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CS Professional · Strategic Management and Corporate Finance · Analyzing the External and Internal Environment

Which statement best describes a limitation of PESTEL analysis when used by a company for strategic planning?

A key limitation is that PESTEL only identifies external factors; it does not rank their importance or show how they interact, and the factors may overlap or change quickly. Planners therefore need judgement and complementary tools to prioritise and act on the findings.

  1. AIt lists external factors but does not by itself rank their impact or show how they interact, so judgement and further tools are neededCorrect
  2. BIt evaluates only the internal resources and capabilities of the firm
  3. CIt is useful only for firms operating in a single country
  4. DIt measures profitability of each business unit using market share data

Explanation

PESTEL is a scanning framework for the external environment. A common limitation is that it produces a long list of factors with no built-in weighting, and factors may overlap or change quickly, so analysts must prioritise and combine it with other tools. It is not an internal analysis, is not restricted to one country, and does not measure unit profitability.

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