Environmental analysis is the process of monitoring an organization’s environment to identify current and future threats and opportunities that affect its ability to achieve the company’s objectives. The proper use of environmental analysis can help ensure organizational success in many ways. It helps companies adapt to environmental change at the right time, that is, seize opportunities as they arise and eliminate the negative impacts of environmental threats through proactive planning. Steps of environmental analysis are as follows:
1. Collection of information:
The analysis is carried out through a search of verbal and written information, espionage, prognosis, and formal studies and information system. At the beginning there is a collection of verbal information, the sources of verbal information are:
1. Media such as radio and television.
2. Company employees, such as peers, subordinates, and supervisors.
The sources of verbal information outside the company are the Clients of the company, the people in the industry channel (such as wholesalers, brokers, distributors, etc.), the suppliers that do business with the company, the competitors and their employees, financial executives such as bankers, shareholders and securities analysts, consultants and the government.
In addition to verbal sources, information can be collected by reading. Information about the environment is readily available in newspapers, specialized magazines, industry newsletters, magazines and publications, government reports, reports from various market research agencies such as Gallup, ORG, etc.
The second solution for environmental analysis is to design a Management Information System. A formal GIS provides quick relevant information to decision-makers, which helps a lot in making timely decisions. In addition to this, information about competitors can be collected through Corporate Intelligence.
2. Decide priorities:
There are several changes in the environment and it is difficult, cumbersome and expensive to keep an eye on every aspect of these changes. Therefore, it is essential that a strategist rate environmental factors based on criticality and then invest time and resources in environmental analysis. The nine-cell matrix is a method for deciding priorities regarding environmental problems.
Critical problems require maximum management attention and rapid action or preparation. On the other hand, low priority problems only need monitoring at regular intervals. High priority issues require reservation attention plans if necessary and also require regular observation.
Environmental analysis methods:
Environmental evolution: There are three components that are useful for describing changes in environmental segments:
- Exchange rate
- Forces that drive change
- Type of future evolution
Changes in the microenvironment can be systematic or discontinuous. Gradual changes, gradually, or those that are predictable are systematic changes. As after liberalization, a change in the proportion of young people in the population of India, the increase in income of the middle class and especially of young people can be seen as a systematic change. The unpredictable or sudden changes are discontinuous, such as the terrorist attacks of the twin towers in the United States and their aftermath.
Sometimes, changes in one segment of environment may be the result of driving forces in another segment. The driving force behind the acceptance of packaged food in India could be due to the purchasing power of the middle class, or because there are more women working, or it could be a greater awareness among young people through the media. These driving forces constantly interact with each other. The environmental evolution can be completely predictable and, sometimes, it depends on the actions of the company or other surrounding entities.
Environmental Analysis Process:
Scanning: The environmental scanning aims to alert the organization of a potentially significant external impact before it has been completely formed or crystallized. Successful environmental scanning draws attention to possible changes and events long before they occur, giving time for proper action. The scan frequently detects the environmental change that is already in an advanced stage. Scanning is the most poorly structured and ambiguous environmental analysis activity. The data sources are many and varied. In addition, a common feature of scanning is that early signals often appear in unexpected places.
Monitoring: Monitoring analysis involves following the signals or indicators unearthed during environmental scanning. In monitoring, the search for data is focused and much more systematic than scanning. By focused, it is understood that the analyst is guided by a premonition a priori. Systematic refers to the notion that the analyst has the general sense of the pattern and is seeking and collecting data on the evolution of the pattern.
As monitoring progresses, the data frequently goes from the imprecise and without limits to the reasonably specific and focused. The output of monitoring environment consists:
1. A specific description of the environmental patterns to be forecast,
2. Identification of trends for greater monitoring
3. Identification of patterns that require further exploration.
Forecast: The forecast refers to the development of feasible projections. Notes of directions, scope, speed and intensity of environmental change, to design the evolutionary path of anticipatory change. There are several tasks and key analytical results involved in the forecast. The first concern is to untangle the forces that drive the evolution of a trend. The second refers to the understanding of the nature of the evolutionary path; that is if the change is a passing fad or of some duration, or of a cyclical or systematic nature. The third refers more or less clearly to delineating the evolutionary path or paths that lead to alternative projections and futures. The forecast is well focused and is a much more deductive and complex activity.
Evaluation: Evaluation implies identifying and evaluating how and why current and projected environmental change will affect the strategic management of an organization. In the evaluation, the frame of reference goes from understanding the environment (scanning, monitoring, and forecasting approach) to identifying what that understanding of the environment means to the organization. Therefore, the evaluation informs about the implication of environmental change in the organization.