You are on page 1of 34

Environment : It refers to all external forces which have the bearing on the functioning of business.

Analysis : It refers to detailed study or examination of something in order to understand more about it. Environmental Analysis : Scrutinizing of the external forces which have the bearing on the functioning of the business.

Analysis of the Environment makes the Business aware of the Threats & Opportunities in the environment.
Then in the light of its Strengths & Weaknesses, the business chalks out courses/courses of actions in order to Lessen the impact of Threats and grab the Opportunities.

One of the main concerns in environment analysis is coping with uncertainty. Thus it is important to understand how uncertain the environment is and why ?

Dynamic Complex

The environment is relatively simple to understand and not undergoing any significant change.
Technological processes may be simple and markets fixed over time. e.g. raw material suppliers, mass manufacturing companies

Managers need to consider the environment of the future, not just the past.
This can be done intuitively or through a structured method like scenario planning. e.g. Ford is actively engaged in development of promising future alternatives like Hydrogen fuel cells.

The environment is difficult to comprehend. With more and more sophisticated technology, there is an increasing move towards the conditions of highest uncertainty.

Monitoring Forecasting


It is the process of analyzing the environment. Identification of emerging trends is a critical purpose of environmental scanning.
Successful environmental scanning draws attention to possible changes and events before their occurrence , allowing time for suitable action.

It entails perspective followup and a more indepth analysis of the relevant environmental trends identified at the scanning stage.
The purpose of monitoring is to assemble sufficient data to discern(makeout) whether certain patterns are emerging.

a specific description of environmental patterns to be forecast; identification of trends for further monitoring; identification of patterns requiring further scanning.

Forecasting is concerned with the development of possible scope, speed and intensity of environmental change to layout the evolutionary path of anticipatory change.

Assessment involves drawing up implications/ possible impacts.

In assessment, the frame of reference moves from understanding the environment of the focus of Scanning, Monitoring and Forecastingto indentifying what that understanding of environment means for the organization. In short, It involves drawing of possible impacts of the environmental changes on the organization.

The very idea of environmental analysis makes one aware of the environment-organization linkage.
It helps an organization to identify present and future threats and opportunities. It helps to understand the transformation of the industry environment.

It contributes in identification of risks.

It helps in formulation of strategies. It keeps the manger informed, alert and dynamic.

There are broadly two approaches to

Environmental Analysis :

Outside-in (macro) approach

Inside out (micro) approach

This approach takes the very broad view of the business environment., with a long term perspective and develops alternative scenarios of the future.
The implications of the alternative scenarios for the industry and the organization are drawn up with reference to the different scenarios. A scenario is a detailed description of how certain events may occur in the future and their consequences for the organization.

It takes a narrow view of the environment, forecasts the immediate future environment on the basis of ongoing environmental monitoring and derives the implications of it for the industry and firm out of it.

SWOT Analysis is often used early in the business planning process to help identify and assess:
Strengths of the organization (internal) Weaknesses of the organization (internal) Opportunities in the environment (external); and Threats in the environment (external)

The most renowned tool for audit and analysis of the overall strategic position of the business and its environment. It is the foundation for evaluating the internal potential and limitations and the probable/likely opportunities and threats from the external environment.
It views all positive and negative factors inside and outside the firm that affect the success.

Builds organizations strengths. Reverse its weaknesses. Maximize its response to opportunities. Overcome organizations threats. It helps in identifying core competencies of the firm. It helps in knowing past, present and future so that by using past and current data, future plans can be chalked out.

An acronym that stands for Political, Economical, Social and Technological.

Important tool through which an organization considers its environment and influences there of particularly in past, the extent to which the changes occurring are significant for future.

Used to describe an analysis that is used for determining the opportunities and risks of global expansion.

The stability and structure of a countrys government gives a basis for interpreting future changes in the regions political environment. Policy at the local or federal level can differ dramatically. Regulation and de-regulation trends Tax policy, and trade and tariff controls Environmental and consumer-protection legislation

Economic indicators such as GDP, GNP, interest rate, consumer sentiment and others provide business people with the background needed to understand the risks and opportunities available within the region.

Current and project economic growth, inflation and interest rates Unemployment and labor supply Levels of disposable income and income distribution Likely impact of technological or other change on the economy Likely changes in the economic environment

Understanding the social dynamics of the region that you decide to enter will enable you to more efficiently communicate with the native people, target markets, build a labor force and successfully manage teams. Knowledge of the social aspects and crosscultural communications is paramount.

Population Growth Rate

Age Distribution

Educational Infrastructure
Attitudes to work

Cultural Taboos
Employment Patterns

Impact of emerging technologies

Impact of Internet, reduction in communications costs and increased remote working Research & Development activity

Impact of technology transfer

Degree of Automation

Porters Five Forces analysis is also used to consider the external business environment. This technique examines the business domain or industry within which an organization operates, and identify the business pressures that may be brought to bear upon that organization.

Industry: What is the level of competition for the products or services in competitors: this industry? Is the organization in a good competitive position or is it a minor player? Are there several competitors that hold the power in the industry?

New entrants: Are there barriers to entry, such as the need for large amounts of money or expertise? Is it possible to start up an organization oering these products or services without much nancial support? What is the likelihood of new entrants coming into the industry?
Substitutes: What is the range of substitutes available? What is the position of the organization when compared to the suppliers of these substitutes? Buyers: How much choice do buyers have? Can they switch suppliers easily? Do they have the power in the relationship or are they locked in to the supplier? Suppliers: How many suppliers are available? Is this a competitive situation where the organization has a choice of suppliers? Do the suppliers have the power in the relationship because they operate in an area of limited supply?