Environmental Analysis

Topics: Management, Strategic management, SWOT analysis Pages: 68 (19501 words) Published: April 20, 2008

Managers are responsible for the success of an organization and concerned about the effect that factors in the external environment have upon it.

They cannot control the external environment but they need to identify, evaluate and react to those forces outside the organization which may affect them.

The way in which managers attempt to achieve this is by means of a qualitative assessment of signals they receive which are relative to outside influences. There is therefore a need to carry out an analysis of these forces by means of methods we are going to discuss in details later, and this is called the environmental analysis.

Managers are also concerned in the ways in which organizations can most clearly identify their current position in the market. It is against the background of the picture that emerges from this analysis that the strategist should then be in a far better position to begin the process of deciding upon the detail of the organization’s future direction and the ways in which strategy is formulated.

The starting point of this process is a detailed audit. An audit produces wealth of information which will help management to decide on both short term and long term planning.

In order to establish where an organization is placed in its environment with respect to its competitive position, it is necessary to examine the relative strength and weaknesses of its competitors. To achieve this comparison the organization needs to scan the environment continuously and monitor key indicators.

It is also important to consider the strategies used by competitors. This type of knowledge is useful when looking at how competitors have dealt with the forces within their environment in the past. It also gives an indication of how they are likely to act in the competitive environment in the future. This is the basis of ‘competitor analysis’, which broadly means looking at who the competition is, and how they perform, what strategies they use and how successful they are in doing so. It also needs to include as assessment of potential competitors as well as existing ones.

Environmental Analysis


One of the main problems of strategic management is coping with uncertainty. Environmental uncertainty increases the more that the environmental conditions are dynamic or the more they are complex; and the approach to making sense of this may differ both by the extent to which the environment is stable or dynamic, and also by the extent to which it is simple or complex.

Environmental forces which are especially important for one organization may not be the same for another; and, over time, their importance may change. A multinational corporation might be especially concerned with government relations and understanding the policies of local government since it may be operating plants within many different countries with different political system. It is also likely to be concerned with labour costs and exchange rates, which will affect its ability to compete with multinational rivals. However, none of these forces will remain constant, and managers need to be aware of their changing impact.

As a starting point, it is useful to consider what environmental influences have been particularly important in the past, and the extent to which there are changes occurring which may make any of these more or less significant in the future for the organization and its competitors. Keys forces are at work in the macro environment.

PEST Analysis

It is necessary to analyse the current situation (external environment) before deciding on a course of action to achieve objectives. The analysis involves the investigation of the external environment, competitors, and internal strength and weaknesses. PEST analysis involves identifying the political, economic, social, and technological influences on an organization. An organization does not exist in a vacuum, but in an...
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