ENVIRONMENTAL AND INTERNAL RESOURCE 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 that might present along with strength and weakness of organization.
• Environmental scanning is necessary because there are rapid changes taking place in the environment that has a great impact on the working of the business firm.
• Analysis of business environment helps to identify strength, weakness, opportunities and threats.
• SWOT analysis is necessary for the survival and growth of every business enterprise.
Environmental Scanning - Internal & External Analysis
Internal & External Factors
Organizational environment consists of both external and internal factors.
Environment must be scanned so as to determine development
and forecasts of factors that will influence organizational success.
Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organization’s internal and external environment.
It helps the managers to decide the future path of the organization.
Identification of strength
Strength of the business firm means capacity of the firm to gain advantage over its competitors.
Analysis of internal business environment helps to identify strength of the firm.
After identifying the strength, the firm must try to consolidate or maximise its strength by further improvement in its existing plans, policies and resources.
Identification of weakness
Weakness of the firm means limitations of the firm.
Monitoring internal environment helps to identify not only the strength but also the weakness of the firm.
A firm may be strong in certain areas but may be weak in some other areas.
For further growth and expansion, the weakness should be identified so as to correct them as soon as possible.
Identification of opportunities
Environmental analyses helps to identify the opportunities in the market.
The firm should make every possible effort to grab the opportunities as and when they come.
Identification of threat
Business is subject to threat from competitors and various factors.
Environmental analyses help them to identify threat from the external environment.
Early identification of threat is always beneficial as it helps to diffuse off some threat.
Optimum use of resources
Proper environmental assessment helps to make optimum utilization of scare human, natural and capital resources.
Systematic analyses of business environment helps the firm to reduce wastage and make optimum use of available resources, without understanding the internal and external environment resources cannot be used in an effective manner.
Survival and growth
Systematic analyses of business environment help the firm to maximise their strength, minimise the weakness, grab the opportunities and diffuse threats.
This enables the firm to survive and grow in the competitive business world.
To plan long-term business strategy
A business organisation has short term and long-term objectives.
Proper analyses of environmental factors help the business firm to frame plans and policies that could help in easy accomplishment of those organisational objectives.
Without undertaking environmental scanning, the firm cannot develop a strategy for business success.
Environmental scanning aids decision- making
Decision-making is a process of selecting the best alternative from among various available alternatives.
An environmental analysis is an extremely important tool in understanding and decision making in all situation of the business.
Success of the firm depends upon the precise decision making ability.
Study of environmental analyses enables the firm to select best option for the success and growth of the firm.
The marketing environmental variables include all those factors which are external to a firm and which affect the decision-making process.
A company’ s marketing executives must constantly monitor the changing marketing scene and observe the changing environment through marketing research and first-hand knowledge.
The environmental variables can be divided into Micro-Environment Variables and
Macro-Environment Variables
The variables in the company’s micro- environment include:
(1) Supplier,
(2) Marketing intermediates,
(3) Customers,
(4) Competitors, and
(5) Public.
1. Suppliers:
In a broad sense, they supply the resources to a company. So, they must be operating efficiently if the marketing manager has to succeed. Any shortage of supply or price hike or strike affects the marketing function. The firm, thus, should avoid dependence on any single supplier.
2. Marketing Intermediates:
They are the middlemen who create place utility, time utility and quantity utility. They also include physical distribution firms, transport companies, marketing consulting firms, marketing services agencies and assist the company in targeting and promoting the right products to the right markets. Banks and insurance companies as the financial intermediaries also assist in selling goods.
3. Customers:
They refer to consumer markets, industrial markets, reseller markets, government markets, and international markets. Each market has its own characteristics.
4. Competitors:
They have great influence over the firm. Their activities and programmes are needed to be studied very carefully for the purpose of the determination of marketing position of a firm
5. Public:
This refers to public relations, government policies, the press, the legislators and the general public. The marketing decisions of a firm are considerably influenced by these farces and elements.
The study and analysis of the micro-environment and its variables are, therefore, very important for an appreciation of the marketing concept.
MACRO VARIABLES
The variables in the company’s macro-environment include:
(1) Demographic factors
(2) Economic factors
(3) Natural factors
(4) Technological factors
(5) Political factors
(6) Cultural factors
1. Demographic environment:
It includes such factors as population growth, change in age-group, marriages, family sizes, movement of people from big cities to rural or suburban areas, white collar population, literacy, etc.
2. Economic environment:
It refers to gross national product (GNP), per capita income, disposable income, discretionary income, distribution of income, inflation, savings, liquid assets, changes in consumer expenditure, etc.
3. Physical environment:
It includes pollution and environmentalism, wastage of natural resources, etc.
4. Technological environment:
It emphasises the accelerated pace of technological changes, the outlay on research and development, new products, high R & D budgets, unlimited innovation opportunities, etc.
5. Political/legal environment:
It includes the relationship between the State and business units, regulation of monopoly, protection of consumer interests, licensing policy, commercial and industrial policies, and so on.
6. Socio-cultural environment:
It includes social and cultural changes like late marriages, postponing having children later in life, education, health care, and so on.
Techniques of environmental analysis
The Strengths Weaknesses Opportunity and Threats (SWOT) analysis
Political, Economic, Social and Technological (PEST) analysis
Environmental Threat and Opportunity Profile (ETOP)
Quick Environmental Scanning Technique (QUEST) analysis
Internal Analysis
SWOT Analysis is a technique for assessing these four aspects of your business.
You can use SWOT Analysis to make the most of what you've got, to your organization's best advantage.
And you can reduce the chances of failure, by understanding what you're lacking, and eliminating hazards that would otherwise catch you unawares.
Strengths
Strengths are things that your organization does particularly well, or in a way that distinguishes you from your competitors. Think about the advantages your organization has over other organizations. These might be the motivation of your staff, access to certain materials, or a strong set of manufacturing processes.
Weaknesses
Weaknesses, like strengths, are inherent features of your organization, so focus on your people, resources, systems, and procedures. Think about what you could improve, and the sorts of practices you should avoid.
Opportunities
Opportunities are openings or chances for something positive to happen.
They usually arise from situations outside your organization, and require an eye to what might happen in the future. They might arise as developments in the market you serve, or in the technology you use. Being able to spot and exploit opportunities can make a huge difference to your organization's ability to compete and take the lead in your market.
Threats
Threats include anything that can negatively affect your business from the outside, such as supply chain problems, shifts in market requirements, or a shortage of recruits. It's vital to anticipate threats and to take action against them before you become a victim of them and your growth stalls.
EXTERNAL ANALYSIS
A PESTEL analysis or PESTLE analysis (formerly known as PEST analysis) is a framework or tool used to analyse and monitor the macro-environmental factors that may have a profound impact on an organisation’s performance.
This tool is especially useful when starting a new business or entering a foreign market.
Political Factors:
These factors are all about how and to what degree a government intervenes in the economy or a certain industry. Basically all the influences that a government has on your business could be classified here. This can include government policy, political stability or instability, corruption, foreign trade policy, tax policy, labour law, environmental law and trade restrictions.
Economic Factors:
Economic factors are determinants of a certain economy’s performance. Factors include economic growth, exchange rates, inflation rates, interest rates, disposable income of consumers and unemployment rates.
Social Factors:
This dimension of the general environment represents the demographic characteristics, norms, customs and values of the population within which the organization operates. This inlcudes population trends such as the population growth rate, age distribution, income distribution, career attitudes, safety emphasis, health consciousness, lifestyle attitudes and cultural barriers.
Technological Factors:
These factors pertain to innovations in technology that may affect the operations of the industry and the market favorably or unfavorably. This refers to technology incentives, the level of innovation, automation, research and development (R&D) activity, technological change and the amount of technological awareness that a market possesses. These factors may influence decisions to enter or not enter certain industries, to launch or not launch certain products or to outsource production activities abroad.
Environmental Factors:
Environmental factors have come to the forefront only relatively recently. They have become important due to the increasing scarcity of raw materials, pollution targets and carbon footprint targets set by governments. These factors include ecological and environmental aspects such as weather, climate, environmental offsets and climate change which may especially affect industries such as tourism, farming, agriculture and insurance.
Legal Factors:
Although these factors may have some overlap with the political factors, they include more specific laws such as discrimination laws, antitrust laws, employment laws, consumer protection laws, copyright and patent laws, and health and safety laws. It is clear that companies need to know what is and what is not legal in order to trade successfully and ethically. If an organisation trades globally this becomes especially tricky since each country has its own set of rules and regulations.
FUNCTIONAL AREAS RESOURCE DEVELOPMENT
Resources have been of strategic important in organizational analysis. they can be;
Available resources: They are developed resources into various functions of the organization. They are physical, human, financial and intellectual resources.
Threshold resources: They are needed to stay in business. Their need tends to rise with time.
Unique resources: They are valuable, rare, no-substitutable and costly to imitate.
Resources development assessment is used to judge:
Need to change current resources to reach threshold level for staying in business.
Requirements of unique resources to sustain strategic resources.
Combination of unique resources and core competencies. It is used to again strategic advantage. This is the desired combination.
Combination of unique resources and threshold competencies. Unique resources are freed up to invest in functional activities that provide core competencies.
Combination of threshold resources and core competitors. More resources are deployed in functional activities that provide core competitors.
FUNCTIONAL AREA PROFILE
A company's strengths are the tools used to counter threats and seize opportunities, so thoroughness is important. To create a thorough strengths list, examine each of a company's functional areas: marketing, finance, production or operations and human resources
Marketing
Marketing depends notjust on promotions but also on pricing, distribution, packaging and service. A strength in marketing might be a company's distribution channels, which are able to quickly get products out to customers. Customers might be satisfied with the company's products and its service. Indeed, a company might have differentiated itself from its competition by service, a definite strength.
Finance
Financial strengths not only mean a company has done well in the past but that it can use its situation to compete in the future. For instance, a company might be able to innovate if it has money to invest in research. Another financial strength might be the ability to borrow as indicated by possessing a lower debt ratio -- liabilities divided by net worth -- than that of other companies in the same industry. Other strengths might include profit margin and the return a company sees on investment.
Production or Operations
Efficiency is an important strength that can be measured by determining the productivity index, which is output divided by input. The output is the number of something being produced whereas input is what's invested to create the product units -- hours, labor or money, for instance. Other strengths a company might possess are cutting edge technology, facilities located in strategically important areas, low waste and production capacity.
Human Resources
Of all the resources a company boasts, its employees are the most important. If a company has strength in human resources, it may include an ability to attract and retain the best candidates from the labor pool. A company might also have a superior training program that lets new employees quickly acclimate or one that keeps developing employee know-how through cross-training or leadership development.
Other strengths a company might have include depth and breadth of expertise, turnover rate, morale and satisfaction.
Research and Development
Though not all companies have a research and development functional area, businesses still need some research capability to monitor the external environment. The ability to conduct and use customer and product research may be a company's strength, allowing it to capitalize on trends or market niches. The facilities, expertise and creativity to develop new products could be a strength, as is the adaptability of a company that is able to quickly adopt technological innovations in the marketplace.
Conclusion:
Internal environmental factors are equally as important and vital to the success of a company as the external. These factors not only identify a companies strengths, but also allows the company to identify and assess its weaknesses. The tangible and intangible assets should also be taken into account, along with leadership styles and employee strengths, as they can affect efficiency in the organization. The final analysis is then performed to evaluate the company’s ability to compete in the industry. Based on the information gathered, a company can successfully adjust to a structured organization that will have a positive influence on its processes and assist in the company maintaining its competitive position.
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