Businesses apply PEST and SWOT analysis methods to understand the feasibility of a new product, project or possible expansion. They are commonly used together to get a better understanding of the competitive and economic environment, but they represent two contrasting approaches.
SWOT is more flexible and can be applied to various forms of business functions. PEST analysis when including legal and environmental factors is more nonconforming, used only to fully understand the implications of entering a new market.
PEST and SWOT are closely related approaches to business analysis. PEST is an acronym that stands for political, economic, social and technological influences on a business. SWOT is a situational analysis tool for company leaders that involves assessing strengths, weaknesses, opportunities and threats. PEST has correlates strongly with the threats component of SWOT, but also has relevance to the opportunities assessment.
PEST focuses on external environmental factors that affect the business, whereas SWOT analysis focuses on both internal and external factors. PEST explores the political and legal landscape by looking at employment laws, political issues, taxes and regulations that impact the business.
PEST Basics
PEST focuses on external environmental factors that affect the business, whereas SWOT analysis focuses on both internal and external factors. PEST explores the political and legal landscape by looking at employment laws, political issues, taxes and regulations that impact the business.
Economic factors include currency exchange, economic conditions and monetary policy. Social factors include distribution, consumer demographics and trends. Technological factors include availability of technology that positively affects the business.
SWOT Basics
Company leaders assess strengths, weaknesses, opportunities and threats when organizing a business and then periodically when reviewing corporate strategy. Strengths assessment lists the company's core competencies that give it advantage over others. Weakness analysis reviews internal deficiencies relative to the competition. Opportunities assessment looks at emerging markets or untapped product diversification. Threats considers the potential that external influences, such as those identified in PEST, can harm the business in the future.
The "T"
It is coincidence that PEST and SWOT both end with a "T," but it is the "T" in SWOT that provides the greatest connection between these two strategic assessments. SWOT takes a more balanced approach and allows the company to consider internal factors it has control over alongside external influences over which it has no control, but needs to prepare for. Performing a thorough PEST analysis helps companies to more deeply analyze the threats section in SWOT.
And the "O"
The "O" in SWOT also has some correlation to PEST, as pointed out in the Quick MBA overview of the "PEST Analysis." Examining external political, economic, social and technological factors can also help companies uncover potential business opportunities it could pursue. For example, companies that rely heavily on technology in logistics or customer service must always consider opportunities to upgrade their technology for business improvement.