PEST Analysis Quiz

Analyzing the External Environment: Political-Legal and Economic Forces

• Strategic managers must consider forces outside the industry before developing strategic plans.
• The external environment consists of political-legal, economic, social, and technological forces.
• The acronym PEST is derived from the first letter of each of the four categories of forces.
• Understanding the effects of external environmental forces on a firm's industry is crucial before evaluating strategic options.
• Political-legal and economic forces are addressed in this chapter, while social and technological forces are addressed in the next chapter.
• Firms operating in distinct geographical markets may be affected differently by external forces in each market.
• Large organizations and trade associations attempt to influence change in the macroenvironment, but these forces are usually not under the direct control of business organizations.
• A dominant firm like Wal-Mart may be able to exert some degree of influence over one or more aspects of the macroenvironment.
• Strategic managers seek to enable a firm to operate effectively within largely uncontrollable environmental constraints while capitalizing on the opportunities provided by its environment.
• Understanding a force's broad effects should precede understanding its specific effects.
• Applications of these forces that are unique or specific to the firm are considered as opportunities and threats later in the strategic management process.
• Firms can face risks when they seek to influence the political landscape, as demonstrated by Target's contribution to a political group that backed a candidate who opposed same-sex marriage.