Stages of and Techniques for Environmental Analysis

7/30/2019 Stages of and Techniques for Environmental Analysis

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Environment : It refers to all external forceswhich have the bearing on the functioning of

business.Analysis : It refers to detailed study orexamination of something in order tounderstand more about it.Environmental Analysis : Scrutinizing of theexternal forces which have the bearing on thefunctioning of the business.


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Analysis of the Environment makes theBusiness aware of the Threats &

Opportunities in the environment.

Then in the light of its Strengths &Weaknesses, the business chalks outcourses/courses of actions in orderto Lessen the impact of Threats and grab theOpportunities .


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One of the main concerns in environmentanalysis is coping with uncertainty . Thus it isimportant to understand how uncertain theenvironment is and why ?


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Simple/Static

Dynamic

Complex


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The environment is relatively simple tounderstand and not undergoing any

significant change.

Technological processes may be simpleand markets fixed over time.

e.g. raw material suppliers, massmanufacturing companies


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Managers need to consider theenvironment of the future, not just thepast.

This can be done intuitively or through astructured method like scenario planning.

e.g. Ford is actively engaged in developmentof promising future alternatives likeHydrogen fuel cells.


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The environment is difficult tocomprehend.

With more and more sophisticatedtechnology, there is an increasing movetowards the conditions of highestuncertainty.


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Scanning

Monitoring

Forecasting

Assessing


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It is the process of analyzing theenvironment.

Identification of emerging trends is a criticalpurpose of environmental scanning.

Successful environmental scanning drawsattention to possible changes and eventsbefore their occurrence , allowing time forsuitable action.


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It entails perspective followup and a moreindepth analysis of the relevant

environmental trends identified at thescanning stage.

The purpose of monitoring is to assemblesufficient data to discern(makeout) whethercertain patterns are emerging .


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a specific description of environmentalpatterns to be forecast;

identification of trends for furthermonitoring;

identification of patterns requiring furtherscanning.


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Forecasting is concerned with thedevelopment of possible scope, speedand intensity of environmental changeto layout the evolutionary path of anticipatory change.


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Assessment involves drawing up implications/possible impacts.

In assessment, the frame of reference movesfrom understanding the environment of thefocus of Scanning, Monitoring and Forecasting-to indentifying what that understanding of environment means for the organization.

In short, It involves drawing of possible impactsof the environmental changes on theorganization.


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The very idea of environmental analysis makes one awareof the environment-organization linkage.

It helps an organization to identify present and futurethreats and opportunities.It helps to understand the transformation of the industryenvironment.

It contributes in identification of risks.It helps in formulation of strategies.

It keeps the manger informed, alert and dynamic .


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There are broadly two approaches toEnvironmental Analysis :

Outside-in (macro) approach

Inside out (micro) approach


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It takes a narrow view of theenvironment, forecasts theimmediate future environment onthe basis of ongoing environmental

monitoring and derives theimplications of it for the industryand firm out of it.


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SWOT Analysis is often used early in thebusiness planning process to help identifyand assess:

Strengths of the organization (internal)Weaknesses of the organization (internal)

Opportunities in the environment (external);andThreats in the environment (external)


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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 futureso that by using past and current data, futureplans can be chalked out.


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

Important tool through which an organizationconsiders its environment and influences thereof particularly in past, the extent to which thechanges occurring are significant for future.

Used to describe an analysis that is used fordetermining the opportunities and risks of globalexpansion.


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Current and project economic growth,inflation and interest rates

Unemployment and labor supplyLevels of disposable income and incomedistributionLikely impact of technological or otherchange on the economyLikely changes in the economic environment


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Understanding the social dynamics of theregion that you decide to enter will enable

you to more efficiently communicate with thenative people, target markets, build a laborforce and successfully manage teams.

Knowledge of the social aspects and cross-cultural communications is paramount.


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Population Growth Rate

Age Distribution

Educational Infrastructure

Attitudes to work

Cultural Taboos

Employment Patterns


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Impact of emerging technologies

Impact of Internet, reduction in communicationscosts and increased remote working

Research & Development activity

Impact of technology transfer

Degree of Automation


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Porters Five Forces analysis is also used toconsider the external business environment.

This technique examines the business domainor industry within which an organizationoperates, and identify the business pressuresthat may be brought to bear upon thatorganization.


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Industry : What is the level of competition for the products or services incompetitors: this industry? Is the organization in a good competitiveposition 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 largeamounts of money or expertise? Is it possible to start up an organizationoffering these products or services without much nancial support? Whatis the likelihood of new entrants coming into the industry?

Substitutes : What is the range of substitutes available? What is theposition of the organization when compared to the suppliers of thesesubstitutes?

Buyers : How much choice do buyers have? Can they switch supplierseasily? 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 competitivesituation where the organization has a choice of suppliers? Do thesuppliers have the power in the relationship because they operate in anarea of limited supply?


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Stages of and Techniques for Environmental Analysis