Environmental analysis is a part of SWOT analysis. SWOT is’ acronym of strengths, weaknesses, opportunities, and threats. While opportunities and threats are external to an organization, strengths and weaknesses are internal to the organization. The analyses of these are as follows:
- Opportunity: An opportunity is a favorable condition in the organization’s environment which enables it to strengthen its position.
- Threat: A threat is an unfavorable condition in the organization’s environment which causes a risk for, or damage to, the organization’s position.
- Strength: Strength is an inherent capability of the organization which it can use to gain strategic advantage over its competitors.
- Weakness: A weakness is an inherent limitation or constraint of the organization which creates strategic disadvantage to it.
Though SWOT analysis should be taken as an integrated process in strategic management, here, it has been broken into two parts because the types of information required and techniques adopted in both these parts are quite different. These parts are environmental analysis for identifying opportunities and threats and organizational analysis for identifying strengths and weaknesses.
Concept of Environmental Analysis: Environmental analysis, also known as environmental scanning or appraisal, is the process through which an organization monitors and comprehends various environmental factors and determines the opportunities and threats that are provided by these factors.
Thus, there are two aspects involved in environmental analysis:
- Monitoring the environment, i.e. environmental search
- Identifying opportunities and threats based on environmental monitoring
On the basis of the above concept, following features of environmental analysis may be identified:
- Environmental analysis is a holistic exercise in which total view of environment is taken rather than viewing trends piecemeal. Though for environmental analysis, the environment is divided into different components to find out their nature, function, and relationship for searching opportunities and threats and determining where they come from, ultimately the analysis of these components is aggregated to have a total view of the environment. This is necessary because some elements of the environment may indicate opportunities while others may indicate threats.
- Environmental analysis is a heuristic or exploratory process. While the monitoring aspect of the environment is concerned with present developments, a large, part of the process seeks to explore the unknown terrain, the dimensions of possible futures. Since futures are unknown, the analysis emphasizes on ‘what could happen and not necessarily what will happen.’ The emphasis must be on alternative futures, seeking clarification of the assumptions about the future, speculating I systematically about alternative outcomes, assessing probabilities, and drawing more rational conclusions.
- Environmental analysis must be a continuous process rather than being an intermittent scanning system. In this process, there is continuous scanning of the environment to pick up the new signals or triggers in the overall pattern of developing trends. Detailed studies are undertaken to focus closely on the track of previously identified trends which have been analyzed and assessed and found to be of particular importance to the organization.