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PESTEL Analysis

Whether it’s new markets, changing regulations, or technological developments, companies must continuously understand and assess their environment to identify risks and opportunities early on. This is exactly where business analysts and consultants come in: they help organizations spot market risks and opportunities at an early stage. To do this, they rely on analytical tools that systematically evaluate both internal factors and external influences. Among the most popular methods, alongside the SWOT analysis and Porter’s Five Forces, is the PESTEL analysis.

While SWOT examines both internal and external factors, PESTEL zooms in on the external components. Thus, it offers more insights into the macro-environmental forces that create those opportunities and threats to help in strategic planning and informed decision-making.

Table of contents

What Is a PESTEL Analysis?

Political Factors

Economic Factors

Social Factors

Technological Factors

Environmental Factors

Legal Factors

How to Use the PESTEL Analysis in Your Finance Interview

Key Takeaways

What Is a PESTEL Analysis?

PESTEL is a strategic management tool used to analyze the external environment of an organization. The acronym stands for the following factors:

Political
Economic
Social
Technological
Environmental
Legal

Graphic overview with icons and text depicting the six PESTEL factors: Political, Economic, Social, Technological, Environmental , Legal.

It was originally developed as PEST analysis (Political, Economic, Social, and Technological). However, it evolved over time to include Environmental and Legal considerations as their importance and impact became more evident. Some variations include PESTELE, which adds Ethical influences or STEEPLED, adding Educational and Demographic factors.

Understanding these factors helps organizations to proactively manage risks, refine strategies, improve resilience, and leverage external opportunities to their advantage. For example, a business may spot a favorable technological trend or prepare for potential changes in government regulations.

Below is an overview of each of these factors:

Political Factors

Political factors refer to the influence of government policies, political stability, and international relations on an organization. They can dictate regulations, tax policies, trade restrictions, labor laws, and government stability.

For example, a change in government and its associated policies regarding international trade could impact a company that relies on imports or exports. Similarly, international political tensions might disrupt global supply chains or access to certain markets.

Economic Factors

These are macro-economic trends or elements that affect purchasing power, business costs, and market behavior. They include economic growth rates, interest rates, inflation, unemployment levels, disposable income, and exchange rates. For instance, during economic downturns, consumers may reduce discretionary spending, affecting industries like luxury goods or travel.

Social Factors

Some cultural, demographic, and societal trends influence consumer behavior and societal expectations. These include population growth rates, lifestyle changes, education levels, age distribution, and shifts in consumer preferences.

Example: The aging population in many developed countries creates opportunities in healthcare and retirement services, while growing environmental awareness drives demand for sustainable and eco-friendly products.

Technological Factors

Technological factors look at innovations, automation, R&D activity, and digital transformation that can disrupt industries or create competitive advantages. Examples include emerging technologies, internet penetration, communication infrastructure, and technological obsolescence rates.

Some of the recent disruptions include advances in artificial intelligence which is transforming customer service operations, while blockchain technology is revolutionizing supply chain transparency. The pace of technological change varies across sectors, creating both opportunities for early adopters and threats for companies slow to adapt.

Environmental Factors

Environmental factors address ecological and sustainability concerns that influence business operations and consumer preferences. They can be in the form of climate change impacts, environmental regulations, resource scarcity, and waste management requirements. For example, extreme weather events may disrupt supply chains, while carbon emission regulations might increase compliance costs for manufacturing businesses.

Legal Factors

This is all the laws and regulations that impact how businesses operate. While often intertwined with political factors, legal factors specifically focus on the legal framework itself, including consumer protection laws, intellectual property laws, health and safety regulations, and antitrust laws. For example, new data privacy regulations (like GDPR) have significantly altered how businesses handle customer information. Understanding legal requirements is crucial for ensuring compliance, avoiding costly penalties, and mitigating legal risks.

How to Use the PESTEL Analysis in Your Finance Interview

In interviews for strategy or business analysis roles, it’s common for interviewers to assess your ability to think in a structured way. PESTEL may not be mentioned explicitly, but you're expected to recognize and apply the appropriate framework on your own.

That’s why it’s important to understand when PESTEL is the right tool and how to evaluate each of its six components effectively. A typical question you can tackle using PESTEL is:

"How would you analyze the external environment before entering a new market?"

A strong approach to answering this question is to take a structured look at the external business environment using the PESTEL framework. Consider which of the following dimensions are particularly relevant in the given context and use them to systematically assess the market:

Political stability, trade agreements, and regulatory frameworks
Economic indicators such as growth rates, inflation, and consumer purchasing power
Social trends, demographic shifts, and cultural preferences
Technological innovations in production, distribution, and communication
Environmental factors like regulations, sustainability goals, and resource availability
Legal considerations including labor law, data protection, and intellectual property rights

This structured analysis allows you to identify potential opportunities and risks, tailor strategies to local conditions, and choose the most suitable market entry approach. Reviewing all six PESTEL dimensions, depending on the market, helps you make informed and strategic decisions.

👉 Our case library includes common questions on market entry and analysis. Use them to practice structured thinking and apply the PESTEL framework.

Company case by

Bain & Company

Bain Case: BeautyCo – Where Did the Profits Go?

59.2k times solved

Difficulty: Intermediate

Candidate-led

Market analysis

Profitability analysis

Our client BeautyCo is a large European perfumery company with 500 shops across Europe. However, BeautyCo has been strug(...)

Our client BeautyCo is a large European perfumery company with 500 shops across Europe. However, BeautyCo has been struggling with a decrease in profi(...)

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Company case by

Roland Berger

Roland Berger Case: Onlinestar

111.4k times solved

Difficulty: Intermediate

Candidate-led

Growth strategy

Market analysis

Profitability analysis

Onlinestar, an online retailer of furniture and garden products (core business), has grown significantly in recent years(...)

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PrepLounge

ACR Medical Lab

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Your client, ACR, is a chain of medical laboratories. They provide patients with MRI and CT scans as well as other major(...)

Your client, ACR, is a chain of medical laboratories. They provide patients with MRI and CT scans as well as other major tests.They have expensive tes(...)

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PrepLounge

Financial CRM

9.7k times solved

Difficulty: Beginner

Interviewer-led

Organizational behavior

Your client is a big financial services company in Germany that just implemented a Client Relationship Management (CRM)(...)

Your client is a big financial services company in Germany that just implemented a Client Relationship Management (CRM) system. Its intention is to pr(...)

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Company case by

BearingPoint Germany

BearingPoint Case: Nachhaltigkeit on the Road – Potenziale der Kreislaufwirtschaft für den Automobilhersteller

9.1k times solved

Difficulty: Intermediate

Interviewer-led

Operations strategy

Profitability analysis

Der Automobilhersteller YourCars denkt zunehmend darüber nach, wie er seine Kosten senken und gleichzeitig seinen ökolog(...)

Der Automobilhersteller YourCars denkt zunehmend darüber nach, wie er seine Kosten senken und gleichzeitig seinen ökologischen Fußabdruck minimieren k(...)

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PrepLounge

Derivatives & Hedging – Interview Questions for Finance

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Difficulty: Advanced

Interviewer-led

Mergers & Acquisition

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This question set explores how companies use forwards, swaps, and options in practice to manage risk. You’ll cover theory, applications, and calculati(...)

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Expert case by

Benjamin

McKinsey Unconventional Case: Inclusive Cafes

300+ times solved

Difficulty: Intermediate

Interviewer-led

Non-conventional

Your client is a leading retail coffee chain. They are present in several countries globally and are a popular brand in(...)

Your client is a leading retail coffee chain. They are present in several countries globally and are a popular brand in most of the markets that they(...)

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Company case by

Oliver Wyman

Oliver Wyman Case: Full Electrons Ahead

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Difficulty: Intermediate

Candidate-led

Growth strategy

Market analysis

Market sizing

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Your client, large automotive OEM WyCar, has developed its first fully electric vehicle (EV) and introduced it as a pilo(...)

Your client, large automotive OEM WyCar, has developed its first fully electric vehicle (EV) and introduced it as a pilot on the Austrian market last(...)

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Case by

PrepLounge

Spain Shipping

5.1k times solved

Difficulty: Beginner

Candidate-led

Operations strategy

Profitability analysis

Our client is a local shipping firm in Spain where they handle local shipping of packages delivered by international shi(...)

Our client is a local shipping firm in Spain where they handle local shipping of packages delivered by international shipping firms like FedEx, UPS &a(...)

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Case by

PrepLounge

Fire & Water Remediation Services

8.4k times solved

Difficulty: Intermediate

Candidate-led

Market analysis

Market entry

Market sizing

New product

We are a profitable American provider of fire and water remediation services. We are generally hired by insura(...)

We are a profitable American provider of fire and water remediation services. We are generally hired by insurance companies to provide(...)

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Case by

PrepLounge

Juice producer

5.1k times solved

Difficulty: Beginner

Candidate-led

Profitability analysis

A major juice producer sells packaged fruit juice to retail outlets. Normally, the juice is packed and sold in 16-ounce(...)

A major juice producer sells packaged fruit juice to retail outlets. Normally, the juice is packed and sold in 16-ounce carton containers, but recentl(...)

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Expert case by

Benjamin

MBB Unconventional Case: Coral Reefs

100+ times solved

Difficulty: Advanced

Candidate-led

Non-conventional

Public sector

Your client is the Government of Indonesia, specifically a joint committee formed between a few key ministries including(...)

Your client is the Government of Indonesia, specifically a joint committee formed between a few key ministries including the Ministry of Marine Affair(...)

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Company case by

Roland Berger

Roland Berger Case: Sensorio Hightech GmbH

21.3k times solved

Difficulty: Intermediate

Candidate-led

Market analysis

Market entry

Sensorio Hightech GmbH is a leading manufacturer of technically advanced consumer electronics sensors based in Germany w(...)

Sensorio Hightech GmbH is a leading manufacturer of technically advanced consumer electronics sensors based in Germany with EUR 500 m in revenues. It(...)

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Expert case by

Benjamin

Revolut Mock Interview: Strategy & Operations

100+ times solved

Difficulty: Advanced

Interviewer-led

Operations strategy

You are part of the Strategy & Operations team at Revolut.Revolut has had significant growth over the past couple of(...)

You are part of the Strategy & Operations team at Revolut.Revolut has had significant growth over the past couple of years, with customer base gro(...)

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Expert case by

Francesco

BCG Final Round Case - Sugar to Indonesia

4.0k times solved

Difficulty: Advanced

Candidate-led

Competitive response

Growth strategy

Market analysis

Operations strategy

Our client is an Indian sugar producer exporting solely to Indonesia. Indonesia imports 5m tons of raw sugar per year.To(...)

Our client is an Indian sugar producer exporting solely to Indonesia. Indonesia imports 5m tons of raw sugar per year.To make raw sugar, our client pr(...)

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Case by

PrepLounge

Hospital's ill finances

8.3k times solved

Difficulty: Intermediate

Candidate-led

Growth strategy

Operations strategy

Profitability analysis

A firm managing hospitals has recently been experiencing growing pains. It has contacted our firm to ask for help.

Open case

Case by

PrepLounge

ChemInt

7.7k times solved

Difficulty: Advanced

Interviewer-led

Competitive response

Market analysis

Operations strategy

Your client, ChemInt, is a global chemicals company that manufactures Ponsulene in some locations around the world.It ha(...)

Your client, ChemInt, is a global chemicals company that manufactures Ponsulene in some locations around the world.It has several joint ventures (JV)(...)

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Case by

PrepLounge

Disguise distribution

38.4k times solved

Difficulty: Beginner

Candidate-led

Market analysis

Operations strategy

Profitability analysis

Your client is a German manufacturer of disguises for events and parties called KostümCo. They segment their products in(...)

Your client is a German manufacturer of disguises for events and parties called KostümCo. They segment their products in two lines: round-the-year and(...)

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Case by

PrepLounge

Universal TV

7.4k times solved

Difficulty: Intermediate

Candidate-led

Market analysis

Profitability analysis

Our client is a Canadian TV company, Universal TV. They recently entered the US market in the northeast to expand its ma(...)

Our client is a Canadian TV company, Universal TV. They recently entered the US market in the northeast to expand its market share and capture a large(...)

Open case

These types of questions are quite common in interviews, and this is exactly where the PESTEL framework becomes a valuable problem-solving tool. In addition to market entry analysis, you might also face questions like:

How would you analyze the external environment before entering a new market?
What external factors could impact our industry in the next five years?
How do political decisions influence our business strategy?
Which economic trends present opportunities or threats?
What social or demographic changes should we consider?
How is technology reshaping our industry?
What environmental concerns could affect our operations or reputation?

Having a clear framework like PESTEL at your disposal enables you to confidently tackle even complex interview questions, demonstrating structure, insight, and strategic thinking.

Key Takeaways

PESTEL analysis is a business analysis tool useful for evaluating the macro-environmental factors that impact an organization. Conducting a PESTEL analysis helps consultants and companies to identify emerging trends, anticipate changes, assess potential risks, and discover new opportunities.

As such, they can develop strategies that either capitalize on favorable conditions or mitigate potential threats to enhance their resilience and competitive positioning in an ever-changing marketplace. PESTEL is often used alongside SWOT analysis and Porter’s Five Forces for better insights.

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