The term Environmental analysis is defined as “the process by which strategists monitor the economic, governmental, legal, market, competitive, supplier, technological, geographic, and social cultural settings to determine opportunities and threats to their firms, company and organization”.
According to Barry M. Richman and Melvyn Copen - Environmental Influences and Analysis on Business
“Environment factors or constraints are largely if not totally external and beyond the control of an individual or industrial enterprises and their arrangements. These are essentially the ‘givers’ within which the firms and their managements must operate in a specific country and they vary, often greatly from country to country.” According to Glueck and Jauch, “The environment that exists outside the firm can lead to opportunities for or threats to the firm. Although, there are many factors, the most important ones are socio–economic, technical, supplier, competitors, and government.”
These definitions clearly reveal the following important factors on Environmental Influences and Analysis on Business
• Strategist looks on the environment change to analyze the threats of the business along with searching and offering immense opportunities to business enterprises in the market.
• A successful business enterprise has to identify, appraise and respond to the new dimensions of various opportunities and threats in its internal and external environment.
• Successful businesses not only recognize business activities but even recognize the different elements related to business.
• It continuously monitors and adapt to the new environment.
• Environment analysis is helpful in the survival of the business and prospers the business activities.
Environment diagnosis principally consists of managerial decisions which is made by the strategist for analyzing the significance of the data like strengths, weakness, opportunities and threats of the organisation, and to design their own strategy for formulation, implementation and controlling the internal environmental factors of the firm. Environmental analysis helps the executive and manager to diagnosis the strategic competitive force and components of strategic management. However, internal environment of the organization is quite an essential and important factor, from the point of view of the environment analysis. It is the cornerstone of the new and existing business opportunity.
The figure above indicates the environmental forces that influence the business. For instance, the individual life success depends on his innate capabilities like psychological factors, traits and skills. These are to cope with the environment, only then it will be a success otherwise it will lead to failure. The survival is the basic element and success of the business organization; it depends on its own strengths in terms of resources like money, men, machinery, materials, market and methods as its commands. Organizational success depends on effective utilization of physical resources, financial resources and human resource skills. These are adaptable to the business environment.
Environment is the total of several external and internal forces that affects the functions of business. Every business organization principally consists of internal environmental factors and a set of external environmental factors. Environmental factors influence the business directly and indirectly by controlling, managing and administrating the business activities in the organization. Environment is the basic tool for living for all human beings and living creatures.
Human environment consists of family, friends, peers, and neighbors except the natural environment. In addition it also includes man–made structures like buildings, furniture, roads and other physical infrastructure. These are continuously interacting with the business environment.
Problem in understanding the environment influences on Business
In strategic business environment, strategic managers face different problems in different circumstance in their business and have to understand the different environmental influence of business as outlined:
• The environment problems bring different dimensions to strategic managers. Strategic managers have a very difficult task to make decisions regarding the different diversities of the business. A Strategist will list all conceivable environment influences and it is very difficult to get an overall picture of the business environment task. These are emerging problems for the strategist and it also influences the business.
• Uncertainty is the second problem encountered by strategic managers. Strategic managers typically claim that they know the pace of the technological changes and the speed of the global network communication. The changes are much faster now than ever before in the business environment. Some of the changes are either predictable or unpredictable by the managers. Managers make an effort to understand the external influences on business enterprises in future and this task is very difficult to perform.
• Strategic managers are not different from individuals in a firm; they are coping with complex and rigid problems. They tend to simplify complex and rigid problems which focus on the various aspects of the environment. These problems are historically important and confirm prior views of the business. Strategic managers are trying to take risk and simplify the complex and rigid problems in this way so as to find out a breakout bias in the understanding of their environment. It will help in achieving a useful and usable level of analysis in business environment.
Framework to understand the environmental influences on Business
While understanding the problems in business environment, strategic managers cannot ignore the real problems of the business. It will be an opportunity for them to identify a framework for understanding the business environment of the organizations. Environmental factors plays an important role and influences to identify the key issues, and find the ways for coping with complex and rigid issues which are considered as challenging by managers.
• First stage for strategic managers is to know the initial structure and nature of the business organizations in terms of uncertainty. This is relatively either static or shows a sign of change.
• Second stage is the auditing of the environment that influences the business. During this stage, strategic managers aim to identify different environmental influences that are likely to affect the organization’s development or performance. It is done through assessment of external environmental factors like political, economic, social and technological influences. These are the factors that exist at the time of audit of the business. It is helpful to strategic managers to develop overall pictures or scenario of possible future and extent to ascertain change in the business.
• Strategic managers have to focus more towards an explicit consideration of the immediate environment of the organizations; it is the last stage of assessment for the strategic managers. It involves the five forces analysis of competitive environment and identifies the key forces at work environment. It is also required to analyze the organizations competitive position in form of resources and customers.