Environmental Analysis

Prof P.P.Sengupta
Definition of Environmental Analysis

• Environmental analysis is a systematic process of examining and evaluating the external factors that
can affect an organization's operations, performance, and strategic decisions. It involves the
identification, assessment, and interpretation of various environmental forces and trends that impact
the organization's ability to achieve its objectives and fulfill its mission. These external factors
typically include political, economic, social, technological, environmental, and legal (PESTEL)
factors, as well as competitive dynamics and industry trends.
• The primary purpose of environmental analysis is to gain insights into the opportunities and threats
present in the organization's external environment. By understanding the prevailing market
conditions, regulatory landscape, societal trends, technological advancements, and competitive
pressures, organizations can anticipate changes, identify strategic opportunities, and proactively
address potential challenges.
• Environmental analysis is an integral component of strategic planning and decision-making
processes, providing valuable input for setting organizational goals, formulating strategies, allocating
resources, and managing risks. It helps organizations stay agile, adaptable, and responsive to changes
in their operating environment, thereby enhancing their competitiveness and long-term sustainability.

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Brief overview of the importance of
environmental analysis:
• Understanding the Operating Environment: Environmental analysis
helps organizations understand the external factors that impact their
operations. This includes factors such as political, economic, social,
technological, environmental, and legal trends. By analyzing these
factors, organizations can anticipate changes in their operating
environment and make informed decisions.
• Identifying Opportunities and Threats: Environmental analysis enables
organizations to identify both opportunities and threats in their external
environment. By recognizing emerging trends, market shifts, and
competitive dynamics, organizations can capitalize on opportunities for
growth and innovation while mitigating potential risks and challenges.
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Brief overview of the importance of
environmental analysis
• Informing Strategic Planning: Environmental analysis is essential for
strategic planning processes. It provides valuable insights that inform the
development of organizational strategies, objectives, and action plans. By
aligning strategic initiatives with the prevailing external conditions,
organizations can enhance their competitiveness and adaptability in the
marketplace.
• Risk Management: Environmental analysis helps organizations identify
and assess risks associated with changes in the external environment. By
proactively identifying potential risks, such as regulatory changes,
economic downturns, or technological disruptions, organizations can
develop risk mitigation strategies to safeguard their operations and assets.
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Brief overview of the importance of
environmental analysis
• Stakeholder Engagement: Environmental analysis enables organizations to engage
with stakeholders more effectively. By understanding societal, environmental, and
ethical concerns, organizations can demonstrate their commitment to responsible
business practices and build trust with customers, investors, and other stakeholders.
• Adaptability and Resilience: In today's rapidly changing business landscape,
adaptability and resilience are critical for organizational success. Environmental
analysis equips organizations with the knowledge and insights needed to adapt to
evolving market conditions, anticipate future challenges, and remain resilient in the
face of uncertainty.
• In summary, environmental analysis is essential for organizations seeking to navigate
complex and dynamic external environments. By understanding the forces shaping
their operating environment, organizations can identify opportunities, mitigate risks,
and make strategic decisions that drive long-term success and sustainability.
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Organisations Environment
• Environment is the aggregate of conditions, events and influences
that surround and affect it
• Two types
• External
• Internal

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 External Environment
• Economic environment
• National income
• Personal disposable income
• Savings
• Investment
• Industry environment
• FDI flow
• Prices wages productivity
• Capital market
• Fiscal and monetery policy

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External Environment
• Social and cultural environment
• Attitudes, beliefs, lifestyles ,education
• Demographic factors
• Population
• Age distribution
• Literacy
• Inter state migration
• Rural urban mobility
• Cultural factors
• Social attitudes
• Values, customs
• Rituals and practices
• Religious, ethical, moral issues
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External Factors
• Political environment
• Entry barriers
• Reforms
• Long term oulooks
• Legal environment
• Legislations
• Judicial independence
• Speed of disposal
• FDI, import export laws
• Technological Environment
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External Factors
• Natural Environment
• Geography
• Topography
• Climate
• Natural Resources
• International environment
• Foreign exchange
• Trade factors
• Export Market

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Environment Scanning
• Process of gathering analysing and using information for
srrateguc purpose.
• Objectives
• Detecting trends
• Defining threats and opportunities
• Aligning with the strategic needs
• Discovering trends which are converging, diverging, speeding up or
slowing down

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SWOT Analysis
• Strengths – Internal capabilities which gives competitive advantage
• Weakness- Limitations or constraints which affect competitive edge
• Opportunities- Major favourable conditions which helps firms to
srengthen its position
• Threats- Major unfavourable conditions which pose risks or damage
competitive positIion

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Real Life Examples
• Market Entry Strategy:
• Before entering a new market, a multinational corporation conducts
comprehensive environmental analysis to assess the potential risks and
opportunities. This analysis includes studying the political stability,
economic growth prospects, cultural factors, legal regulations, and
competitive landscape of the target market.
• Based on the findings, the company develops a market entry strategy
tailored to the specific environmental conditions, such as forming
strategic partnerships, adapting products/services to local preferences,
or adjusting pricing strategies.

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Real Life Examples
• Risk Management in Energy Sector:
• A renewable energy company conducts environmental analysis to
identify potential risks and opportunities in the regulatory and
technological landscape. This includes monitoring government
policies and regulations related to renewable energy incentives,
assessing advancements in renewable energy technologies, and
evaluating market demand for clean energy solutions. By staying
abreast of environmental factors, the company can proactively adjust
its business strategies, such as investing in emerging technologies or
expanding into new markets, to mitigate risks and capitalize on
opportunities.
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Real Life Examples
• Supply Chain Management:
• A global manufacturing company conducts environmental analysis to
optimize its supply chain operations. This analysis involves
monitoring geopolitical events, economic trends, natural disasters, and
regulatory changes that could impact the sourcing, production, and
distribution of raw materials and finished products. By anticipating
disruptions and identifying alternative suppliers or logistics routes, the
company can minimize supply chain risks, reduce costs, and maintain
continuity of operations.

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Real Life Examples
• Strategic Planning in Healthcare:
• A healthcare organization conducts environmental analysis to inform its
strategic planning process. This analysis includes assessing
demographic trends, healthcare regulations, technological
advancements, and competitive dynamics in the industry. Based on the
environmental insights, the organization develops strategic initiatives,
such as expanding services to meet growing patient needs, investing in
telemedicine technologies, or forming partnerships with other healthcare
providers. By aligning strategic priorities with environmental trends, the
organization can enhance patient care, improve operational efficiency,
and maintain competitiveness in the healthcare market.
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Real Life Examples

1. Apple Inc. and Market Research: Apple is known for its meticulous market research, which has
helped it identify opportunities for product innovation. For example, Apple's decision to introduce
larger screen sizes for iPhones was informed by market research indicating a growing demand for
smartphones with bigger displays. This external analysis allowed Apple to capitalize on the
opportunity and meet consumer preferences effectively.
2. Netflix and Competitive Analysis: Netflix constantly monitors its competitors to identify threats
and opportunities in the streaming industry. When analyzing the rise of competitors like Disney+
and HBO Max, Netflix recognized the threat of losing market share. To counter this, Netflix
invested heavily in original content production to differentiate itself and maintain its competitive
edge in the streaming market.
3. Tesla and Technological Analysis: Tesla, led by Elon Musk, is renowned for its forward-thinking
approach to technology. The company continuously analyzes advancements in battery technology,
autonomous driving, and renewable energy to identify opportunities for innovation. By staying at
the forefront of technological developments, Tesla has been able to maintain its position as a leader
in the electric vehicle industry.
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Real Life Examples
1. Nike and Economic Analysis: Nike closely monitors economic factors to anticipate changes in
consumer behavior and spending patterns. During economic downturns, Nike adjusts its product
offerings and marketing strategies to cater to cost-conscious consumers while maintaining its brand
image. This proactive approach to economic analysis has helped Nike navigate challenging
economic environments and sustain its market leadership in the sportswear industry.
2. Starbucks and Social/Cultural Analysis: Starbucks conducts extensive social and cultural analysis
to understand evolving consumer preferences and trends. For instance, in response to the growing
demand for plant-based options and environmental sustainability, Starbucks introduced dairy-free
milk alternatives and committed to reducing its environmental footprint. By aligning its offerings
with changing societal values, Starbucks has maintained its relevance and customer loyalty.
3. McDonald's and Global Market Analysis: McDonald's utilizes global market analysis to identify
expansion opportunities and mitigate risks in international markets. For example, when entering
new countries, McDonald's adapts its menu offerings and restaurant formats to cater to local tastes
and preferences. This localization strategy has enabled McDonald's to successfully penetrate
diverse markets worldwide while minimizing cultural barriers and adapting to regional preferences.

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