Meaning and Process of Environmental Analysis

Today, we are going to study the meaning of environmental analysis, and the process of Environmental analysis. Let’s start with the Introduction of the business environmental Analysis.

Introduction to Environment Analysis

Environmental Analysis is a process of identifying the relevant factors that have a direct or indirect impact on the effective and efficient functioning of the business. In other words, 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.

Process of Environmental Analysis

Environment analysis is managerial decision-making based on the assessment of opportunities and threats in the environment. The steps in the environmental analysis are:

Process of environmental analysis image
Process of Environmental Analysis
  1. Scanning: It involves information gathering for assessing the nature of the environment in terms of uncertainty, complexity, and dynamics. It includes:
    • Identifies early signs of future environmental changes. They are indicated by trends and events.
    • Detects changes already underway. They are happening
  2. Monitoring: It involves tracking environmental trends and events. It is the auditing of the environment. The likely impact of environmental influences on business performance is identified.
  3. Forecasting: This step forecast what is likely to happen. Its layout of the path to anticipate changes. This step provides:
    • Key forces at work in the environment. They can be political-legal, economic, social, cultural, and technological.
    • Understanding of the nature of key influences and drivers of change.
    • Projection of future alternative paths available.
  4. Assessment: This step identifies key opportunities and threats.  The competitive position of a business is analyzed in terms of how the organization stands in relation to other organizations competing for some resources of customers.
    • Opportunities are a favorable condition that creates risks and weakens the competitive position.
    • The threat is an unfavorable condition that strengthens, the organization’s competitive position of the organization.

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