The environmental analysis assists businesses and companies to recognize inner and outer factors that are positively or negatively impacting the company. The analysis of such factors would help the company to recognize potential opportunities and threats. You can develop an effective marketing strategy for your business if you know how to conduct an environmental analysis. Today, we’ll discuss what is environmental analysis; its tools, and its process.
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What is Environmental Analysis?
The environmental analysis is a strategic tool that helps you to recognize the internal and external factors that could impact the performance of your business. The analysis helps you to evaluate potential opportunities and threats present in the market. These indicators would further help you in the decision-making process. The analysis helps the company to align its strategies relevant to the business environment.
The business market environment is highly dynamic in terms of quickly changing market trends. Sometimes, the market trends quickly emerge and become obsolete before the world could see them. Businesses don’t have control over the changing market trends. What you can do is to study such factors that would help you to make changes.
The environment greatly influences a business’s efficiency, profitability, and daily operations. Therefore, businesses should constantly study external and internal factors in order to be aware of the market trends.
Tools of Environmental Analysis
Some of the main tools for environmental analysis are as follows;
Pestle’s analysis studies the macro factor that could possibly impact the company from operating its business. The company’s management used a pestle to know the overall market, and where the company would be in the future. However, pestle analysis consists of various macro factors like political, economic, social, technological, legal, and environmental. The details of every element of the pestle are as follows;
Political factors deal with the political environment of the country in which the company operates its business. It also studies international relations and global politics of different countries and how it impacts the country in which the company is operating its business. Therefore, it’s significant to study the regulation and government policies relevant to the industry. The political environment studies the following elements;
- Entry Mode Regulations
- Government Stability
- Tariff & Tax Laws
- Government Policies
When you’re launching or expanding your business in a certain country, then you should study the political factors of the country. The association and attachment of politicians to the company could be risky because their one political statement would push people away from the company.
Economical factors are critical to the business of the company because they give direction to the businesses wherever the economy leads them. Companies should carefully analyze the economic factors of the country where they launching or expanding their business. It would help them to align their strategies relevant to the economic changes. Some of the economic factors that you should study are as follows;
- Foreign Currency Exchange Rate
- Fiscal and Monetary Policies
- Unemployment Rate
- Credit Accessibility
- Disposable Income of Potential Customers
- Interest Rate
- Inflation Rate
It’s important to mention it here that powerful economies promote business with flexible policies, and the weak economies discourage them with stiff regulations.
Countries and their geographies and people are different because of many social factors like norms, beliefs, values, culture, tradition, and mindset of the people. They have got a great impact on the businesses that are running their operations in a specific society. Ultimately, it would impact the sale of the product or services. Some of the main social factors are as follows;
- Wealth Distribution
- Education Level of Customers
- Domestic Structure
- Social Lifestyle of People
- Cultural Implications
The social factor would have a great impact in terms of the popularity of the product and how it aligns itself with the country’s cultural norms and social setup. The company should keep in mind such factors while marketing and promoting its product and service.
The development in technology is excellent and the rate at which things are changing is great. The advancement in technology is also influencing businesses greatly, and they have to keep up with the changing technology. They should integrate with the latest technology to improve the efficiency of their operations. Some of the technological factors are as follows;
- Innovative tech platform
- Tech development rate
- Tech obsolescence rate
- Latest Discoveries
Companies should conduct a tech environment analysis before implementing any technology into their operations.
Country’s regulations and legalities keep on changing over time, and their changes would impact the business environment. If the government regulation sets boundaries for the businesses and companies have to operate within the limits of those boundaries. However, some of the legal factors are as follows;
- Safety and health regulations
- Patent infringements
- Regulations for competition
- Employment Regulations
- Regulations of Product/services
The country’s laws and regulations have the power to shut down the business temporarily or permanently if the company isn’t following it.
The environmental factors comprise climate change and usage of scarce natural. Often, impacts the agricultural businesses, and how the company is conducting its operations. If the side effect of using a certain product or operation is impacting the environment, the company’s stakeholders would be in question. Some of the main environmental factors are as follows;
- The attitude and reaction of people towards the environment
- Regulations on Energy Consumption
- Waste Disposal Laws
- Weather and Climate
- Geographical Location
Caring and protecting the environment should be an essential part of every business plan and organization. Companies should limit the production of emissions of toxic waste that could jeopardize the natural environment.
The swot analysis comprises four elements; strengths, weaknesses, opportunities, and threats. Their detailed study is as follows;
The internal factors comprise of strengths and weaknesses of the company. The reason business experts call them internal factors is because they’re under the control of the company. For instance, if the company has a well-reputed brand name and good profitability, and they’re internal factors and they would help the company to strengthen its market position.
External factors comprise opportunities and threats and they’re out of the control of the company. The external factors could occur at any time and the company can’t do anything to remove the competition. They just have to be aware of it and develop their strategy accordingly.
What is the Environmental Analysis Process?
Some of the main steps in the environmental analysis are as follows;
- Find out Key Environmental Factors. If you’re conducting the analysis, then first choose the key area that you should evaluate. For instance, if you’re working in the healthcare industry, then you should choose the legal factor in order to deal with the health and safety issues. While choosing the factor, you should select the one that has the maximum potential to impact your business.
- Collect Information. After choosing the factor, you should gather information relevant to your environmental factor. You should collect both verbal and written information. The verbal sources are radio broadcasting, listening, and hearing things; and written sources are newspapers and magazines. For instance, you should read health magazines online to track the updates in the health and safety regulations.
- Know Your Competitors. If your competitors are posing threats, then you gather relevant information. You can spy, and gather the information in unconventional ways. For instance, you can spy on the activities of healthcare facilities in your area; it would give you industry insight.
- Forecast the Impact on Your Business. The prediction would help you to forecast how certain environmental factors would affect your company. It means predicting potential opportunities and threats. You can employ various techniques for forecastings like surveying and brainstorming. For instance, surveying the healthcare facility allows you predict the opening of the new competitive branch in the city. It would attract some of your patients.
- Evaluate Your Strategies. Here you study the current and upcoming strategies to know how the environmental changes would impact your business. It allows you to deal with the potential challenges that have resulted from such factors. For instance, your healthcare facility should develop a new strategy in order to deal with limited clients after the opening of the new healthcare brand in the area.
After a careful study of business environmental analysis; swot analysis, pestle analysis, and various stages in the process; we’ve realized that environment study is very important for your business. If you want to conduct an environmental study for your business, then you should keep in mind the abovementioned suggestions and process.