Environmental Analysis
Environmental analysis is a strategic tool. It is a process to identify all the external and internal elements, which can affect the organization’s performance. The analysis entails assessing the level of threat or opportunity the factors might present. These evaluations are later translated into the decision-making process. The analysis helps align strategies with the firm’s environment.
Our market is facing changes every day.
Many new things develop over time and the whole scenario can alter in only a
few seconds. There are some factors that are beyond your control. But you can
control a lot of these things.
Businesses are greatly influenced by
their environment. All the situational factors which determine day to day
circumstances impact firms. So, businesses must constantly analyse the trade
environment and the market.
There are many strategic analysis tools
that a firm can use, but some are more common. The most used detailed analysis
of the environment is the PESTEL analysis.
This is a bird’s eye view of the business conduct. Managers and strategy
builders use this analysis to find where their market currently. It also
helps foresee where the organization will be in the future.
PESTEL analysis consists of various
factors that affect the business environment. Each letter in the acronym
signifies a set of factors. These factors can affect every industry directly or
indirectly.
1. Political factors
2. Economic factors
3. Social factors
4. Technological factors
5. Legal factors
6. Environmental factor
Often, managers choose to learn about
political, economic, social and technological factors only. In that case, they
conduct the PEST
analysis. PEST is also an environmental analysis.
It is a shorter version of PESTLE analysis.
P for Political factors
The political factors take the country’s
current political situation. It also reads the global political condition’s
effect on the country and business. When conducting this step, ask questions
like “What kind of government leadership is impacting decisions of the firm?”
Some political factors that you can study
are:
§ Government policies
§ Taxes laws and tariff
§ Stability of government
§ Entry mode regulations
E for Economic factors
Economic factors involve all the
determinants of the economy and its state. These are factors that can conclude
the direction in which the economy might move. So, businesses analyse this
factor based on the environment. It helps to set up strategies in line with
changes.
Some determinants can assess to know how
economic factors are affecting your business below:
§ The inflation rates
§ The interest rate
§ Disposable income of buyers
§ Credit accessibility
§ Unemployment rates
§ The monetary or fiscal policies
§ The foreign exchange rates
S for Social factors
Countries vary from each other. Every
country has a distinctive mindset. These attitudes have an impact on the
businesses. The social factors might ultimately affect the sales of products
and services.
Some of the social factors you should
study are:
§ The cultural implications
§ The gender and connected demographics
§ The social lifestyles
§ The domestic structures
§ Educational levels
§ Distribution of Wealth
T for Technological factors
Technology is advancing continuously. The
advancement is greatly influencing businesses. Performing environmental
analysis on these factors will help you stay up to date with the changes.
Technology alters every minute. This is why companies must stay connected all
the time. Firms should integrate when needed. Technological factors will help
you know how the consumers react to various trends.
Firms can use these factors for their
benefit:
§ New discoveries
§ Rate of technological obsolete
§ Rate of technological advances
§ Innovative technological platforms
L for Legal factors
Legislative changes take place from time
to time. Many of these changes affect the business environment. If a regulatory
body sets up a regulation for industries, for example, that law would impact
industries and business in that economy. So, businesses should also analyse the
legal developments in respective environments.
Some legal factors you need to be aware
of:
§ Product regulations
§ Employment regulations
§ Competitive regulations
§ Patent violation
§ Health and safety regulations
E for Environmental factors
The location influences business trades.
Changes in climatic changes can affect the trade. The consumer reactions to
particular offering can also be an issue. This most often affects
agri-businesses.
Some environmental factors can study are:
§ Geographical location
§ The climate and weather
§ Waste disposal laws
§ Energy consumption regulation
§ People’s attitude towards the environment
There are many external factors other
than the ones mentioned above. None of these factors are independent. They rely
on each other.
If you are wondering how, you can conduct
environmental analysis, here are 5 simple steps you could follow:
1.
Understand
all the environmental factors before moving to the next step.
2.
Collect
all the relevant information.
3.
Identify
the opportunities for your organization.
4.
Recognize
the threats your company faces.
5.
The final
step is to take action.
It is true that industry factors have an
impact on the company performance. Environmental analysis is essential to
determine what role certain factors play in your business. PEST or PESTLE
analysis allows businesses to take a look at the external factors. Many
organizations use these tools to project the growth of their company
effectively.
The analyses provide a good look at
factors like revenue, profitability, and corporate success. If you want to take
the right decisions for your firm, employ environmental analysis.
The analysis you should conduct depends on the nature of your company.
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