Role of environmental analysis in strategic management is quite crucial. Ian Wilson’ has compared the role of environmental analysis with function of radar. A business firm operating in an uncertain environment must have a vision of the business and a system of environmental analysis. Many of the research studies also suggest that those organizations which undertake systematic environmental analysis perform better than those which do not take such an exercise. For example, Danny and Friesen’s research study shows high relationship between environmental analysis and success of the firms. The role of environmental analysis in strategic management can be seen in the following ways.
- The environment changes so fast that new opportunities and threats are created which may result disequilibrium into organization’s existing equilibrium. Therefore, the strategists have to analyze the environment to determine what factors in the environment present opportunities for greater accomplishment of organizational objectives and what factors in the environment present threats to the organization’s objective accomplishment so that suitable adjustment in strategies can be made to derive maximum benefits.
- Environmental analysis allows strategists time to anticipate opportunities and plan to take optional responses to these opportunities. Similarly, it helps to develop an early warning system to prevent the .threats or to develop strategies which can turn the threats to the organization’s advantage.
- Environmental analysis helps strategists to narrow the range of available alternatives and eliminate options that are clearly inconsistent with forecast opportunities of threats. The analysis helps in eliminating unsuitable alternatives and to process most promising alternatives.
Thus, it helps strategists to reduce time pressure and to concentrate on those which are more import.
