade wars will be felt by many.
Environmental matters are also high on many agendas, with policies to combat climate change being adopted at varying speeds across the world. In accounting, the move towards a more sustainable approach to corporate reporting progresses slowly, with the adoption of Integrated Reporting much more advanced in some countries than others.
The continuing political rictus of Brexit in the UK is likely to have an influence across Europe and beyond, whilst the developing situation in Hong Kong is particularly tense and requires close monitoring.
Despite the perceived political volatility in many regions, the economics of most areas is relatively stable. The major threat to growth comes in the form of trade wars.
The battle between the US and China is the most significant, but trade tariffs are back on the agenda in many areas. Add to this the possibility of the UK crashing out of Europe on WTO terms and global trade could take quite a hit.
In several regions, population growth has led to a shortage of affordable housing. This often leaves younger populations with less prospect of living independently than previous generations. Ageing indigenous populations are also a feature in developed areas, with falling birth rates creating the need for immigration to fill labour shortages.
Multi-cultural and multi-ethnic populations find ways to live together harmoniously, but any change can threaten this balance, albeit generally temporarily.
A growing awareness of climate change issues is affecting most countries and has begun to alter consumer behaviour. For example, as well as moves towards sustainable forms of energy and transport, more widespread and systematic recycling, and a push to reduce plastic usage and waste, recent statistics also show a significant move away from meat products to plant-based substitutes in some regions. This will create issues for some businesses and opportunities for others.
The two most important technological issues for accountants across the globe are the growing popularity of cloud accounting and the tightening of data protection legislation.
If you have SME clients, mobile apps could be the solution to getting them to keep better, more accessible records, and making it part of their everyday routine.
In the SME sector there are great opportunities for simple data analysis. If you are involved in producing management accounting information to help business managers or owners make good decisions, it has never been as cheap or as straight forward to look for possible strategies by interrogating data.
Meanwhile online tools - payment systems, banking etc - are no longer the preserve of big corporations. You may not be in the business of developing AI tools, but the software providers are investing heavily and producing some great productivity enhancements.
For those in larger organisations, it is all about big data. So, it’s time to get up to speed with Power BI as Microsoft moves its pivot table generation into a new platform.
But what about your business or your clients? AI, Blockchain, 5G networks are all headed your way and may have a significant impact depending on what sector you operate in.
In conclusion, the parts of a PEST analysis that are most important will vary according to your industry. Regardless of where is best for your business to focus remains a fact that a change of focus is required. To help make the best decisions, it is critical we understand both the current context in which we operate, and the likely future developments.