What is PESTEL analysis and how is it used in strategy?

• A. It maps value chain activities.
• B. It analyzes Porter's five forces.
• C. It focuses on internal resources and VRIO.
• D. It assesses political, economic, social, technological, environmental, and legal factors to identify external opportunities and threats.

Answer: (D)

PESTEL analysis is a framework for scanning the macro-environment, focusing on six external forces: political, economic, social, technological, environmental, and legal. By examining these areas, it reveals external opportunities and threats that could influence a firm's strategic choices. This outside view complements internal analyses—mapping value chain activities, assessing internal resources (VRIO), or analyzing industry structure (Porter’s five forces). PESTEL is used in strategy to anticipate trends, assess risk, and generate strategic options in response to anticipated changes in regulation, markets, demographics, technology, the environment, and laws. For example, when planning a new market entry, a company would consider political stability and regulatory regimes, economic conditions, social norms, technological readiness, environmental constraints, and legal requirements to gauge potential opportunities and risks.