Environmental Analysis is described as the process which examines all the components, internal or external that has an influence on the performance of the organization. The internal components indicate the strengths and weakness of the business entity whereas the external components represent the opportunities and threats outside the organization.
To perform environmental analysis, a constant stream of relevant information is required to find out the best course of action. Strategic Planners use the information gathered from the environmental analysis for forecasting trends for future in advance. The information can also be used to assess operating environment and set up organizational goals.
It ascertains whether the goals defined by the organization are achievable or not, with the present strategies. If is not possible to reach those goals with the existing strategies, then new strategies are devised or old ones are modified accordingly.
Advantages of Environmental Analysis
The internal insights provided by the environmental analysis are used to assess employee’s performance, customer satisfaction, maintenance cost, etc. to take corrective action wherever required. Further, the external metrics help in responding to the environment in a positive manner and also aligning the strategies according to the objectives of the organization.
Environmental analysis helps in the detection of threats at an early stage, that assist the organization in developing strategies for its survival. Add to that, it identifies opportunities, such as prospective customers, new product, segment and technology, to occupy a maximum share of the market than its competitors.
Steps Involved in Environmental Analysis
First of all, the factors which influence the business entity are to be identified, to improve its position in the market. The identification is performed at various levels, i.e. company level, market level, national level and global level.
Scanning implies the process of critically examining the factors that highly influence the business, as all the factors identified in the previous step effects the entity with the same intensity. Once the important factors are identified, strategies can be made for its improvement.
In this step, a careful analysis of all the environmental factors is made to determine their effect on different business levels and on the business as a whole. Different tools available for the analysis include benchmarking, Delphi technique and scenario building.
After identification, examination and analysis, lastly the impact of the variables is to be forecasted.
Environmental analysis is an ongoing process and follows a holistic approach, that continuously scans the forces effecting the business environment and covers 360 degrees of the horizon, rather than a specific segment.
Environmental analysis is the study of the organizational environment to pinpoint environmental factors that can significantly influence organizational operations. It is a process of gathering, analysing and dispensing information for effective purpose.
Scanning means detection. Environmental scanning means having a detailed investigation of the environment. Environmental scanning can also be termed as SWOT analyses. In order to survive and grow in a competitive business environment, it is essential for every business firm to undertake SWOT analyses.
This is the process in which the enterprise monitors environmental factors to identify opportunities and threats of the business. Environmental scanning is essential to understand current and probable changes in the business environment comprising economic, political, technological, cultural etc.
SWOT Analysis stand for:
S – Analysing Strength of the firm
W – Analysing weakness of the firm
O – Analysing opportunities of the firm
T – Analysing threats of the firm
It is rightly said that, the firm should maximise the strength, minimise the weakness, grab the opportunities and diffuse off the threat for survival and growth of the business firm.
The internal analysis of the firm identifies strength and weakness, and the external analyses helps to observe opportunities and threats coming the way of business.
|Strength (Internal)||Weakness (Internal)|
1. Technological skills
2. Leading brands
3. Distribution channels
4. Customer relationship and Loyalty
1. Absence of employee skill
2. Unreliable product
3. Poor access to distribution
4. Low customer retention
5. Poor management
|Opportunities (External)||Threats (External)|
1. Changing & unfulfilled customer need
2. Technological advances
3. Favorable change in government policies
4. Liberalization of market
1. Changing customer taste & emergence of substitute product.
2. Arrival of new technologies
3. Unfavorable change in government policies
4. Closing of market