Environmental
Analysis
Environmental Analysis
Agenda
Environmental Analysis:-
❑ Introduction
❑ Need & Importance of Environmental Analysis
❑ Process of Environmental Analysis
❑ Limitations of Environment Analysis
❑ Levels of Environmental Analysis
Environmental Analysis
❑ Environmental Analysis is described as the all
process which examines 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.
Environmental Analysis
❑ Finally, the environmental analysisis
awareness of the organizations to the success.
Need & Importance of Environmental Analysis
❑ They help the managers to achieve the organizational
objectives effectively than other organizations.
❑ An enterprise cannot achieve its objectives unless it
adapts itself to Environmental change.
❑ Systematic analysis enables the managers to predict
the future and to have enough time for other
activities. This minimizes the time pressure of the
managers
Process of Environmental Analysis
1. Identifying Environmental Factors: 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 and Selecting Relevant and key factors:
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.
3. Defining variables for Analysis: 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.
Contd….
4. Using different Methods, Techniques, and Tools: Some
of the methods are Scenario Building, Benchmarking, and
Network Methods. Some of the techniques are Brainstorming,
survey, Historical enquiry. Some of the analytical tools are Mean,
Median, Mode, Frequency.
5. Forecasting Environmental Factors: After identification,
examination and analysis, lastly the impact of the variables is to be
forecasted.
6. Designing Profiles: Internal areas are recorded in Strategic
Advantages Profile (SAP), and External areas are recorded in
Environmental Threat and Opportunity Profile (ETOP). These two
Profiles are designed & combined in to one.
7. Strategic Position and Reporting Writing: After analysis of
business environment a strategist knows the actual situation and
can make some future forecasting based on the Environmental
Limitations of Environmental Analysis
❑ Environmental analysis suffers from certain limitations
also. Theselimitations areas follows:
1. Lack of Forewarning of Unforeseen Events:
Environmental analysis does not predict the future. It
does not eliminate uncertainty for the organization also.
2. No Assurance as to Organization Effectiveness:
Environmental analysis does not ensure organizational
effectiveness. It acts only as inputs in strategy
development and testing.
Contd……
3. Not fully Reliable:
Normally, people place too much reliance on the
information collected through environmental
scanning. But in practice, it is not so. When there is
overloading of information, one is likely to get
confused.
4. Absence of Strategic Approach:
Success of any organization lies in adventure and
strategic risk-taking. So this analysis should be
strategically done.
Levels of Environmental Analysis
I. Macro External Environment Analysis (General
or Remote level environment): These components
offer opportunities and threat for the firm. Its
Components are Economic, Political, Social,
Technological & International.
II. Micro Internal Environment Analysis (Operating
Level ): Its factors include Competition, Supplier,
Customer, Channels & Manpower. There are two levels:
a) Industry Analysis
b) Competitive Analysis
III. Firm Level Internal Analysis: The factors of this level
of environment include functional management such as
Organizational, personnel, Marketing, Production &
Financial Components.
