Environmental Analysis is described as the process which examines all the components, internal or external that have an influence on the performance of the organization. The internal components indicate the strengths and weaknesses 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 the future in advance. The information can also be used to assess the 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 it 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 performance, customer satisfaction, maintenance cost, etc. to take corrective action wherever required. Further, the external metrics help in positively responding to the environment and also aligning the strategies according to the objectives of the organization.
Environmental analysis helps in the detection of threats at an early stage, which assists the organization in developing strategies for its survival. Add to that, it identifies opportunities, such as prospective customers, new products, segments and technology, to occupy a maximum share of the market than its competitors.
Steps Involved in Environmental Analysis
1. Identifying
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.
2. Scanning
Scanning implies the process of critically examining the factors that highly influence the business, as all the factors identified in the previous step affect the entity with the same intensity. Once the important factors are identified, strategies can be made for its improvement.
3. Analyzing
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, the Delphi technique and scenario building.
4. Forecasting
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 affecting 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, analyzing and dispensing information for effective purposes.
Scanning means detection. Environmental scanning means having a detailed investigation of the environment. Environmental scanning can also be termed a SWOT analysis. To survive and grow in a competitive business environment, every business firm needs to undertake a SWOT analysis.
This is the process in which the enterprise monitors environmental factors to identify opportunities and threats to 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 – Analyzing the Strength of the firm
W – Analyzing weaknesses of the firm
O – Analyzing opportunities of the firm
T – Analyzing threats of the firm
It is rightly said that the firm should maximize its strength, minimize its weakness, grab the opportunities and diffuse the threat for the survival and growth of the business firm.
SWOT Analysis:
The internal analysis of the firm identifies strengths and weaknesses, and the external analysis helps to observe opportunities and threats coming the way of business.
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