example of environmental analysis in business plan

A Comprehensive Guide to Business Environmental Analysis: What is It, and Why is It Important?

• Ossian Muscad
• August 28, 2022
• No Comments

Last Updated on January 3, 2024 by Ossian Muscad

Every business exists in an environment, and it’s important to understand that environment to be successful. Unfortunately, businesses sometimes tend to ignore this importance, leading to strategic planning failures. By getting to know the business environment and conducting regular environmental analysis, businesses can make the right decisions to stay ahead of the competition.

But what exactly is environmental analysis, and how do you conduct one? This article will discuss environmental analysis, its importance, and how to use it to improve your business’ strategic planning.

What is Business Environmental Analysis?

Business environmental analysis is studying the external factors that affect a business. This includes things like the political landscape, the economic conditions, the technological environment, and more. By understanding these factors, a company can develop strategies to optimize its performance within this context. 

This environmental analysis examines industry and organizational factors that positively or negatively affect the business. By determining short-term and long-term impacts, organizations can readily respond to them when they appear. 

Purpose of Environmental Analysis

An environmental analysis helps organizations define factors that can influence their business operations. Business leaders can make better decisions about moving forward by assessing and weighing these factors.

Additionally, environmental analysis can help business leaders anticipate changes in the market and adjust their strategies accordingly. Apart from that, here are other reasons why environmental analysis is essential for businesses:

• Identifying Opportunities: Environmental analysis can help businesses spot emerging trends and changes in the market. This allows them to seize new opportunities before their competitors do.
• Mitigating Threats: By understanding potential threats in the environment, businesses can design strategies to mitigate these risks, avoiding potential pitfalls.
• Formulating Strategies: Environmental analysis provides critical insights that can shape a company’s strategic planning process, ensuring alignment with the external environment.
• Enhancing Competitive Advantage: By understanding the external environment better than competitors, businesses can leverage this knowledge for a competitive advantage.
• Anticipating Change: Environmental analysis helps businesses anticipate and prepare for changes in the market, regulatory landscape, or technology trends.

Elements of Environmental Analysis

Two main elements of a business environmental analysis are internal and external factors.

Internal Factors

Internal factors are elements within a business that can influence its operation and success. These factors are primarily under the control of the business and can be altered or manipulated according to business needs. Here are some key internal factors:

• Resources: This includes all tangible and intangible assets a company has at its disposal to use in producing goods or services. Tangible resources include physical assets such as infrastructure, raw materials, and human resources. Intangible resources encompass elements like brand reputation, intellectual property, and corporate culture.
• Capabilities: A company’s capabilities are its skills or competencies in deploying resources to achieve business goals. It involves marketing effectiveness, production efficiency, technological innovation, customer service, etc.
• Management and Organization Structure: The organizational structure and quality of its management team can significantly impact a company’s operation. Effective leadership and a well-defined structure can facilitate smooth decision-making, coordination, and control, contributing to business success.
• Business Processes and Operations: These involve the methods and procedures for coordinating and conducting business activities. Efficient processes can enhance productivity and customer satisfaction, leading to higher profitability.

Identifying and evaluating these internal factors through an environmental business analysis can help businesses leverage their strengths, address weaknesses, exploit opportunities, and ward off potential threats.

External Factors

External factors are elements outside the control of a business that can significantly influence its performance. Recognizing and understanding these external factors can help a business to react and adapt to changing circumstances. Here are the key external factors:

• Political Factors: These include government policies, regulations, and legal issues that define formal and informal rules under which the firm must operate. Political stability, tax guidelines, trade regulations, and employment laws all influence the business environment.
• Economic Factors: Economic factors are determinants of a country’s economic performance that directly impact a company and have resonating long-term effects. These include inflation rates, interest rates, foreign exchange rates, economic growth patterns, and unemployment rates.
• Sociocultural Factors: These factors encompass the societal and cultural forces that shape consumer behavior. They include population growth rates, age distribution, attitudes towards health, and cultural trends.
• Technological Factors: Technological changes can create new industries and market opportunities. A company’s ability to manage its IT infrastructure might also affect its ability to compete and its efficiency.
• Environmental Factors: Environmental factors include weather, climate, and climate change. These factors can especially affect industries such as tourism, farming, and insurance.
• Legal Factors: These are related to the legal environment in which firms operate. They include consumer law, employment law, antitrust law, discriminatory law, and copyright law.

By evaluating these external factors during an environmental business analysis, businesses can develop effective strategies that align with their operating environment, thereby improving their chances of success.

Business Environmental Analysis Process

A business environmental analysis systematically uncovers factors affecting your business and its operations. When there aren’t any fixed and definitive rules on doing an environmental assessment, the following steps can guide you into making the most out of this process:

Step 1: Identify the Environmental Factors

Every environmental analysis will need a list of the factors that will undergo evaluation. These factors will depend on the business and its specific goals for conducting the analysis. This list should include micro- and macro-environmental factors that have short- and long-term effects on business.

For example, a company selling organic products might consider environmental factors such as changing consumer preferences, government regulations on organic labeling, and the availability of raw materials.

Step 2: Collect Further Information About These Factors

After outlining which factors will be included in the analysis, the next step is to conduct research and gather more information about each of these factors. This can be done through desk research, surveys, interviews, and focus groups . Again, you can utilize various sources to ensure accurate, relevant, and up-to-date information. 

For instance, organic product companies may gather data on consumer buying patterns through surveys and consumer behavior reports. They may also research government regulations and consult with suppliers to understand the availability of raw materials.

Step 3: Check the Competitors

When conducting an environmental analysis, your research isn’t limited to your organization’s business standing. It also involves understanding your competitors and how they’re faring in the business landscape. This will give you a better idea of where you stand and what you must do to stay ahead of the competition.

For example, the organic products company may analyze its competitors’ marketing strategies, product offerings, and financial performance to identify potential threats or opportunities.

Step 4: Determine the Impacts on the Organization

Once you’ve collected all the relevant information, it’s time to determine how these environmental factors will affect your business. This is where you need to weigh the risks and opportunities of each business situation. Doing so will help you develop strategies to take advantage of the opportunities and minimize the risks.

For instance, the organic products company may diversify its product offerings and invest in sustainable raw materials to capitalize on changing consumer preferences and government regulations. They may also implement cost-cutting measures to mitigate potential risks of rising production costs due to the limited availability of raw materials.

Step 5: Formulate an Effective Strategic Plan

The final step is creating a strategic plan to guide your business decisions and actions. This plan should be based on your insights from the environmental analysis. It should also be aligned with your business goals and objectives. Having a well-informed and strategic plan allows your organization to stay adaptable and competitive in the ever-changing business environment.

For example, based on their environmental analysis, the organic products company may decide to expand their market reach and invest in innovative technologies for sustainable packaging. They may also set goals for increasing sales and reducing costs.

Types of Environmental Analysis Techniques

There are two environmental analysis Techniques: PESTLE analysis and SWOT analysis. These methods help organizations assess their strategic positions based on the business environment and a wide range of internal and external factors. 

PESTLE Analysis

PESTLE analysis is a framework that helps organizations assess the factors that can influence their business on a larger scale outside the organization. It provides essential insights into the market status based on relevant trends concerning the market, technology, customers, and more. PESTLE has six key elements:

Political factors refer to government policies, regulations, and laws that regulate business operations. It is important to conduct business in any country. Other political factors include:

• Local, federal, and state policies.
• Tax regulations
• Trade rules
• Safety regulations
• Governmental stability

Economic factors are determinants of a country’s economic performance that directly impact the organization. By assessing the economic factors, organizations can anticipate potential opportunities and challenges. These include:

• Unemployment rates
• Inflation rates
• Economic growth rates
• Interest rates
• Foreign exchange rates

Social factors reflect the society in which an organization operates. It helps organizations to understand the evolving customer needs, preferences, and behaviors. These include:

• Attitudes and opinions towards health and work-life balance
• Key demographic trends
• Consumer buying patterns
• Cultural values
• Lifestyle trends 

Technological

Technology is a significant driver of change in the business environment. It has revolutionized how businesses operate, compete, and interact with customers. Key technological factors include:

• Research and development areas
• Technological incentives
• Up-and-coming technologies
• Disruptive technologies
• Technology transfer speeds

Legal factors are the laws and regulations that govern businesses. Organizations must comply with these laws to operate legally and avoid penalties. Legal factors include:

• Employment laws
• Product regulations
• Health and safety regulations
• Antitrust laws
• Environmental regulations

Environmental

Environmental factors encompass the natural environment in which an organization operates. These factors can impact industries such as tourism, agriculture, and energy. Environmental factors include:

• Energy consumption regulations
• Environmental policies
• Climate and weather conditions
• Sustainability efforts
• Natural disasters

SWOT Analysis

SWOT Analysis is a strategic planning tool organizations use to identify their Strengths, Weaknesses, Opportunities, and Threats – hence the acronym SWOT. The technique provides a framework to evaluate an organization’s competitive position and understand how the business can leverage its capabilities to succeed.

Strengths refer to the positive internal attributes of an organization, including resources, capabilities, and advantages that give it a competitive edge over others. This can range from strong brand recognition and skilled personnel to a robust financial position.

Weaknesses are the internal factors that prevent an organization from realizing its full potential and might hinder its performance. Examples could include poor infrastructure, lack of skilled labor, operational inefficiencies, or outdated technology.

Opportunities

Opportunities include the external factors that an organization could exploit to its advantage. These include market trends, shifts in customer behavior, technological advances, or changes in government policies.

Threats involve external factors that pose challenges or risks to an organization. These could include competitive rivalry, regulatory changes, unfavorable economic conditions, or technological disruptions.

Through a SWOT analysis, an organization can gain a comprehensive understanding of its internal and external environments. Consequently, it can develop strategies that leverage strengths, mitigate weaknesses, exploit opportunities, and defend against threats. This can ultimately lead to increased competitiveness and success.

Benefits of Environmental Analysis

Environmental analysis provides a strategic advantage to organizations by offering insights into the factors that might impact their business. By understanding the internal and external environments, a business can make informed decisions and develop robust strategies to respond to potential opportunities and threats. Here are three crucial benefits of conducting an environmental analysis:

Enhanced Market Understanding

Through an environmental analysis, businesses can comprehensively understand their market, including customer needs, competitor strategies, and current trends. This information can be instrumental in identifying viable market opportunities and potential threats, allowing businesses to make proactive decisions. Moreover, it helps define the market segment, understand the competitive landscape, and set realistic targets.

Risk Management

Environmental analysis also plays a vital role in risk management. By identifying potential threats in the business environment, organizations can develop contingency plans and mitigate the impact of adverse events. This includes changes in regulatory laws, economic downturns, technological disruptions, or social and political instability.

Strategic Planning

Conducting an environmental analysis can significantly inform the strategic planning process. The insights gained can help set realistic goals, strategize market entry or expansion, optimize resource allocation, and make informed investment decisions. It also facilitates the development of strategies that leverage organizational strengths and mitigate weaknesses, thereby enhancing business competitiveness and growth.

Frequently Asked Questions (FAQs)

Q1: what is the importance of a business environmental analysis.

A business environmental analysis is crucial as it helps organizations understand both their internal and external environments. This understanding allows them to identify opportunities and threats and develop strategies to leverage them and mitigate them. It facilitates informed decision-making and proactive planning.

Q2: In what ways does technology impact business environmental analysis?

Technology significantly impacts business environmental analysis by revolutionizing how businesses operate, compete, and interact with customers. Upcoming technologies, research and development, and technology transfer speeds are all crucial factors that need to be considered in an environmental analysis.

Q3: How do legal factors affect a business’s environmental analysis?

Legal factors, including employment laws, product regulations, health and safety regulations, and environmental regulations, affect a business’s environmental analysis by determining the legal constraints an organization must operate within. Non-compliance can lead to penalties and can negatively impact a company’s reputation.

Q4: How does the SWOT analysis process fit into business environmental analysis?

SWOT analysis is a part of the business environmental analysis that focuses on the organization’s internal factors (Strengths and Weaknesses) and external factors (Opportunities and Threats). It helps organizations understand their competitive position and leverage their capabilities for success.

Q5: Why is understanding social factors important in a business environmental analysis?

Social factors are essential in a business environmental analysis because they help organizations understand evolving customer needs, preferences, and behaviors. This can include attitudes towards work-life balance, buying patterns, cultural values, and lifestyle trends.

Q6: Does the size of a business influence the need for a business environmental analysis?

Regardless of the size, every business can benefit from conducting a business environmental analysis. It provides insights into the market, aids in risk management, and informs strategic planning. However, the scale and depth of the analysis may vary based on the size and nature of the organization.

Streamline Business Environmental Analysis with DATAMYTE

DATAMYTE is a quality management platform with low-code capabilities. Our Digital Clipboard , in particular, is a low-code workflow automation software that features a workflow, checklist, and smart form builder. This tool lets you streamline the process of conducting a business environmental analysis by automating data collection, analysis, and reporting.

DATAMYTE also lets you conduct layered process audits, a high-frequency evaluation of critical process steps, focusing on areas with the highest failure risk or non-compliance. Conducting LPA with DATAMYTE lets you effectively identify and correct potential defects before they become major quality issues.

With DATAMYTE , you have an all-in-one solution for quality management and environmental analysis, allowing you to make data-driven decisions for business success. Get in touch with us today to learn more about how DATAMYTE can help your organization thrive in a dynamic business environment!

While it may seem like a lot of work, business environmental analysis is crucial for any organization. With it, you can better understand your business’s strengths and weaknesses and the opportunities and threats of operating in a certain business environment. 

So, if you haven’t tried implementing this process in your business yet, now is the time. Use the information and insights gained from a business environmental analysis to make informed decisions, mitigate risks, and drive business growth. As the global marketplace continues to evolve, regularly conducting an environmental analysis will be essential for staying competitive and successful.

Related Articles:

• Floor Inspection Checklist: How To Create This Tool To Simplify Reporting
• Management of Change Procedure Template

• Implementation
• Case-Studies
• White Papers
• Knowledge Base

Experts in the Connected Factory

• 1-800-455-4359
• (763) 553-0455 ext. 1
• [email protected]

Environmental Analysis: Steps, Examples & Benefits

A business environment refers to all the external and internal factors that affect its operation. It comprises economic, social, political, financial, and institutional elements. 

Environmental analysis helps a business identify its strengths, weaknesses, threats, and opportunities so organizations can operate efficiently.

What Is Environmental Analysis?

Environmental analysis refers to the study of external factors that impact a business. In this analysis, analysts study the economic conditions, financial position, political landscape, technical advancements, etc. 

Companies develop strategies after studying external factors. This improves business performance and optimizes operations. Analysts examine external factors, identify issues, and derive solutions.

Environmental Analysis Techniques 

1- pestle .

PESTLE analysis is the study of macroeconomic factors that impact a business. It helps enterprises make decisions after analyzing the external environment. Through PESTLE analysis, businesses can understand the overall industry sentiment. It provides future predictions about where the business is headed. 

It consists of six elements:

• Political factors that analyze a country’s political environment. It studies international relations, geopolitics, national and international politics. This helps the business understand how the country’s political environment can affect the business. Government policies and regulations are also studied in this analysis. 
• Economic factors study the economy. It provides businesses with information about where the economy is leading. It explores economic factors like GDP, unemployment, and the forex rate. A positive economic condition is beneficial for business operations. 
• Social factors such as values, people’s mindsets, norms, and traditions impact the business. The business’s sales, revenue, and income depend on human beings. Hence, social factors directly impact them. This includes wealth distribution, lifestyle, gender, and more.
• Technological factors refer to the advancement of industry or country. Advanced technology positively affects a business. The environmental analysis investigates discoveries, innovative technologies, etc., and increases operational efficiency.
• Legal factors such as regulations change over time. A business is impacted by the laws put in place by the government. If not, they can be sanctioned for violating the rules. Unfortunately, as regulations are stricter, the business process is weakened and slowed down. 
• Environmental factors like weather, climate, location, and waste disposal impact all businesses. How companies use a certain resource or product defines the implications of environmental analysis. 

2- SWOT 

SWOT analysis helps businesses understand their strengths, weaknesses, opportunities, and threats. These factors help understand where the business stands and where it is headed. It provides the analysts with a framework for what needs to be done next. 

It consists of two elements:

• Internal factors , aka strengths and weaknesses, are influenced by the business and can control these factors. A business’s strength can be the brand name or a lack of substitute products. A weakness can be inadequate product development. Both these factors are caused internally. 
• External factors , aka opportunities and threats, are outside of the business influence. The business has no control over them, and the factors occur independently. For example, a business threat is the presence of several competitors. An opportunity can be a drop in tariffs for import/export. Hence, the business has no control over the factors but is impacted by them.

Benefits of Environmental Analysis 

1- helps in forecasting .

Environmental analysis helps businesses understand where they stand and where they can be. This helps in forecasting future trends and market conditions. By doing this, businesses can make decisions that benefit them in the long term. 

2- Enables Achieving Business Objectives 

When a business adjusts its strategies based on environmental analysis, it moves closer to success. They can attain their goals by formulating strategies based on the analysis. 

3- Makes Business Aware of the Market 

With environmental analysis, businesses are in constant touch with the market. This helps businesses understand what is happening in the industry, allowing them to react and adjust to market demands and achieve corporate objectives. Additionally, businesses change their stages based on market requirements. 

4- Anticipate Opportunities and Threats

The environmental analysis makes organizations aware of business opportunities and threats. Companies can then respond to the opportunities and manage threats. This helps the firms gain a competitive advantage in the market. 

5- Understand the Causes of Disequilibrium

With the fast-changing environment and dynamic industry, a business can witness disequilibrium. Environmental analysis helps firms to identify the reasons behind this disequilibrium. Thereof, analysts can devise solutions to bring the business back into equilibrium. 

Limitations of Environmental Analysis 

1- does not warn against unforeseen events.

The environmental analysis does not warn businesses against unforeseen or adverse events. It does help businesses forecast future trends. However, it does not help eliminate the uncertainty. Through this analysis, businesses cannot avoid unexpected events that occur during analysis. Though, it does decrease the frequency of such shocks to occur. 

2- Does Not Follow a Strategic Approach 

Businesses can build strategies based on environmental analysis. However, the analysis itself does not follow a strategic risk-taking approach. This means it leads the businesses to operate cautiously and has no rigid strategy. 

3- Not Independently Reliable

The environmental analysis provides businesses with solutions but is not independently reliable. This means that businesses must conduct other analyses as well to confirm solutions. If an analyst only decides based on environmental analysis, it may or may not work in the business’s favor. However, when an environmental analysis is combined with other strategic approaches and analyses, the results are more reliable. 

4- Does Not Guarantee Effectiveness 

Environmental analysis is conducted to improve business effectiveness and operations. However, it does not guarantee the same. The analysis acts as an input in the strategy to develop an output. Hence, it is not advised to trust a single study to build organizational effectiveness critically. The data’s verifiability and accuracy must be confirmed to ensure ideal outcomes. If the data is not accurate, reliable, and verified, it may lead businesses to make wrong decisions. 

5- Creates Confusion

The environmental analysis focuses on too much business information at once. It considers both the advantages and disadvantages of a business. This may lead to confusion amongst analysts. The more information on hand, the more challenging to derive a solution. Hence, the abundance of information acts as a hindrance to solving issues. 

Steps To Conduct Environmental Analysis 

1. identify factors .

The first step in conducting an environmental analysis is to select the factors needing evaluation. These factors can be legal, social, technical, economical, or more. The factors for analysis depend on the industry the business belongs to. For example, an IT business focuses more on technical aspects. A healthcare business would want to analyze its legal factors. When analysts select the factors they plan to anatomize; they ensure the ones impacting the business are chosen. 

2. Critically Examine the Factors 

After choosing the factors, analysts examine them. Information is collected related to all these factors. Analysts research and observe the factors. They can either collect information verbally or in writing. 

Verbal information is collected through observation and note-taking. In contrast, written information is collected by reading and examining. Analysts can use online resources or read print magazines, journals, and books to research what will impact the business. 

3. Scan Competitors 

Analysts then scan the competitors and evaluate their position in the industry. This helps them determine threats and opportunities for the business. Analysts collect information about competitors in traditional or nontraditional ways. 

The traditional way of collecting information is through primary or secondary sources. A non-traditional way of collecting information is through spying. They learn the new events with competitors, so they implement the same in their businesses. Businesses also learn from other business mistakes and avoid them. This helps in increasing business effectiveness and efficiency. 

4. Evaluate Organizational Impacts

Once analysts know what other rival firms are doing, it is time to evaluate organizational impacts. This is done through forecasting. With forecasting, they can predict how certain factors impact a business. This helps in identifying threats, opportunities, weaknesses, and strengths. 

Analysts use brainstorming, surveying, and more to forecast the impact. Forecasting can also be done based on competitors and how they may impact the business. Decisions are taken based on such impacts for the betterment of the business. 

5. Devise A Plan

After evaluating organizational impacts, analysts devise a plan after surveying all environmental factors. The plan consists of problem statements and solutions focusing on bettering business operations and productivity. Through this plan, businesses can achieve their core objectives. 

6. Implement the Strategy 

After the analysts devise the plan, it is finally time to implement the strategy. The plan consists of solutions that the business must use to enhance efficiency. These solutions are factor-driven, meaning there is a specific solution for each problem concerning a particular factor. Once the strategy is implemented, businesses can use the opportunities and avoid threats. 

Example of an Environmental Analysis 

Consider Mr. X an analyst at ABC Pvt. Ltd., a financial services firm. The recent developments in the financial industry lead Mr. X to conduct an environmental analysis. Since technological advancements drive the financial sector, Mr. X decides to do a PESTLE analysis. 

In this analysis, Mr. X considers the political, economic, social, technological, legal, and environmental aspects. However, he focuses on the technical aspects more. He compares the technological advancements happening in other companies in the same industry. 

The results show the emerging technical sound service advancements. It shares that robust chatbots in financial services help increase business profitability. Since ABC Pvt. Ltd. does not have a powerful chatbot yet, Mr. X decides to build one. The solution from the analysis states that strengthening their after-sales services through technical advancements is needed. Once that is done, the business witnesses a 15% jump in revenue and profitability. Hence, the analysis is deemed successful.

Final Words

Environmental analysis helps organizations understand internal and external factors affecting the business. The strategic tool successfully assesses all factors affecting the business. It identifies problems and what needs to be done to solve them. This results in attaining business objectives. 

The environmental analysis process is lengthy and requires much time. However, the solution derived from the process improves organizational performance. Businesses can benefit from efficient strategies that help in enhancing operations. This results in increased revenue and business profitability.

Leave a Comment Cancel reply

• Onsite training

3,000,000+ delegates

15,000+ clients

1,000+ locations

• KnowledgePass
• Log a ticket

01344203999 Available 24/7

What is Business Environment Analysis? A Detailed Comparison

Explore this blog and learn the process of Business Environment Analysis and identify the key factors influencing the success of a business. This strategic analysis helps pinpoint external and internal factors that impact a company's performance, including market trends, competition, economic conditions, and regulatory factors.

Exclusive 40% OFF

Training Outcomes Within Your Budget!

We ensure quality, budget-alignment, and timely delivery by our expert instructors.

Share this Resource

• BCS Foundation Certificate in Organisational Behaviour
• BCS Foundation Certificate in Architecture Concepts and Domains
• BCS Business Analysis Diploma Oral Preparation Workshop
• Certified Agile Business Analyst Professional (CABAP)
• BCS Practitioner Certificate in Digital Product Management Training Course

Business Environment Analysis is a systematic process for determining how a business can run effectively and achieve its targets. It involves identifying the different pillars affecting business performance, such as the economy, which helps shape society and politics, technological development, law, and the environment.  

This results in pointing out the strengths and weaknesses of market situations and assisting in developing strategic and decision-making plans. Learning how to read the dynamics of the market is critical for businesses. Read this blog further to learn how Business Environment Analysis can help your business succeed by understanding the organisation's strengths and weaknesses. 

Table of Contents  

1) What is Business Environmental Analysis? 

2) Importance of Business Environment Analysis 

3) Purpose of Business Environmental Analysis 

4) Types of Business Environment Analysis 

5) Steps involved in Business Environmental Analysis 

6) PESTLE Model of Business Environment Analysis 

7) Advantages of conducting Business Environmental Analysis 

8) Conclusion 

What is Business Environmental Analysis?  

Business Environmental Analysis is a strategic tool which helps companies know how external and internal environment factors influence their operations and performances. It, as a function, is used to examine things like economic trends, technological advancements, regulatory landscapes, competitive dynamics and social changes that can influence the business's ability to meet its objectives. 

This analysis spotlights a company’s distinctive features, areas for improvement, market weak spots, and threats to the organisation. Such discoveries can help derive strategies that exploit strengths while eliminating weaknesses. It’s a preventive method that would guarantee the flexibility, competitiveness, and relevance of a business in a dynamic economy. 

Importance of Business Environment Analysis  

Business Environment Analysis is crucial to do business because it reflects the overall environment of an organisation clearly showing the company what it entails. It serves as a preventive and an innovative measure because it assists firms to foresee changes, recognise new tendencies, adjust to the emerging market trend and avoid possible risks.  

By means of this analysis, companies can wind up how external factors affect their strategic objectives and operational planning. This allows them to perform well in the way they deploy resources. 

It makes a business active, flexible, sustainable, and a powerful means of preparation for the unexpected and targeted dealing with fierce rivalry. Since the Analysis of the Business Environment forms the base for strategic planning, sustainable growth, and risk management of the business, it cannot be overlooked. 

Purpose of Business Environmental Analysis  

Let us now discuss the purpose of Business Environmental Analysis: 

1) Recognising opportunities  

Recognising business opportunities that may take longer to become noticeable is the primary goal of the Environmental Analysis of a Business. Through an in-depth analysis of market data such as trends, customer tastes, technology, and law, businesses can learn about opportunities for growth and innovation. This upfront movement makes companies leverage early opportunities to create a significant advantage and opens the chance for them to expand to new markets/segments for growth. 

2) Managing threats  

Identifying and managing potential risks is also an essential purpose of Business Environmental Analysis. External factors such as competitive responses, economic fluctuations, and changes in legislation create serious risks for the operations.  

Through identifying these risks beforehand, enterprises may develop alternative plans, complement their product lines or modify their strategies to maintain continuity of their operations and profitability in the long run. 

3) Crafting strategies  

The insights delivered by Business Environmental Analysis are valuable for developing an intelligent and successful business strategy. Internal and external business environments understanding enables connecting company's strengths and weaknesses with the available opportunities and threats. This alignment is important for the setting of clear objectives, sound strategic decision making, and the allocation of resources wisely that can deliver intended results. 

4) Strengthening competitive edge  

Business Environmental Analysis is a major tool that helps a company increase its competitive advantage. Through an active and ongoing assessment of the wider business environment, companies will be able to stay ahead of emerging trends and needs of customers, innovate in response to changing factors and differentiate themselves from their competitors. Such successive series of adaptation to the changes is key to remaining relevant in the market and having a long-term competitive advantage. 

Elevate your career with the BCS Advanced International Diploma in Business Analysis Course — register now to become a certified Business Analysis expert!  

Types of Business Environment Analysis  

These are the four different types of Business Environment Analysis; let’s have a close look at each one of them: 

1) Internal environment  

The Internal Environment Analysis encompasses considerations that could weaken the organisation to fulfil the customers' needs and its business objectives. This would entail an appraisal of the organisation's culture, sub-culture, physical resources, human resources, and technology.  

The focus is to pinpoint factors within the organisation that could hinder its operational efficiency and progressive strategic orientation. Major elements usually scrutinised include the type of leadership, morale of employees, operating processes, and IT capabilities that will help them harness their strengths and rectify their weaknesses. 

2) External environment  

External Environment Analysis involves examining factors outside the company that could affect its performance and strategic options. This analysis is typically split into two further categories:  

a)  Microenvironment: A microenvironment is made up of those elements that influence business and are within the small circle of interests of the business, which can be the competitors, suppliers, distributors, and industry trends. Such an analysis allows companies to be aware of the existing competition, clients, and the market by studying the client's needs and preferences, as well as the supply chain dynamics. 

b)  Macro environment:  Macro environment determines everything in society and is not limited to the organisation. This includes PESTEL factors: Political, Economic, Social, Technological, Environmental, and Legal framework. Understanding the factors, the organisation attains the ability to identify major trends and changes in the international business environment and thus, long-term strategy ability is provided.  

Steps involved in Business Environmental Analysis  

If you want to conduct a Business Environmental Analysis, then these are the steps that are involved: 

Step 1: Identification of pertinent factors  

The first step in this process is the identification of aspects that are directly responsible for shaping the organisation's growth process. Here, the team differentiates between the inner and the outside environment, addressing the micro and macro factors.  

It requires a deep knowledge of that business, industry, and the whole economic and social context in which it operates. Identifying those determinants correctly is consequential for the next business process analysis and selecting the most powerful factors that impact the business.

Step 2: Compilation of key information  

After the critical factors have been isolated, the next stage involves the collection of information pertinent to these factors. The focus in this case is on the collection of data on market tendencies, competition strategies, regulatory changes, technology innovations and socio-economic conditions, to mention but a few.  

The exercise aims to compile exhaustive and fresh information to serve as a base for further analysis. This step typically involves information from multiple sources, such as market studies, industry reports, financial documents, and legal papers. 

Step 3: Anticipation of potential outcomes  

Of utmost importance is decision-making with the help of the existing and anticipated current and forecasted environment. This includes examining the collected data to forecast how the identified factors will be modified and what kind of consequences the changes could be.  

Scenarios planning can be useful in the frame, helping entrepreneurs to investigate possible scenarios and then make a connection among different elements in complex ways. The aim is to envisage possibilities and hazards that could be derived from the ever-changing business environment. 

Step 4: Development of remedial measures  

The final level is to develop the remedial measures, or the decision-making strategies based on the expected results. It refers to the construction of strategies which benefit from the insights obtained through the analysis, minimise the risks identified and support the overall objectives. 

a) Diversifying product lines 

b) Entering new markets 

c) Adjusting marketing strategies 

d) Investing in new technologies 

e) Altering operational processes 

The key is to formulate flexible and resilient strategies that enable the organisation to effectively adapt to changes in the business environment. 

Unlock the power of agility in business- join now for our BCS Foundation Certificate in Agile Course !  

PESTLE model of Business Environment Analysis  

The PESTLE model is a comprehensive business framework used to analyse the external macro-environment that impacts an organisation's operations. It examines the following six key dimensions: 

Political  

The Political side looks into the part where government policies can affect business operations. Instability of government, for example, in a country or its tax policies and labour laws can be detrimental to a business. Trade restrictions can also affect a business's operation. 

This dimension is very significant for establishing the ways in which political decision-making and changes in legislative structure deteriorate the business environment, operational ability and strategic decisions of businesses. 

Economic  

On an economic dimension, an organisation looks into the economic factors that might be influencing its profitability. Such types of fluctuations can be noted in interest rates, exchange rates, inflation rates, economic growth dynamics, unemployment indices, and fiscal policy mechanisms.  

Reading the indicators which are present within the economic environment helps business foresee the possible developments, plan their budgeting and strategic evolution to avoid being misled into making wrong decisions on expansion, putting a price on their product and controlling the costs. 

Social  

Social situations are related to demographic shifts, cultural practices, lifestyle characteristics and persons attitudes towards a particular product or services. This component gives firms a good perception of the social background in which they operate to ensure that they can fine-tune goods and services, as well as market strategies, in line with changing needs and preferences of their targeted market. 

Technological  

The tech components include the speed of technology change, technology implementation, the advancement of technologies, R&D activities, and automation. Examining this element shows us the constant search for new technological opportunities, careful consideration of how the technologies affect operations, and finally, responding to the developing technologies by increasing efficiency and offering new products to the customers. 

Legal  

The legal dimension is typically looking at how laws and regulatory impact the conduct of the business. This is more in employment laws, health and safety act, consumer protection law, and environment regulation. Having the legal environment in mind is essential as businesses first establish compliance, minimise legal risks, and investigate the business-specific legal system in the host country. 

Environmental  

Environmental factors cover the effect of the physical environment and climate change on business operations. Such regulations include ecological requirements, sustainable operation, and the people’s recognition towards environmental issues like no waste issues.

Companies, on the other hand, assess this dimension to create an environmentally sustainable culture in their business settings, adapt to environmental challenges, comply with regulations, and integrate sustainability into their operational and corporate social responsibility strategies. 

Advance your skills in delivering value and ensuring success – register now for our BCS Practitioner Certificate in Benefits Management and Business Acceptance Course ! 

Advantages of conducting Business Environmental Analysis  

Conducting a Business environmental analysis offers significant advantages to businesses by providing a clearer understanding of the market dynamics, helping to mitigate risks, and facilitating strategic planning: 

Improved insight into market dynamics  

Business Environmental analysis enhances understanding of market dynamics, enabling businesses to detect trends, consumer needs, and competitive actions. This knowledge supports product development, market positioning, and competitive anticipation, which are vital for relevance and success in evolving markets. 

Mitigation of risks  

Business may find out, and manage operational, financial and growth risks by analysing the external environment it is working in. Firms can implement resistive methods such as aforementioned understanding of the risks from regulations, competition, and socio-economic shifts, and facilitating the acceptance of volatility in their organisation. 

Facilitation of strategic planning  

The core of strategic planning lies in environmental analysis, that is, data-driven facts for better-informed decisions. It guides businesses to link strengths to opportunities and resolve weaknesses, such that strategic goals are pertinent, resources are optimally allocated, and the company is dynamic to changes in markets. 

Conclusion  

We hope this blog has helped you understand the importance of Business Environment Analysis and why every organisation must conduct this process. Through this process, organisations can figure out their strengths and weaknesses, which can help them progress towards success. 

Drive transformative change effectively—register for the BCS Foundation Certificate in Business Change Course today!  

Frequently Asked Questions

Factors affecting the Business Environment include economic conditions, political and legal frameworks, technological advancements, social and cultural trends, and environmental concerns. 

Analysing the business environment is crucial for identifying opportunities and threats, understanding market dynamics, and making informed strategic decisions. It enables businesses to adapt to changes, capitalise on emerging trends, and maintain competitiveness in a rapidly evolving marketplace. 

The Knowledge Academy offers various Business Analysis Courses , including BCS Certificate in Business Analysis Practice Course, BCS Practitioner Certificate in Requirements Engineering Course, and BCS Practitioner Certificate in Modelling Business Processes Training. These courses cater to different skill levels, providing comprehensive insights into Business Analysis .     

Our Business Analysis blog covers a range of topics related to Business Analysis, offering valuable resources, best practices, and industry insights. Whether you are a beginner or looking to advance your Business Analysis skills, The Knowledge Academy's diverse courses and informative blogs have you covered.  

The Knowledge Academy’s Knowledge Pass , a prepaid voucher, adds another layer of flexibility, allowing course bookings over a 12-month period. Join us on a journey where education knows no bounds.  

The Knowledge Academy takes global learning to new heights, offering over 30,000 online courses across 490+ locations in 220 countries. This expansive reach ensures accessibility and convenience for learners worldwide.     

Alongside our diverse Online Course Catalogue, encompassing 17 major categories, we go the extra mile by providing a plethora of free educational Online Resources like News updates, Blogs , videos, webinars, and interview questions. Tailoring learning experiences further, professionals can maximise value with customisable Course Bundles of TKA . 

Upcoming Business Analysis Resources Batches & Dates

Thu 13th Jun 2024

Thu 11th Jul 2024

Thu 8th Aug 2024

Sat 10th Aug 2024

Thu 12th Sep 2024

Thu 24th Oct 2024

Sat 16th Nov 2024

Thu 21st Nov 2024

Thu 12th Dec 2024

Thu 9th Jan 2025

Thu 6th Feb 2025

Thu 6th Mar 2025

Thu 10th Apr 2025

Thu 15th May 2025

Thu 12th Jun 2025

Thu 10th Jul 2025

Thu 7th Aug 2025

Thu 4th Sep 2025

Thu 9th Oct 2025

Thu 6th Nov 2025

Thu 4th Dec 2025

Get A Quote

WHO WILL BE FUNDING THE COURSE?

My employer

By submitting your details you agree to be contacted in order to respond to your enquiry

• Business Analysis
• Lean Six Sigma Certification

Share this course

Our biggest spring sale.

We cannot process your enquiry without contacting you, please tick to confirm your consent to us for contacting you about your enquiry.

By submitting your details you agree to be contacted in order to respond to your enquiry.

We may not have the course you’re looking for. If you enquire or give us a call on 01344203999 and speak to our training experts, we may still be able to help with your training requirements.

Or select from our popular topics

• ITIL® Certification
• Scrum Certification
• Change Management Certification
• Business Analysis Courses
• Microsoft Azure Certification
• Microsoft Excel Courses
• Microsoft Project
• Explore more courses

Press esc to close

Fill out your  contact details  below and our training experts will be in touch.

Fill out your   contact details   below

Thank you for your enquiry!

One of our training experts will be in touch shortly to go over your training requirements.

Back to Course Information

Fill out your contact details below so we can get in touch with you regarding your training requirements.

* WHO WILL BE FUNDING THE COURSE?

Preferred Contact Method

No preference

Back to course information

Fill out your  training details  below

Fill out your training details below so we have a better idea of what your training requirements are.

HOW MANY DELEGATES NEED TRAINING?

HOW DO YOU WANT THE COURSE DELIVERED?

Online Instructor-led

Online Self-paced

WHEN WOULD YOU LIKE TO TAKE THIS COURSE?

Next 2 - 4 months

WHAT IS YOUR REASON FOR ENQUIRING?

Looking for some information

Looking for a discount

I want to book but have questions

One of our training experts will be in touch shortly to go overy your training requirements.

Your privacy & cookies!

Like many websites we use cookies. We care about your data and experience, so to give you the best possible experience using our site, we store a very limited amount of your data. Continuing to use this site or clicking “Accept & close” means that you agree to our use of cookies. Learn more about our privacy policy and cookie policy cookie policy .

We use cookies that are essential for our site to work. Please visit our cookie policy for more information. To accept all cookies click 'Accept & close'.

• Skip to main content
• Skip to primary sidebar
• Skip to footer
• QuestionPro

• Solutions Industries Gaming Automotive Sports and events Education Government Travel & Hospitality Financial Services Healthcare Cannabis Technology Use Case NPS+ Communities Audience Contactless surveys Mobile LivePolls Member Experience GDPR Positive People Science 360 Feedback Surveys
• Resources Blog eBooks Survey Templates Case Studies Training Help center

Home Workforce

What is Environmental Analysis? Steps, Benefits & Tools

Organizations can use an environmental analysis to uncover both internal and external factors. This could have a beneficial or negative impact on their company. Businesses can identify possible opportunities and challenges by analyzing factors such as the economy and technology.

Several factors come to mind when analyzing what makes a business successful. It’s all about the resources. However, the environment in which the business operates or exists also has a significant impact.

In this article, we look at what environmental analysis is, why it’s useful, how to do one, the analytical research process, and the tool’s analysis.

Content Index

What is environmental analysis?

Importance of environmental analysis, environmental analysis process, environmental analysis tools, environmental analysis techniques, benefits of environmental analysis.

An environmental analysis is a strategic technique used to identify all internal and external factors that could affect a company’s success. Internal components reveal the strengths and shortcomings of a company, while external components represent the opportunities and risks. This exists outside of the company.

Trends and high-level factors are considered in it; another name for this is environmental scanning.

Interest rates, for example, and how they may affect a company’s operations. These analyses can help businesses achieve attractiveness in their market.

Organizations need to do environmental analysis because it helps them:

• Find opportunities: By looking at the outside world, organizations can find new trends and chances to enter new markets or make new products or services.
• Identify threats: It helps businesses find threats to their business, such as new competitors, changes in regulations, or a slowing economy.
• Create effective strategies: Organizations can create effective strategies that are in line with their goals and objectives when they understand how the outside world affects their business.
• Anticipate change: Environmental scanning helps organizations plan ahead for changes in the outside world and create strategies to deal with them.
• Make informed decisions: It helps organizations learn more about the outside factors that affect their business so that they can make better decisions.

Organizations that want to stay competitive and successful in a business world that is changing quickly need to do environmental analysis. It helps them take advantage of opportunities, lower risks, and come up with good plans that lead to growth and success.

Environmental analysis is the process of assessing and evaluating the internal and external factors that can have an effect on an organization’s performance and strategy. This analysis aims to find opportunities, threats, strengths, and weaknesses so that the organization can make a good workforce strategy that fits its goals and objectives.

The environmental analysis process usually involves the following steps:

1. Determine the effects on the environment

To begin a business environmental analysis procedure, select environmental factors evaluating. Your industry determines this. 

For example, if you work in a medical facility, you might want to think about legal implications. Regulations managing healthcare experience and safety, for example. Choose factors that have the potential to influence how you make deals.

2. Obtain information

Collect information about your chosen environmental factors once you decide which ones to evaluate. You can observe your factors and conduct research here. There are two types of information to gather: verbal and written data. Hearing is how people obtain verbal information.

As an example, consider listening to a radio broadcast. They obtain written information from sources such as newspapers and magazines. 

Using the preceding example, this would involve conducting research online and in medical magazines.

It will assist you in determining whether or not there have been any changes to health and safety regulations because this may have an impact on your healthcare facility.

3. Consider your competitors

You may want to gather information about your competitors. To see if they pose any threats. You can accomplish this by employing a technique known as spying. This involves unusually gathering information.

Using the same example, you could spy on a nearby health facility to learn about recent activity.

4. Examine your strategies

Finally, evaluate your present and prospective strategies to determine how future environmental changes will impact your organization. This assists you in resolving potential issues. These factors could have been to blame.

For example, the health facility may wish to develop a new strategy. It will clearly show how they aim to deal with the decrease in clients caused by their competitor’s new branch.

Environmental analysis is frequently used to assist businesses. It is used before launching a new product or service. 

For example, survey the landscape of competitors, customers, economic conditions, market conditions, and so on. PESTEL is a popular project management tool for performing this analysis.

It refers to the factors that are political, economic, social, and technological. The various components of a PESTEL analysis are listed alphabetically below.

Political issues refer to the level of government intrusion into an organization’s operations. Primary concerns include taxes, tariffs, regulations, elections, and political stability. 

For example, different political parties hold divergent viewpoints on raising the minimum wage. Small businesses may be affected by an election.

When one candidate proposes raising the minimum wage, it may impact their product/service prices and ability to retain current employees.

LEARN ABOUT:   Workforce Planning Model

Businesses in the United States first consider the overall health of the American economic factors. Growth, employment, inflation, and interest rates are just a few examples. Organizations operating outside of the United States will concentrate on exchange rates. 

A startup, for example, may assess the current state of the economy to determine whether or not it will be able to survive. The long-term revenue and expenses of a company are affected by economic conditions.

Shifts in age, demographic changes, changing attitudes toward safety and health, customer preferences, and technical improvements. All are examples of social challenges. 86 percent of young people, for example, use social media.

As a result, of successful business strategies, millennials are more likely to run promotional ads, especially on social media platforms.

The technology involves research and development, robotics, automation, and any other type of technological advancement. New technologies are referred to as “technological disruption.” It has the ability to change the cast of leading competitors dramatically.

For example, the popularity of Facebook was a technological challenge for Myspace. It was once the most popular social media network in the early 2000s.

Environmental

Climate change, weather, air quality, and natural disasters are examples of environmental factors. Changes in the environment threaten some industries more than others.

Farmers, for example, could watch the Weather Channel or read the Farmer’s Almanac. Because pesticide treatment, irrigation schedule, planting dates, and fungicide application are all affected by the weather.

Legal factors involve employment, health, and safety policies. Customer safety and discrimination laws can also have an impact on a company’s capacity to operate.

Congress, for example, passed the Dodd-Frank Act in 2009. Following the Great Recession, banks were subjected to strict requirements to protect customers.

A corporation can use environmental analysis techniques in a variety of ways. But some are more frequent. The PESTLE study is the most widely used tool for conducting a complete business or industry environment analysis.

PESTLE Analysis

This is essentially a bird’s eye view of corporate behavior. Because we take a broad look at some macro issues that significantly impact the health of a particular business or industry, this study is used by managers and strategists to determine where their market is right now. It also assists in evaluating the company’s future position.

The PESTLE study considers several factors that have an impact on the business environment. It is a macroeconomic instrument that is used to understand the external environment through more extensive environmental analysis. 

Each letter in the acronym represents a different component. These factors can directly or indirectly impact any sector or organization.

SWOT Analysis

SWOT stands for strengths, opportunities, weaknesses, and threats, in case you didn’t know. These four factors are utilized to determine where a company stands regarding strategy.

These four elements are divided into two groups. We must talk about them a bit to see how they can assist us in conducting an environmental study.

• Internal Factors

Internal factors in this type of analysis are strengths and weaknesses. Because they can be affected and even controlled by the organization, they are referred to as internal analysis if a corporation has a firm brand name.

This is a strength because it was made possible by the organization’s efficient use of resources. As a result, this is an internally generated element that highlights one of the causes of the company’s success.

• External Factors

External considerations in this type of environmental assessment include threats and opportunities. Unlike the elements listed above, the company cannot control them in any way. In fact, these circumstances frequently occur on their own.

Competition is a concern to all businesses since it is impossible to eliminate it. As a result, external factors function in this manner.

Now that you know how to do a SWOT analysis , you can include your findings in your environmental study. Strengths may be enhanced, weaknesses can be eliminated by taking advantage of opportunities when they arise, and threats can be minimized by remaining vigilant.

Environmental evaluations help organizations in detecting potential effects. That could pose a hazard or an opportunity. This assists them in anticipating changes in their environment.

The internal insights from the environmental analysis are used to evaluate things like how well employees are doing their jobs, how happy customers are, how much maintenance costs, etc., so that corrective action can be taken where needed.

Also, the external metrics help the organization positively respond to its environment and ensure its strategies align with its goals.

This helps to find threats early on, which helps the organization come up with plans for how to stay alive. On top of that, it looks for opportunities, like potential customers, new products, segments, and technologies, so that it can take up the most market share possible compared to its competitors.

Using environmental factors analysis has several advantages, including the following

• Predicting the future
• Recognizing threats and allowing them to develop a response strategy
• Assisting in the achievement of business goals
• Increasing organizational effectiveness

The analysis examines revenue, profitability, and company success in depth analysis . An environmental analysis can help you make the best decisions for your company. The nature of your business determines the type of environmental analysis you should perform.

It helps companies uncover opportunities, minimize risks, and create successful strategies that meet their goals. 

SWOT, PESTEL, and Porter’s Five Forces analyses are used to evaluate an organization’s performance and strategy.

Environmental analysis helps organizations anticipate change, make informed decisions, and stay competitive in today’s fast-changing business environment. Environmental scanning has several benefits and is vital for today’s businesses.

QuestionPro can help with environmental analysis by giving you tools for gathering, analyzing, and displaying data. It can also help you target specific audiences and work together as a team.

QuestionPro makes it easier for businesses to learn about environmental factors that affect their business and make decisions based on that information.

FREE TRIAL         LEARN MORE

MORE LIKE THIS

What Are My Employees Really Thinking? The Power of Open-ended Survey Analysis

May 24, 2024

I Am Disconnected – Tuesday CX Thoughts

May 21, 2024

20 Best Customer Success Tools of 2024

May 20, 2024

AI-Based Services Buying Guide for Market Research (based on ESOMAR’s 20 Questions) 

Other categories.

• Academic Research
• Artificial Intelligence
• Assessments
• Brand Awareness
• Case Studies
• Communities
• Consumer Insights
• Customer effort score
• Customer Engagement
• Customer Experience
• Customer Loyalty
• Customer Research
• Customer Satisfaction
• Employee Benefits
• Employee Engagement
• Employee Retention
• Friday Five
• General Data Protection Regulation
• Insights Hub
• Life@QuestionPro
• Market Research
• Mobile diaries
• Mobile Surveys
• New Features
• Online Communities
• Question Types
• Questionnaire
• QuestionPro Products
• Release Notes
• Research Tools and Apps
• Revenue at Risk
• Survey Templates
• Training Tips
• Uncategorized
• Video Learning Series
• What’s Coming Up
• Workforce Intelligence

Environment Go!

The Environment | Nature | Humans

Environmental Analysis, Types, Techniques, Importance, and Examples

Organizations can find internal and external factors that could have a positive or negative impact on their business by conducting an environmental study.

Through the examination of variables like technology and economics, firms can predict future opportunities as well as risks but developing your environmental analysis skills will enable you to create a corporate marketing plan that works.

This page defines an environmental analysis, explains its use, and walks readers through the environmental analysis procedure.

Table of Contents

What is Environmental Analysis?

A strategic tool for identifying and evaluating the internal and external components of a corporate environment is an environmental analysis, sometimes known as an environmental scan.

It looks at aspects of the industry and organizations that can have a good or bad impact on the company and its success. Anticipating both immediate and long-term effects allows the organization to be ready to react quickly when problems arise.

Organizations can identify elements that may have an impact on their business operations with the use of an environment study. They can predict the future course of their firm under the current conditions by evaluating these factors. They can create a plan that minimizes risks and seizes chances thanks to this method.

Strategic planning sessions benefit from the inclusion of an environmental study, which gives organizations a methodical approach to decision-making. In this manner, businesses can accomplish their objectives and raise the bar on their performance.

The two main parts of an environmental analysis are external variables and internal factors. They will be covered in detail in this section.

1. Internal Factors

These elements require organizations to examine themselves. Based on the organization’s goal and vision, they assess its strong and weak elements. These elements also enable companies to evaluate their goals and course of action after a predetermined amount of time, such as five or 10 years.

2. External Factors

Conversely, external variables are high-level influences that are not part of the organization. Businesses need to assess the potential and risks associated with the following areas, according to SHRM:

• Market and industry developments
• The advantages and disadvantages of the competition
• Clientele—both your clientele and your customer support
• Economic factors that can affect an organization
• Labor supply, labor markets in the regions of operation;
• Technology, technological breakthroughs that help expedite operations;
• Politics, and legal situations

Types of Environmental Analysis

PESTLE and SWOT analyses are the two most used forms of environmental analysis techniques. These methods assist companies in evaluating their strategic positioning in light of several internal and external variables. Continue reading to discover these techniques.

PESTLE Analysis

The PESTLE study, also known as the PEST analysis in short, looks at the external factors that can have a bigger impact on a firm. Based on broad trends in the market, consumers, technology, and other areas, it gives businesses insights into the state of the industry.

Six essential components make up the PESTLE approach, which provides a thorough understanding of the macro environment of the business:

• Technological
• Environmental

1. Political

Political factors examine the country’s current political situation. This frequently entails assessing whether the government is stable or likely to change shortly. Political elements to consider are as follows:

• Government policies
• Trade restrictions

2. Economical

Businesses frequently include economic issues, or the state of the economy at the time, when doing an environmental analysis. This enables them to formulate strategies according to the apparent trajectory of the economy.

For example, a business may believe the economy is doing well and contemplate building another branch if the unemployment rate is low. The following other economic elements should be considered in your review:

• Interest rate,
• Inflation rate,
• Foreign currency rate,
• Credit accessibility.

A nation’s social aspects are its attitudes, which can affect business. For example, people in some cultures follow a diet prescribed by their faith. The sales of particular foods in that area might be impacted by this. Among the social aspects are, for instance:

• Family structure
• Gender roles
• Distribution of wealth
• Education levels

4. Technological

Innovations and technological breakthroughs have the potential to alter how a firm operates. This could have a favorable effect on some businesses’ operations by using automation to expedite creation. But certain jobs may also be replaced by technology. The following technological aspects should be considered in your analysis:

• New product discoveries and launches;
• Rate of technological advancements;
• Consumer access to technology;
• Technology incentives.

Legislative changes that could affect a business’s environment are examined by legal aspects. An industry may be impacted when regulatory organizations impose new rules, as in the case of the healthcare sector. A few legal considerations are:

• Employment laws;
• Health and safety legislation;
• Patent infringements;
• Product restrictions;
• Employment Laws

6. Environmental

Environmental aspects consider the potential effects of a business’s location. A specific area’s conditions may affect trade. Things to take into account when reviewing the environment are:

• Weather conditions
• Waste disposal laws
• Energy consumption regulations
• Environmental policies

SWOT Analysis

The SWOT analysis evaluates an organization’s strategic position by taking into account both internal (strengths and weaknesses) and external (threats and opportunities) factors.

It reveals the benefits and drawbacks of a business based on its strong and weak characteristics. By doing this, businesses may create a plan that minimizes risks and optimizes opportunities.

The following components make up the 2×2 matrix used in the SWOT method:

• What advantages does your business provide?
• What special or affordable resources are available to you that are not available to others?
• In your market, what skills do clients think you possess?
• What qualities lead one to “win business”?
• What could you alter?
• What should you avoid doing?
• What shortcomings is your economy most likely to perceive in you?
• What factors are involved in the downturn of your business?

Opportunities

• What promising opportunities do you see?
• What intriguing patterns are you aware of?
• What difficulties do you face?
• What are your competitors doing?
• Is the rapid advancement of technology putting your employment at risk?
• Do you struggle with the financial flow or bad debt?

SWOT analysis can help a business challenge performance assumptions and reveal dangerous weaknesses. If a firm uses it carefully and cooperatively, it can offer new insights into where it is at and help it create the best plan of action for any situation.

Process of Environmental Analysis

While doing an environmental scan has no set guidelines, following these stages will help you get the most out of the process. An environmental analysis is a methodical approach to identifying the elements that impact your company and its operations.

• Identify the environmental factors
• Gather data regarding these variables
• Check the competitors
• Determine the impacts on the organization
• Create a tactical plan

1. Identify the environmental factors

A list of the variables to be assessed is the most important prerequisite for an environmental study. These variables will vary based on the industry and region of your company.

Micro- and macroenvironmental elements that affect their operations both temporarily and permanently should be on this list. A mining business, for instance, may describe the most recent developments in their sector and local environmental laws.

2. Gather data regarding these variables

The next stage is to collect data about the environmental factors that have been described. To ensure the material is current and relevant, you might consult a variety of sources.

You can look at your factors and conduct some studies here. Written and verbal information are the two primary categories of data that need to be gathered.

People read newspapers or magazines to receive written information, while they listen to radio broadcasts or other spoken forms of communication such as radio broadcasts.

Using the aforementioned example, this would entail looking up any updates to health and safety laws online and in medical periodicals to determine whether they would affect your medical facility.

3. Check the competitors

When doing an environmental scan, you look beyond the financial standing of your company. It’s also important to research the performance of your rivals. A competitor study can assist you in identifying potential risks to your company as well as chances to differentiate yourself from the competition.

4. Determine the impacts on the organization

You can now use the environmental data you’ve gathered to forecast potential effects on your business. By taking this step, you set your expectations and may be ready for whatever may happen should these variables materialize. When evaluating risks and their effects, it’s critical to consider the following:

• What effects does this factor have on your company?
• How much time will this last?
• Will this have a positive, negative, or no effect on the business?
• How significant is this component to the general operations of the business?

5. Create a tactical plan

You can come up with ideas and create strategies for potential changes resulting from these elements in the last phase. It entails evaluating the strategic plans you now have and making necessary adjustments in light of the knowledge you have gained about your company’s surroundings. In addition, you can list actions to reduce risks and increase possibilities.

Example of Environmental Analysis

Think of Mr. X as an analyst for the financial services company ABC Pvt. Ltd. Mr. X decided to perform an environmental analysis in response to the latest happenings in the financial business. Given that technology advancements drive the finance industry, Mr. X decided to conduct a PESTLE analysis.

Mr. X takes into account the political, economic, social, legal, and environmental elements in this analysis. He does, however, pay more attention to the technical details. He makes comparisons between the technological developments occurring in other businesses within the same industry.

The findings demonstrate the new developments in sound technological services. It reveals how reliable chatbots in the financial services industry boost company profitability. Mr. X decided to construct a strong chatbot because ABC Pvt. Ltd. does not currently have one.

According to the analysis’s answer, they must improve their after-sales services by advancing technology. After that is finished, the company’s revenue and profitability increase by 15%. The analysis is therefore considered successful.

Importance of Environmental Analysis

The following are some benefits of conducting environmental analyses for organizations:

• Identify opportunities: Organisations can identify emerging trends and opportunities to enter new markets or develop new goods or services by observing the outside world.
• Identify threats: It assists companies in identifying risks to their operations, such as emerging rivals, altered laws, or a faltering economy.
• Develop strategies that work: When organizations know how the external environment impacts their operations, they can develop strategies that work and align with their aims and objectives.
• Prepare for change: Environmental scanning assists companies in anticipating external changes and developing contingency plans for them.
• Make smarter decisions: By learning more about the external issues affecting their business, organizations can make more informed decisions.

An organization must do an environmental analysis if it hopes to succeed and remain competitive in the ever-evolving commercial world. It assists them in seizing opportunities, reducing risks, and formulating sound plans that result in expansion and prosperity.

Environmental Analysis in Marketing

Business developers and marketers utilize environmental analysis as a strategic tool to pinpoint the internal and external, controllable and uncontrolled aspects that affect an organization’s performance.

The term “marketing environmental analysis” refers to all non-marketing variables that have an impact on a company’s capacity to establish and preserve fruitful customer connections. A company can find opportunities and strengths and lessen threats and weaknesses by performing a marketing environment analysis.

In marketing, environmental study typically comes before any marketing strategy. The results of the marketing environmental study will be taken into account and used as a guide to help develop and improve the optimal business plan.

Through the continuous observation of the variables influencing the marketing landscape, marketers can anticipate shifts, seize opportunities, and fine-tune their business plans to achieve superior outcomes.

Analysis of the marketing environment is essential to a company’s success. This aids in recognizing every component linked to the enterprise and the functions that each of these components fulfills in the enterprise’s triumph.

For every business to succeed in the long run, environmental analysis in marketing is therefore not just necessary but also required.

Business Environmental Analysis

Analysis of a business’s external environment is the study of those external influences. This covers a variety of topics, such as the state of politics, the economy, the technology sector, and more. A business can create strategies to maximize its success in this environment by knowing these aspects.

The organizational and industrial elements that have a positive or negative impact on the firm are examined in this environmental analysis. Organizations can quickly address them when they arise by assessing the short- and long-term effects.

Understanding environmental analysis is a crucial skill for organizations. Businesses can make educated decisions and maintain their competitiveness by assessing external influences and recognizing opportunities and challenges.

Even if it’s not infallible, environmental analysis is nonetheless valuable for keeping up with trends and safeguarding companies against unanticipated disasters.

Recommendations

• Hydroponic Farming – Advantages, Disadvantages & Environmental Impact .
• 10 Leading Environmental Impacts of Vegetarianism .
• 12 Worst Environmental Impacts of Solid Waste .
•  7 Deadly Environmental Impacts of Soil Erosion .
• 8 Environmental Ethics Issues and Possible Solutions .
• 14 Intelligent Ways to Raise Awareness about Environmental Issues

Providence Amaechi

A passion-driven environmentalist by heart. Lead content writer at EnvironmentGo. I strive to educate the public about the environment and its problems. It has always been about nature, we ought to protect not destroy.

• Providence Amaechi https://environmentgo.com/author/amaechi-providence/ Overpopulation in Lagos State: Impacts and Possible Remedies
• Providence Amaechi https://environmentgo.com/author/amaechi-providence/ 3 Environmental Services in a Hospital
• Providence Amaechi https://environmentgo.com/author/amaechi-providence/ 19 Environmental Startups in Boston
• Providence Amaechi https://environmentgo.com/author/amaechi-providence/ Environmental Accounting, Types, Objectives, Examples
• Environment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

Notify me of follow-up comments by email.

Notify me of new posts by email.

Recent Posts

• How Arborists Limit Their Environmental Impact
• The EV Market’s Future in Australia
• Financing Options for Solar Energy Projects
• Overpopulation in Lagos State: Impacts and Possible Remedies
• 10 Best Practices for an Eco-Friendly Building Foundation

• Skip to content.
• Jump to Page Footer.

Strategic expansion: Canadian companies' roadmap to US capital success

Our latest guide will give you direct-application tools to help tap into the US funding market.

Environmental analysis (or PEST)—an element of your startup’s strategic plan

Researching a market? Our free online course Introduction to Market Sizing offers a practical 30-minute primer on market research and calculating market size.

An  environmental analysis , or PEST analysis, categorizes the changes and forces that affect your startup either directly or indirectly through your customers, suppliers and competitors. PEST is an acronym that stands for the Political, Economic, Social and Technological market forces. This type of analysis is usually conducted in the process of preparing a strategic plan, with the goal being to identify  threats and opportunities  for your business.

PEST is a common framework for conducting this macro-environmental scan that summarizes high-level trends as they relate to your  target customers ,  markets and technology. To perform an environmental, or PEST, analysis, answer the following questions:

1. What key political and regulatory developments are taking place now? How do these changes affect your market and customers? How do these trends affect your industry, suppliers,  partners  and customers? Focus your analysis on:

• tax regulations
• trade rules
• environmental legislation

2. Are economic changes affecting your company, your customers or your suppliers? Does this create opportunities, or does it threaten your market potential or your customers’ economy? Focus your analysis on:

• economic growth rate
• interest rates
• currency changes

3. What social and cultural changes are occurring? Focus on shifts in the demographic profile, any broad attitudinal changes, and any cultural trends that may impact the potential of your startup in the short and long term. Look for movement in:

• demographic trends such as birth rates, aging, and migration patterns
• attitudes towards healthy lifestyles, organic foods, the environment, and so forth
• attitudes on issues such as security, executive compensation, and anti-terrorism

4. What key technological trends impact your business? Consider also technology advances that affect your customers and suppliers. Do any of these changes create opportunities or threaten your potential? Focus your analysis on:

• specific technological breakthroughs
• the launch of innovative new products
• areas that undergo much research and development
• patents  that receive publicity

Schewe, C.D. & Hiam, A. (1998).  The Portable MBA in Marketing.  New York: Wiley.

Sign up for our monthly Startup Resources newsletter about building high-growth companies.

• Enter your email *

You may unsubscribe at any time. To find out more, please visit our Privacy Policy .

• Business Intelligence Reporting
• Data Driven
• Data Analysis Method
• Business Model
• Business Analysis
• Quantitative Research
• Business Analytics
• Marketing Analytics
• Data Integration
• Digital Transformation Strategy
• Online Training
• Local Training Events

What is an Environmental Analysis? All Your Questions Answered

Lauren Christiansen

Because market research is based on ever-changing variables, businesses must always consider varying factors and the changing environment in their data analysis. Part of the challenge in adapting to changing variables is knowing how to adequately prepare for it and identify them. Mapping out a response to each potential external and internal environmental disuption by writing an optimized environmental analysis is an effective way to adapt to change. Here's what to know about the external environmental conditions businesses face and how they can cope by utilizing an e nvironmental assessment.

What is an External Business Environment?

An external environment is composed of all of the external factors that affect the operation of a business. Two aspects of an external environment are- The Operating Environment This refers to the company's suppliers and customers, as well as the marketers who promote or sell a company's products and services to customers and the public. The General Environment This includes an array of external influences that affect a company, such as technology, economic conditions, international trade agreements, demographics, politics, and the legal environment. The operating and general environment can either provide opportunities for increased growth and revenue, or they can generate uncertainties and risks that companies have to adapt to. Provided are some examples of how operating and general environmental factors can impact a business.

The Operating Environment

Positive - A retailer's marketing department ran a successful online advertising campaign for 6 months. The campaign targeted prospective and current customers, leading to an increased amount of online purchases, many from new users. Negative - A restaurant's change in management has lowered the quality of customer service, leading to a decreased level of customer satisfaction. Customers have made several complaints, and there have been fewer patrons frequenting the restaurant.

The General Environment

Positive - Strong economic conditions and lower property taxes have allowed an auto shop to open up an additional location. Negative- The FDA has issued a warning that a supplement is unsafe. Several states have banned the sale of that particular supplement. A vitamin shop that continues to sell it has lost many of its customers due to the FDA warning.

What is the Purpose of an Environmental Analysis?

An environmental analysis is a strategic analysis tool to identify all of the external and internal factors that can affect a company's performance. The purpose is to assess the level of risk various environmental factors pose as well as the business opportunities they present. The analysis considers the company's strengths and weaknesses and how they affect the ability to handle external threats/opportunities. Successful businesses can usually modify their internal business strategy and operating procedures to adapt to external circumstances. For example, Google is working with China on building a censored search app that could serve over 99% of queries. This move has been criticized by many who believe that it conflicts with Google's mission to organize the world's information and make it universally accessible and useful. However, it demonstrates that companies can find a way to expand even when confronted by political or legal challenges.

Environmental Analysis Process

Creating a strategic analysis is a 3-step planning process- 1. Identify Factors The company must first determine which internal and external factors may affect a business. More often than not, there is a combination of different elements at stake. For example, Toys R Us went out of business due to increasing competition from discount stores such as Target and Amazon. They were also saddled with debt from a buy out in 2005. The two environmental factors that affected Toys R Us were internal financial problems and external competing markets. 2. Gather Information The company then gathers information about the identified internal and external conditions that impact business operations. For example, some localities regulate or prohibit the usage of digital billboards due to environmental concerns. A company that utilizes digital billboards to run advertisements across many locations has heard that new regulations may affect their ability to run ads during certain hours. The company would then review the local ordinances and regulations to see if they can continue running their campaigns in each of their locations, or if they need to change their advertising strategy. 3. Determine Impact The gathered information predicts how environmental factors will affect the business. Internal operational and financial processes need to be reviewed to determine how the company will be able to respond to each risk. For instance, a company has an opportunity to sell their products in another country. However, that country is currently experiencing poor economic conditions which might affect sales. The company can then determine whether the number of sales would exceed the cost of expanding its market to another company and whether they could take the financial hit if the endeavor failed.

Common Framework for Measuring Environmental Risk

Environmental scanning is frequently utilized to help organizations scan the landscape of competitors, customers, economic conditions, market conditions, etc. before implementing a new product/service. A commonly utilized project management tool to perform environmental scanning is PESTEL, which refers to the political, economic, social, and technological factors affecting a company. Here are the different components of a PESTEL analysis, by letter. Political Political issues refer to the government's level of intrusion in an organization's operations. Particular issues of concern are taxation, tariffs, regulations, elections, and political stability. For example, different political parties have different stances on increasing the minimum wage. Small businesses may pay attention to an election where one candidate proposes an increase in the minimum wage because it can affect their product/service prices and ability to maintain current employees. Economic Businesses who operate within the United States first focus on the health of the American economy as a whole, including growth, employment, inflation, and interest rates. Organizations that operate outside of the U.S. will focus on exchange rates. For example, a startup may evaluate the current health of the economy to determine whether or not they will be able to sustain themselves, as economic conditions affect a company's long-range revenue and expenses. Social Social issues involve shifts in age, demographical changes, changing attitudes towards safety and health, consumer preferences and technological advancements, or population growth. For example, 86% of millennials utilize social media. As a result, companies who see millennials as their target audience are more likely to run promotional advertisements on social media platforms. Technology Technology includes research and development, robotics, automation, or any type of technological change. Technological disruption refers to innovations that completely change the cast of leading competitors. For example, Facebook's popularity was a technological disruption for Myspace, who was considered a dominating social media platform back in the early 2000s. Environmental Climate change, weather, air quality, and natural disasters are all environmental factors. Some industries are especially at risk from changes in the environment, including agriculture or tourism. To illustrate, farmers may watch the Weather channel or read the Farmer's Almanac because the weather can affect pesticide application, irrigation scheduling, planting dates, or fungicide application. Legal Legal factors include employment, health, and safety policies. Discrimination and consumer protection laws can also affect a company's ability to operate. For example, the 2009 Dodd-Frank Act was passed by Congress after the Great Recession to place strict regulations on banks to protect consumers. Many larger banks were able to cope with the regulations imposed on them, but 90% of small banks claimed that compliance costs increased too dramatically and 81% said Dodd-Frank was too financially burdensome.

Must-Read Content

How to Conduct a Business Risk Analysis

What is a Business Analysis and Why is it Important in Today's Market?

Steps for Identifying Business Needs & Addressing Them

Business Impact Analysis- The Complete Guide

Guide to Key Performance Indicators

Top 10 Business Analysis Tools

What is a Business Analysis?

The Most Effective Business Analysis Techniques

Business Process Analysis- The Complete Guide

• Skip to primary navigation
• Skip to main content
• Skip to primary sidebar

PESTLE Analysis

Insights and resources on business analysis tools

PESTLE Analysis: Business Environmental Analysis

Last Updated: Aug 22, 2021 by PESTLEanalysis Contributor Filed Under: PEST Analysis , PEST Examples

Everyday our market is changing the way it is. Many new things are developed and in a matter of about some seconds, the whole scenario stands different in front of us. Among them, there are many things that we can control and then there are other things that fall beyond our control and those are called systematic factors. Systematic things happen in the environment we live in, the environment that surrounds us and many times they greatly influence us.

Businesses are also influenced by the environment that they’re in and all the situational factors that determine circumstances from day to day. It is because of this, that businesses need to keep a check and constantly analyze the environment within which they run their trade and within which the market lays.

A detailed analysis of the macro-environment or the environment as a whole is called PESTLE analysis , which precisely means a bird’s eye view of the PESTLE analysis business conduct. The PESTLE analysis ascertains for the managers and the strategy builders as to where their market currently stands and where it will head off in the future.

PESTLE analysis consists of components that influence the business environment and each letter in the acronym denotes a set of factors that directly or indirectly affect every industry. The letters denote the following things:

P for Political factors: These factors take into account the political situation of a country and the world in relation to the country. For example, what sort of government leadership is affecting what decisions of a country? All the policies, all the taxes laws and every tariff that a government levies over a trade falls under this category of factors.

E for Economic factors: Economic factors include all the determinants of an economy and its condition. The inflation rate, the interest rates, the monetary or fiscal policies, the foreign exchange rates that affect imports and exports, all these determine the direction in which an economy might move, therefore businesses analyze this factor based on their environment so as to build strategies that fall in line with all the changes that are about to occur.

S for Social factors: Every country is different and every country has a unique mindset. These mindsets cast an impact on the businesses and the sales of their products and services; therefore PESTLE analysis includes these factors as well. The cultural implications, the gender and connected demographics, the social lifestyles, the domestic structures; all of these are studied by companies to understand the market and the consumer better.

T for Technological factors : Technology greatly influence a business , therefore PESTLE analysis is conducted upon these factors too. Technology changes every minute and therefore companies need to stay connected along the way and integrate as and when needed. Also, these factors are analyzed to understand how the consumers react to technological trends and how they utilize them for their benefit.

L for Legal factors: Legislative changes occur from time to time and many of them affect the business environment. For example, if a regulatory body would set up a regulation for the industries, then that law would impact all the industries and business that strife in that economy, therefore businesses also analyze the legal developments happening in their environment.

E for Environmental factors: The location of countries influence on the trades that businesses do. Adding to that, many climatic changes alter the trade of industries and the way consumers react towards a certain offering that is launched in the market. The environmental factors include geographical location, the climate, weather and other such factors that are not just limited to climatic conditions. These in particular affect the agri-businesses, farming sectors etc.

Image: Tashatuvango/ Shutterstock.com

• Español - México

A set of horizontal solutions that cut across any industry vertical. This is how we shape business together.

Expertise in efficiency optimization applied to major industries. See where we work.

• Agriculture
• Construction and Real Estate
• Financial Services
• Manufacturers
• Media and Entertainment
• Metals and Mining
• Oil and Gas
• Other services
• Telecommunications
• Transportation, Travel and Tourism

Environmental analysis: How to identify opportunities and threats in strategic planning

It is increasingly important to stay one step ahead to ensure the survival and prosperity of an organization. In this scenario, the ability to adapt and evolve plays a crucial role, and this derives mainly from sound strategic planning, where environmental analysis is an integral part.

Companies can carry out this process to detect internal and external factors and thus identify opportunities and challenges, taking into account elements such as economics and technology.

In this article, we will see what environmental analysis is, what it is for and how you can identify opportunities and threats within strategic planning based on it.

What is an environmental analysis in a company?

Environmental analysis, also known as PESTEL (Political, Economic, Social, Technological, Environmental and Legal) analysis, is a tool that allows organizations to scan and monitor the external environment in which they operate. 

It is not just a data collection process, but an in-depth and comprehensive study that seeks to identify the various external factors and trends that could significantly impact the company's business and performance. 

These elements can include everything from the economic climate and market trends to technological changes and legal regulations that could affect the way a business conducts its activities.

The role of environmental analysis in strategic planning

Environmental analysis plays an essential role in a company's strategic planning by providing a clear and thorough understanding of external business factors and how they may affect the organization in the future. 

There are many ways in which analysis aids strategic planning:

1. Identification of opportunities and threats

Analyzing the environment allows companies to more easily detect the risks and opportunities present.

This is key because the market changes rapidly and abruptly and organizations must be able to adapt to it. 

The process of defining a strategic plan makes it possible to know the current and desired positioning in a specific time frame. From this, leadership, commitment and collaboration are required throughout this process in order to achieve good results. 

2. Strategy development

Once the opportunities and threats have been identified, this information can be used to formulate strategies that exploit the positive areas and mitigate the negative ones. 

For example, if a company identifies a new emerging technology as an opportunity, it can formulate a strategy to adopt and take advantage of it before its competitors.

3. Informed decision-making

Environmental scanning provides companies with the information they need to make informed decisions. 

If the environmental scan reveals that the economy is in recession, a decision can be made to delay expansion until there is a recovery. 

4. Preparing for the future

It also helps organizations prepare for the future. By constantly monitoring the business environment and being aware of emerging trends and changes, businesses can prepare for and adapt to these changes, rather than being blindsided by them.

5. Competitiveness 

Finally, it can help businesses stay competitive in the marketplace. By understanding the environment and adjusting their strategies accordingly, businesses can stay one step ahead of their competitors.

How to identify opportunities and threats in strategic planning?

Identifying opportunities and threats is a fundamental component of strategic planning, which is carried out by taking into account some steps that we at London Consulting Group consider indispensable:

1. Pre-assessment

The current situation of the company must be known; for this purpose, it is important to hold interviews with the company's top management and go deeper into how they are managing the company, in order to know what should change and why, according to their objectives.

Once this is done, it is possible to move on to the next element.

2. Strategic Planning

Strategic planning is not a static process, but a dynamic route that takes the organization from its current situation to its desired future vision. 

Therefore, the strategic roadmap is divided into critical stages that ensure a smooth and effective transition:

This is the starting point and consists of:

First, conduct an environmental analysis (research and analyze market conditions, competition, trends and other external factors that could influence the strategy).

Then, understand the expectations of stakeholders, i.e. all the people involved in a company, and how they relate to the company's objectives.

Finally, the vision and mission must be defined in order to know where the company wants to go and what it wants to achieve.

It is important to know what the weak and strong points of each team or member are in order to strengthen it and get results.

Work sessions should be held to discuss, question and define the key elements of the strategy.

With this, it will be easier to determine the main findings and decide the next steps in the strategy based on what is being achieved or desired.

The final phase is critical to bringing the strategy to life. A follow-up model must be established to monitor and control the implementation of the strategy with any adjustments or decisions made.

The strategy must also be implemented, using available resources and ensuring that the objectives are achieved as planned.

3. Landing model and follow-up

At this point, once the current situation and what should be considered in the strategy have been understood, the action and operation plans must be created and developed, connecting the strategy, in order to follow up the process.

To achieve this, some essential points must be considered, such as:

• Review the strategy
• To thoroughly understand the elements that make up the strategy
• Define the strategic plan
• Seamlessly connect the strategy with the operational
• Define the operational plan
• Monitor and adjust

Environmental analysis, key to business growth

Conducting an analysis of the environment is very important for businesses; otherwise, they will most likely fall behind and will not be able to prosper or achieve ambitious long-term goals.

If you want the benefits of this process, but have doubts, at London Consulting Group (LCG) we have a solid and proven methodology to help you with strategic planning and environmental analysis. 

Our approach is based on a deep understanding of your business, your goals and your mode of operation with all the factors (internal and external).

We offer a pre-diagnosis, where we assess the current state of your business strategic plan through initial interviews with senior management. From this, we develop a Strategic Planning Roadmap, detailing the key stages where we can add value, from exploration to implementation.

Throughout this process, we organize Collaborative Workshops, which are working sessions in which all participants can actively contribute. This not only helps to identify opportunities and threats but also fosters collaboration and shared decision-making.

At London Consulting Group, we not only help you understand your environment and formulate an effective strategy, but we also provide you with the tools and support you need to implement that strategy and achieve your business objectives. Contact us !

Related Posts

Economies of scale: benefits and how to apply it in your company.

In today's dynamic business landscape, where innovation and efficiency are key to success, economies of scale emerge as a strategic objective for...

Organizational development: transforming corporate cultures

One of the main pillars of a company's culture is organizational development , which combines various strategies and tactics to promote the efficient...

Business intelligence: the road to successful and strategic sales

Companies are constantly on the lookout for potential customers, and a poor strategy can result in missing valuable sales opportunities, which is why...

More Like this

PESTLE Analysis Examples

Before We See PESTLE Analysis Examples, Let’s Recap on the Basics.

A PESTLE analysis looks at the macro trends in the surrounding environment of a certain business or organization. It examines the political, economic, social, technological, legal, and environmental elements of the operating market that may have either positive or negative effects on your company or organization.

DOWNLOAD THE FREE GUIDE

A PESTLE analysis is often used as an extension of a SWOT analysis . Remember that the external matrix of the SWOT evaluates and creates awareness about the opportunities an organization should take advantage of, as well as the threats it should avoid. This external analysis is part of evaluating your organization’s strategic position within its market, industry, and larger operating environment.

Here, we will take a deep dive to examine what you should feature in your own PESTLE analysis. We’ll examine some PESTLE analysis examples from some of the most successful companies of our time.

Definitions and General PESTLE Analysis Examples:

A PESTLE analysis will look different for each industry, and it must be approached differently as well. Consider your organization’s unique position, market, and needs when conducting a PESTLE analysis.

It is easiest to begin with a SWOT analysis and then use your PESTLE as a companion piece to dig deeper into the external megatrends—both threats and opportunities—that the market and operating environment will present to your organization.

From our PESTLE analysis examples, here are some factors you may consider using:

Examples of Political Forces

These are the external forces affecting your organization that are brought on by government. They may include laws, policies, regulation or de-regulation trends, governing bodies and leadership, foreign trade and foreign relations, political issues and trends, tax policy—any political factors that could influence your organization’s opportunities or threats.

Examples of political forces include:

• Changes in government/election cycles: Will the possibility of shifting party majorities in upcoming or recent elections affect regulation or de-regulation in your industry or a related industry? Does this create a threat or an opportunity?
• Fiscal policies: How might changes in tax codes affect your budget and profits? How can you prepare for this?
• Wars and conflicts: What recent or current conflicts might affect foreign relations and/or trade in your industry? What can you do to create stability?
• Legislation changes: Is there legislation (proposed or passed) that would substantially affect your operations or your customers?
• Trade agreements: Do you see any upcoming opportunities in the form of new foreign markets? Or conversely, do you see any threats to your foreign markets?
• Political movements: What issues are becoming increasingly important to the people in your target audience? How does this affect their relationship with your brand?

Examples of Economic Forces

The economic environment you operate in includes several factors to consider, such as general economic climate, taxation, and globalization. Inflation rates, shifts in consumer spending, supply chain issues, demand curves, and global economic health may all be a part of your economic analysis.

Examples of economic forces include:

• Employment rates and compensation: Do you have a ready labor market, or are good team members hard to come by? Which direction is the trend heading? What do you need to consider in terms of compensation to bring on and keep talent in your industry?
• Inflation: How is inflation affecting the price of your materials? How is it affecting your customers and their spending?
• Currency devaluations: How is your currency—and the currency of your customer base—performing? How might this affect your costs and revenue?
• Stock market and market values: What recent or predicted trends in the stock market do you see impacting your industry and your organization?

Examples of Social Forces

Social forces focus on the opinions and attitudes of consumers that relate to your product, as well as the changing population and demographics of your operating market. Your analysis might consider social justice movements and other trends, both in your immediate environment and in the broader environment your customers are coming from.

Examples of social forces include:

• Demographic changes: What are the ages, experiences and backgrounds, and racial and gender identities of your customer base? Have any of these shifted or are they projected to shift? If so, how and why? What do you need to do to accommodate customers coming in?
• Religious beliefs: Are there religious or spiritual beliefs that intersect with your organization or your product? How can you be sensitive to those?
• Consumer opinions: How do consumers feel about your product (or products like yours)? Are there positive or negative changes in this general sentiment?
• Purchasing patterns: Due to economic or other factors, are your customers spending less in your market? More?
• Popular media: What current events, celebrity opinions, or other media influences will your consumers be tuned into? Are there any that might affect thoughts, ideas, and feelings about your organization, product, or brand?

Examples of Technological Forces

This focus area considers how technological forces may be impacting your organization. Changes in technology can affect your positioning as an organization. Some recent examples are the rise of cryptocurrency, the emergence of work-from-home technology, AI developments, and even concerns over cyber security.

Examples of technological forces include:

• Increased emergence of AI: What capabilities do you see as opportunities for your organization?
• Energy usage: What new technologies would allow you to save on energy costs (both to your organization and to the environment)?
• Cloud software: What developments have been made to cloud storage to make it more effective, and are you taking advantage of those developments? Conversely, are there security threats to be aware of in this software for your organization’s data?
• Internet: What improvements are available to maximize speed and reliability for the online work of your team?
• Technology usage incentives: Are there incentives available to encourage certain technology use?
• New machinery or tech: Are there emerging industry-specific technologies or equipment that would improve the quality, cost, or efficiency of your organization’s work?

Examples of Legal Forces

While similar to the political aspects, the legal elements in your PESTLE analysis examine the practical application of those political factors into rules and regulations that impact your organization’s business or customers. Depending on your business, you may need to consider local and state laws as well as federal laws.

Examples of legal forces include:

• Patent and intellectual rights laws: How might developments or decisions in intellectual property law affect you and/or your competitors?
• Protection laws: Are there consumer protection laws that would affect the way you interact with and do business with your customers?
• Occupational safety laws: What occupational safety laws do you need to be aware of to conduct business in a way that protects both your employees and your organization?
• Import and export laws: What legal parameters are there for ordering goods from other countries, as well as for selling your product in other countries?
• Licenses: What licenses do you, your employees, and your organization need in order to fill the roles that are needed?

Examples of Environmental Forces

Environmental factors are affected by weather, geography, climate change, and health crises. In addition to the public health crisis caused by the pandemic, the world has also been impacted by wildfires and other natural disasters across the globe. As an organization, you ought to consider the short-term and long-term impacts of these accelerating changes.

Examples of environmental forces include:

• Climate change: How might short- and long-term effects of climate change, including rising sea levels and increasing frequency of extreme weather, impact your organization and customers?
• Consumption of non-renewable resources: What necessary resources could become limited or depleted in the future that would impair your business?
• Energy alternatives:
• Gas emissions: How does your organization contribute to, and how is it affected by, gas emissions? What steps could be taken to reduce emissions and to prepare against the effect of emissions?
• Natural disasters: What natural disasters pose a threat in your area, or in the areas where many of your customers are located? How can you be prepared for these threats?
• Environmental hazards: What other hazards in your environment could prove threatening to your organization?

*Bonus: Ethical Factors to Consider

Over the last few years, business and marketing strategy experts have added a third ‘E’ to the PESTLE analysis – the ethical factor . This can include things such as fair-trade practices, child labor issues, increasing demand for conscious business models, and corporate social responsibility. As these issues come to your attention, examine the megatrends and take the opportunity to evaluate them within your organization’s environment.

Examples of ethical forces include:

• Workers’ rights: What strides can your organization make (or what strides is your organization already making) to take care of those who work for you?
• Fair trade laws: Especially concerning overseas trade, what issues do you need to be aware of in order to promote ethical and responsible practices?
• Human rights issues: How far have you followed the organizations you partner with, contract with, buy supplies from, and do other business with? Are there any organizations whose relationships need to be reconsidered due to human rights violations?
• Corporate social responsibility:
• Diversity, equity, and inclusion: What practices and attitudes are being adopted successfully to promote diverse, equitable, and inclusive workplaces? Conversely, are there practices and attitudes that are backfiring? Which might you best adapt for your organization?

6 Real-World PESTLE Analysis Examples from 8 Successful Companies:

Food and beverage industry pestle analysis examples:, starbucks pestle analysis example.

For Starbucks, lowering costs and staying aware and sensitive to the issues that are important to its customer base are two courses of action that become clear after an environmental analysis.

• Sourcing raw materials and following fair trade practices , which has gained a lot of attention from politicians in the West.
• Keeping up with laws and regulations in other countries from which Starbucks buys its raw materials.
• Economic recession , which has led many customers to seek cheaper alternatives.
• Rising labor and operational costs due to inflation.
• Retiring of the Baby Boomer generation, along with changing family patterns and lowered birth rates leading to fewer spending customers.
• Changing workstyles and lifestyles, including increased remote work .
• Enabling mobile payments , which increases the potential customer base.
• Agricultural developments that might impact raw material production.
• Introduction of caffeine consumption-related policies by health organizations.
• Industry licensing regulations.

Environmental

• Natural disasters in countries that produce coffee beans .
• Environmental laws and regulations related to packaging and waste .

Beyond Meat PESTLE Analysis Example

A California-based producer of plant-based meat substitutes, Beyond Meat is poised to take advantage of many environmental trends that could provide an opportunity to expand.

• Animal farming is receiving political pressure to cut back on expansion.
• Laws and regulations about greenhouse gas emissions.
• Vegan meat is projected to grow from 1% to 10% of meat consumption by the end of the decade.
• Vegan meat has the potential to be cheaper than animal meat , but would need drastic changes to its efficiency to realize this.
• Rise of veganism in developed countries.
• Increasing awareness and vocality of environmentally conscious citizens.
• An extensive amount of technology in R&D for this industry.
• Social media and other technological platforms for advertising and brand-building .
• New food safety standards to classify plant-based meat products.
• Soy farming has raised some concerns about deforestation and soil degradation.
• Plant-based products shown to be much more environmentally friendly than animal meats.

Retail Industry PESTLE Analysis Examples:

Walmart pestle analysis example.

Due to its size and profitability, Walmart has a uniquely competitive edge , yet its growth and continued profitability are sensitive to several external factors .

• Global differences in government regulations , such as banned products in some countries.
• Emergency curfews closing stores early.
• Inflation raising costs; brand appeal is based on low prices.
• Supply chain issues. Continued pressure on the supply chain and inflation is causing increased overhead costs.
• Business model rejected in some places, such as Germany.
• Increased trend toward online shopping , especially post-pandemic.
• Consumer push for same-day delivery of products.
• Adoption of automation for basic tasks.
• Expansion of mobile app and online services.
• Expansion of available technology in distribution and warehouse centers.
• Proposed legislation to raise minimum wage .
• Recent labor lawsuits open doors for further litigation.
• Call to reduce waste and use of nonrenewable energy.
• Weather and climate considerations in a wide number of locations.

Amazon PESTLE Analysis Example

The technology and online retail giant has many opportunities to capitalize on , with a few threats to monitor .

• Government pressure on anti-trust and monopolies for major corporations.
• Pressure from the federal government and local government about employment practices .
• Governmental regulations on cybersecurity and privacy protection.
• Increasing disposable incomes in developed countries.
• Inflation and supply chain issues impacting online stock.
• Macro-trend for organizations to seek and purchase cloud computing products and solutions.
• Increasing consumerism in developed economies and emerging economies.
• Increasing demand for same-day delivery of products to consumers.
• Increasing dependence on technology , cloud computing, and AI.
• Expansion of robotic automation for picking, packing, and delivery of the product.
• Expansion of AI to serve Amazon Web Services.
• Unionization and labor laws impact Amazon’s workforce.
• Changing import and export regulations .
• Import and export tax on goods sold.
• Increasing energy costs increase the cost of supply chain delivery.
• Environmental impact of plastic and plastic packaging .
• Carbon emissions and new fuel options as an organization.

Tech Industry PESTLE Examples:

Apple pestle analysis example.

Like other big tech companies, Apple stands to gain from growing reliance on digital technologies and movement toward energy efficiency—but so do its competitors .

• Trade disputes , especially between the U.S. and China.
• Pressure from federal regulators on antitrust .
• Increasing political pressure on consumer privacy protection and data.
• Changing economic tides and changing economic forecasts create uncertainty in the tech sector.
• Supply chain scarcity and resource constraints on product production.
• Stagnant changes to income of Apple’s buyer pool for luxury products.
• Rapid growth in emerging markets for entry-level products.
• Rising global use of mobile access across the globe.
• Increasing global dependence on digital ecosystems.
• Anti-Apple sentiment due to exclusivity and price.
• Growing technological and development capabilities of the competitive set .
• Pressure from cybercriminals threaten the data security of Apple products.
• Increasing privacy regulations and protections.
• Legal challenges to Apple’s policies and practices related to the app store .
• Ethically and efficiently recycling broken and unused electronic devices , especially those containing lithium batteries.
• Environmental impacts of manufacturing products in China.
• Climate change impacting shipping and supply chain routes .

Airbnb PESTLE Analysis Example

The unique matchup business model of Airbnb, as well as companies like Uber and Lyft, have taken the market by storm—but have also incurred significant legal battles .

• Housing laws and vacation rental bans in some markets conflict with business model.
• Varying tax rates from counties and countries.
• The housing crisis and crunch in the housing market.
• Varying prices and availability of hotels as a primary competitor.
• Increase access and desirability of travel .
• Resistance from locals about the impact of vacation rentals in residential areas .
• Social acceptance of ridesharing and travel sharing business model.
• Increased reliance on mobile apps and other digital solutions .
• Increasing security of online payment systems.
• Legal challenges in some states and countries.
• Environmental impact of single-use products for hospitality .

What is the purpose of conducting a PESTLE analysis? 

A PESTLE analysis can help you understand where your organization stands in the external market and assess the macro-trends that could potentially affect your business/product.

What are all the components of a PESTLE analysis?

A PESTLE analysis looks at six aspects of the environment that could impact your organization: Political, Economic, Sociological, Technological, and the two newly added — Legal and Environmental. Some PESTLE analyses even incorporate ‘ethics.’

What does PESTLE stand for?

Two things you should always consider as you’re going through each aspect of the PESTLE analysis are: where am I now, and where do I want to go? These two questions will guide you in figuring out your current state in the macro environment and your ideal state. Next, it’s important that with each factor or event you outline in your PESTLE, you also consider whether they pose an opportunity or a threat.

Thanks for sharing….extremely useful

Thank you for sharing ..it has helped

Thanks very helpful for understanding the concept of PESTLE analysis.

Very insightful and pratical. Helpful indeed Thank you

Comments Cancel

Join 60,000 other leaders engaged in transforming their organizations., subscribe to get the latest agile strategy best practices, free guides, case studies, and videos in your inbox every week..

Leading strategy? Join our FREE community.

Become a member of the chief strategy officer collaborative..

Free monthly sessions and exclusive content.

Do you want to 2x your impact.

The Implications of Environmental Analysis on Strategic Plan

• Small Business
• Business Planning & Strategy
• Strategic Planning
• ')" data-event="social share" data-info="Pinterest" aria-label="Share on Pinterest">
• ')" data-event="social share" data-info="Reddit" aria-label="Share on Reddit">
• ')" data-event="social share" data-info="Flipboard" aria-label="Share on Flipboard">

The Effects of Macro and Microeconomics in Decision Making

Swot analysis techniques, reason to use swot & pestle analysis.

• Backyard Nursery Growers Business Basics
• How to Fill Out a SWOT

Accurate evaluation of environmental factors could be the difference between success or failure when starting a business. An effective environmental analysis can have a major impact on the strategic plan for a business. Once you identify threats and opportunities, it helps you focus your business efforts where they need to be focused.

Environmental Analysis

A business environmental analysis is a process in which you look at the outside factors that can have an impact on your business. Some of the items that could have an impact on your business are political, economic, social and technical. You examine each one of these components individually, and then see how it could affect the success of your business. For example, if the government has many restrictions in place, it could negatively impact your ability to do business.

Strategic Plan Impact

Creating a strategic plan helps guide your actions as a new business. When you create a strategic plan, you have a specific set of steps that you plan on taking in order to make your business successful. When developing a strategic plan, you have to look at the outside environmental factors that can have an impact on your business. For instance, if the economy is weak when you launch your business, you may need to spend more on advertising or offer more sales to get people in the door.

Focusing on Growth

When doing an environmental analysis as part of a strategic plan, you have to keep an eye out for growth opportunities. Even if the environmental factors look discouraging, you may be able to find opportunities to grow the business. For example, if technology outside your business is improving, you may be able to use these technological advances to improve your own business operations. Lowering your energy costs with improvements in these areas could allow you to focus more resources on the important areas of your business.

Considerations

After doing an environmental analysis for your business, you may have to make some tough decisions. If the environmental analysis is overwhelmingly negative, it may force you to scrap the idea of starting the business. If the environmental analysis has some positive factors, it could encourage you to pursue your business. In other situations, it may simply alter your original plan because of the factors that were discovered. Use this as one of several tools to evaluate your business concept overall.

• Aware: Marketing & Competitive Intelligence FAQ
• Tutor2U: Strategy -- PEST Analysis

Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.

Related Articles

How to write a strategic plan for an e-commerce business, seven external factors of business, swot analysis of an entrepreneur, how to do a swot analysis, how to evaluate strategic management, how do the functions of a swot analysis work together, what is donut marketing, what is a strength, weakness, opportunity and challenge analysis (swoc), relationships between pest and swot, most popular.

• 1 How to Write a Strategic Plan for an E-commerce Business
• 2 Seven External Factors of Business
• 3 SWOT Analysis of an Entrepreneur
• 4 How to Do a SWOT Analysis

Environmental Analysis: Meaning, Types, Importance and Limitations

Meaning of environmental analysis.

Environmental analysis refers to process of identifying and examining all potential environment variables that can either directly or indirectly affect the performance and profitability of business organization. It is also termed as environmental scanning that is a strategic tool to find out all internal and external elements having capability of influencing the efficient and effective functioning of organization. Internal elements comprise of strengths and weakness of business enterprise, whereas external element represent the opportunities and threats outside the organization. The environmental analysis takes into consideration the trends and high-level factors such as interest rates, economy and manner how these are going to change firm’s business. Under it, the firm pertaining data is collected and utilized by management in order to determine the best strategies for capitalizing opportunities and generate large returns. 

In today’s time, the business environment is quite dynamic that keeps on changing frequently with time. Therefore, it becomes crucial to analyse environment for identifying each and every factor of business environment that can affect its operations. Once these factors got identified and their impact got understood, then it becomes easy to frame plan and policies accordingly. The internal insights from environmental analysis help businesses in assessing the employee’s performance, maintenance cost, customer satisfaction etc, so that required corrective actions can be taken timely. External metrics, on other hand, assists in responding to environment in positive manner and also aligning all policies as per the objectives of business organization.

Process of Environmental Analysis

The environmental analysis process comprises of following steps: – 

Identify environmental factors

The first step in environmental analysis involves identification of all such environmental factors or forces that influence the functioning of business entity. This identification is carried out at distinct levels such as company level, market level, country level and international level. Only relevant environmental factors are figured out under it, so that irrelevant, vague and ambiguous data can be avoided. Generally, the identification step includes competitor’s strategies, market factors, government policies etc. that affect the working of business entity.

Gather information

Once the factors to be examined are decided, then start gathering information concerned with selected environmental factors. Research needs to be carried out for collecting information that is of two types: verbal and written information. The verbal information is gathered via hearing such as listening to radio podcast, whereas written information is gathered by reading sources such as magazines, journal and newspaper. 

Evaluate your competitors

Here in this step, information is collected regarding competitors to find out if there are any threats from them or not. A technique called spying is utilized for gathering information in non-traditional way.  

Forecast the impact

Forecasting is an important step for identification of threats and opportunities in future and framing the plans and strategies accordingly. This step predicts about future events and their impacts on business entity on the basis of data gathered with regard to past and present events. Forecasting covers every aspect of business environment such as economic, technological, political etc. The methods used for forecasting include surveying and brainstorming.   

Assess your strategies

Finally in last step, each of environmental factor that is identified in previous steps are evaluated on the basis of their impact on organizational functioning and profitability. The degree of impact is variable from one factor to another. Some of the factors provide opportunity while other pose threat to business enterprise. Proper knowledge on impact of environmental factors assists in resolving the potential challenges that may arise from them. 

Types of Environmental Analysis

Environmental analysis is of different types based on the technique used for reviewing and evaluating information regarding internal and external environment. These techniques are as summarized below: – 

SWOT Analysis

SWOT refers to internal strengths and weaknesses of business enterprise as well as external threat and opportunities surrounding that business. The swot analysis assists managers in knowing the strategic situation of firm and determining whether it is a perfect fit in between internal resources, values and external environment. A good fit is one that maximizes the strengths and opportunities of entity and minimizes its weakness and threats. 

The primary role of SWOT analysis is to identify key internal as well as external forces that are crucial for attaining the desired goals and objectives. One of the effective utilization of SWOT analysis for good effect can be exploiting market opportunities through leveraging the firm’s strengths. 

TOWS Matrix

TOWS matrix is an environmental analysis technique used for strategic planning and facilitate marketers in identifying opportunities and threats and comparing them against internal strengths and weakness. It can be simply defined as variant of SWOT analysis paying more attention on opportunities and threat that are external to business organization and counting them with organization’s internal strengths and weakness. Therefore, TOWS and SWOT are simply acronym for distinct arrangements of words: strength, weakness, threat and opportunity. Both of them utilize same forces for carrying out analysis but are at sometimes used interchangeably without regard to order that strengths, weakness, threats and opportunities are evaluated. 

WOTS-UP Analysis

WOTS-UP analysis is also similar to above mentioned TOWS and SWOT analysis and are used interchangeably during business analysis for conveying the same thing. It serves as tool of planning for examining the strengths, weakness, threats and opportunities of organization. Its main motive is to do evaluation of both internal as well as external environment of business enterprise that helps in summarizing supportive and unsupportive factors by business. WOTS-UP analysis enable business in thinking strategic wise and utilizing their capabilities with full efficiency towards attaining better growth.    

BCG matrix was formed by Boston Consulting Group, a strategic management consulting enterprise, in order to examine the product’s performance. This matrix carries out comparison of distinct businesses in an organizational portfolio on the basis of market growth rate and relative market share. Relative market share means the ratio of business market share to market share of large rival existing in market. Whereas, market growth rate refers to market growth during previous year relative to economy growth as a whole. 

Importance of Environmental Analysis

The importance of environmental analysis can be well-understood from points given below: – 

Identify opportunities, threats, strengths and weakness

The primary benefit provided by environmental analysis is identification of both internal and external environment of business enterprise. Internal environment includes strength and weakness of firm, whereas external environment includes its opportunities and threats. Proper awareness on these forces that influence business both directly and indirectly, helps in framing right strategies for attaining desired goals in timely manner.  

Understanding the environmental changes

Environmental analysis help companies in developing the right understanding on present business environment and probable changes in future. These changes include change in legal environment, market demand, technology etc. Businesses, if not taking cognizance of changing market forces at right time, face difficulties in their market survival for long term.      

Provide inputs for decision making

The process of environmental analysis collects and provide information to organization regarding different aspects of business environment. This information is very crucial and from basis of decision making by managers. Various type of capital as well as investment decisions are taken on the basis of such information. 

Formulation of appropriate strategy

Environmental scanning assist in formulation of right strategies by companies for dealing with future events in appropriate manner. It analyses and examine all present strengths and weaknesses, or opportunities or threats and then accordingly the right future plans and policies are created. All plans and policies are formed with the motive of minimizing business threat via utilizing present strengths and to overcome business weakness via capitalizing the present opportunities.   

Identification of international events and their business impacts

The impact of international events on business organization has increased to a large scale due to globalization. In all such scenarios, analysis of environment assists in identification as well as understanding of global events and their impact on business. 

Limitations of Environmental Analysis

Various limitations of environmental analysis are: – 

Unexpected and Unanticipated events

The future forces and events that can influence organization are uncertain and unpredictable. Therefore, quantification and prediction of such factors can’t be done in accurate manner. 

Involves money and cost

Environmental analysis process involves a lot of cost and time. It is lengthy approach comprising of distinct steps such as scanning, monitoring, forecasting and assessment. The performing of all these steps by business in appropriate manner brings high expenses as well as consumes large time.  

Inaccurate data

The entire process of environmental analysis is based on data collected for same purpose. If in case, the data collected is inaccurate then whole activities of forecasting and predicting future events may go wrong.  

Based on assumptions

Process of forecasting in environmental analysis is based on distinct assumption that may or may not be true. There is a basic forecasting assumption that there is pattern of event happening. Such type of assumption may not hold true in all cases. 

Part of strategy formulation process

It is only a part of strategy formulation process that rely on distinct inputs. Therefore, it does not guarantee the organizational effectiveness.   

Related posts:

• Business Forecasting: Types, Techniques, Need, Advantages, Limitations
• What is Demand Forecasting? Types, Steps, Objectives, Importance, Examples
• Business Level Strategy: Meaning, Types, Advantages, Examples
• Importance of SWOT Analysis In Business
• What is Business? Definition, Nature, Types, and Objective
• Objective & Features of Business Environment

Add CommerceMates to your Homescreen!

Macro Environment Analysis – Using the PESTLE Method to Analyze the Macro Environment

Home » Start » Planning & Strategy » Macro Environment Analysis – Using the PESTLE Method to Analyze the Macro Environment

• Macro Environment , PESTLE Analysis , SWOT Analysis
• Posted: February 20, 2022
• Updated: May 4, 2024

The macro environment shapes the marketplace and should be a key guiding factor when developing a marketing strategy. Therefore, analyzing the macro environment carefully is crucial to business success. This enables the firm to identify both prospective opportunities and dangers or risks that may affect the organization. Let’s review how to do macro environment analysis in detail using the widely known PESTLE method.

Why and When to do Macro Environment Analysis

Macro environment analysis is a critical step at various stages in the business cycle. The forces in the macro environment, also referred to as DEPEST or DESTEP forces , shape the marketplace. It is one of the primary influences on both the firm’s ability to operate as well as on consumer demand. Therefore, understanding the specific macro environment the firm plans to operate in is absolutely crucial. This is where macro environment analysis comes into play.

Some businesses will hire analysts who have been trained to examine macro-environmental conditions and provide suggestions based on their findings. These analysts will examine broad macro-environmental influences such as politics, the economy, demography, and technology.

The examination of a company’s macro-environment is typically part of a wider global approach to strategic research. We also hear the phrase “environmental strategic diagnostic” a lot. The goal is straightforward: to develop a likely scenario for the organization in order to position itself, for example, adopting the strategic stance that will allow it to prosper.

There are several points in time when you would want to conduct macro environment analysis. The first one is rather obvious: Before entering a new market (whether it is a region or a different market in the home region), the company should analyze the macro environment in detail. It should particularly figure out the opportunities and risks that it can expect. The final decision to enter the market may very well stand or fall with the forces found in the macro environment.

However, analyzing the macro environment before entering a new market or region is not enough. The macro environment is subject to constant change. While some forces do not change much or at a very low rate (e.g., the socio-cultural environment), others may change rapidly (e.g., political or legal forces when there is a change in government or government strategy).

Therefore, the company should constantly monitor the macro environment. Depending on the size of the business, a part-time or full-time employee or even a whole department may be responsible for watching any developments closely and if necessary readjust the marketing strategy. This may often be included in broader role, for instance market research and planning. For instance, if there is a change in regulations visible, the company should consider adjustments to its products. If there is an economic downturn, the company may consider to develop entry-versions of its products and introduce discount schemes.

How to do Macro Environment Analysis

To analyze the macro environment, the PESTLE approach is commonly used. It may also be called PESTEL, DEPEST or DESTEP approach. Sometimes, you may also read PEST approach or any other subsets – in these cases, the analysis is limited to selective forces. Basically, all the approaches refer to going through the forces in the macro environment step-by-step and carefully investigating each of them.

Next to going through the six forces in the macro environment, companies may conduct SWOT analyses. A SWOT analysis will enable the organization to identify the risks and opportunities in its environment, as well as to position itself in its market by identifying its strengths and weaknesses.

In the following, let’s go through each of the forces and discuss some specific analyses you can do to understand the macro environment.

How to Analyze the Macro Environment using the PESTLE Method

The PESTLE method (or any other variation as described above) means going through the forces of the macro environment step-by-step.

Let’s start with the political forces. To understand the political forces, you should consider a variety of variables. Depending on the country and the region you are looking at, specifically consider:

• Stability of government
• Potential upcoming changes to legislation
• Social protection
• Local government powers
• Foreign trade policy (e.g., trade restrictions)
• Global influences

As you can see, the list of factors to consider is long. However, after analyzing the first few variables, you may quickly realize whether the country is attractive to do business in or not. In many cases, you will find developed economies to offer a favorable political environment, while developing countries can be more tricky .

In the economic environment, likewise many different variables should be considered. These may include for instance:

• Size of the economy and specific market
• Economic growth
• Exchange rates
• Interest rates
• Inflation rates
• Employment/ Unemployment rate
• Disposable income
• Spending patterns
• Consumer confidence
• Monetary policy

Luckily, analysis of the economic environment may be the easiest considering the quality of data available. For most countries, official economic statistics are available on national or even provincial level. Also, some economic statistics for smaller geographic units, such as municipalities, may be available.

Sociological

The sociological forces is primarily concerned with consumer behavior and attitudes. When analyzing sociological factors, you may consider:

• Population growth rate
• Age distribution
• Income distribution
• Literacy rates and educational attainment
• Lifestyle attitudes
• Health consciousness
• Values and culture
• Cultural barriers

The analysis of such factors often collides with limited data availability. In many cases, you may have to rely on qualitative data or even do some primary research on the specific factors you perceive as relevant to assess opportunities and risks for your business. Also, many of these factors can be quite complex. For instance, understanding the culture of a country or region can be a very complex enterprise. Luckily, there are some sources to help you on this, such as Hofstede’s Cultural Dimensions . A thorough understanding of a country’s culture can help you to prevent tapping into cultural blunders .

Technological

An examination of the technological environment may be very important to get an understanding of the opportunity to enter a new market. You should consider variables such as:

• Level of innovation
• R&D activity/ R&D spending
• Patent activity
• Telecommunications infrastructure
• Technology incentives
• Technological change
• Technological awareness
• Take-up rates
• Level of automation

For doing business in a region or country, the importance of the technological force should not be underestimated. For instance, imagine you consider setting up an online venture in a country where there is no sufficient bandwidth capacity available.

The legal environment may be a very decisive factor for the ability to operate in a country. It encompasses all the rules, regulations and public policies that may impact an organization’s ability to do business.

You should consider:

• Employment laws
• Health and safety regulations
• Discrimination laws
• Antitrust laws
• Consumer protection laws
• Copyright and patent laws
• Industry regulations

Environmental/ Ecological

The last force (but not the least important one!) is the environmental or ecological force in the macro environment . As you can imagine, this factor has actually grown in importance over the last years and will likely continue to do so. Here, we are looking at factors related to climate change, sustainable operations and pollution. Because of the growing importance, many organizations nowadays constantly monitor the natural environment, including NGOs, think tanks and watchdog groups.

In analyzing the environmental or ecological forces, you should consider:

• Environmental policies, regulations and restrictions
• Consumer attitudes
• Pressures from NGOs
• Recycling rates
• Sustainability movements

Conducting a SWOT Analysis to Understand the Macro Environment

After having reviewed the factors that should be investigated, let’s now see how to do macro environment analysis step-by-step. For this, we recommend to do a SWOT analysis, to get a full overview of the opportunities and threats in the macro environment, and match them with your company’s strengths and weaknesses.

Gather the Relevant Data

First of all, you should of course gather all the relevant data. However, don’t just start to collect everything! Otherwise, the analysis will take you ages. Instead, decide first which aspects you find most important for your business and create a list of things you want to analyze. Then, collect as much useful data on those points as you can find. Be aware to use reliable sources.

Identify the Opportunities

Once all of the data needed to conduct your analysis is gathered, the following step is to review each data point in detail. Your goal at this stage should be to discover any opportunities that these indicators may present. For instance, there might be a sizable market with supportive consumer attitudes and regulations that allow you to introduce your products.

Identify the Threats

Aside from understanding the potential opportunities that these forces may present, it is also critical to analyze potential threats to the organization. For example, if cultural values prohibit the consumption of certain food, you may not want to introduce products containing it. Or, if the political environment is unstable, is it too risky for you to invest?

Match Opportunities and Threats with your Strengths and Weaknesses

Considering opportunities and threats in the macro environment in isolation will not get you far. The critical step is to combine them with your own firm’s strengths and weaknesses to derive implications on the business strategy. The key is to combine strengths and opportunities to gain maximum advantage. At the same time, eliminate or overcome weaknesses and guard against or minimize threats.

Closing Words

The macro environment plays a key role in marketing. It can be the key decisive factor for the ability to do business in a region, country or market. Therefore, analyzing the macro environment is a critical step at various moments in the business cycle. Consider all the relevant forces by using the PESTLE method described above.

The Macro Environment – Six Forces To Consider (DEPEST/ DESTEP)

Master Your Business Environment: A Guide to Success Ready to take control of your business’s future? Explore the key factors shaping the world around you. Understand how demographics, technology, and economic trends influence your market. Use this knowledge to make smart decisions and build a stronger, more resilient business.

The Macro Environment in Marketing – Why is it important and how to work with it?

Your Business and the Big Picture: Understanding the Macro Environment The world around your business is always changing. These changes make up the macro environment. Understanding them helps you create a winning marketing strategy. Learn how economic factors, consumer demand, and the DEPEST/DESTEP model can guide your success.

Table of Contents

Cents and Sensibility: Budgeting for Small Business Marketing

What’s the sweet spot for your marketing budget outlay? Find out in 10 simple steps.

What is a Unique Selling Proposition? Examples & Mistakes

What’s your Unique Selling Proposition (USP)? It’s the magic that makes customers choose you over your competitors. Learn how to create a powerful USP and avoid common mistakes with real-world examples!

Strategic Positioning: Price, Time, Quality, Variety

Discover how focusing on Price, Time, Quality, or Variety can create a winning business strategy. Learn from giants like Amazon, Rolex, and Walmart!

• Buyer Behavior
• Market Analysis
• Target Market & Positioning
• The Marketing Process
• Product Strategy
• Privacy Policy
• Cookies Policy
• Terms & Conditions
• Get in Touch

Hey! Just 1 Question

What best describes your role here?

How it works

For Business

Join Mind Tools

Article • 9 min read

Environmental Analysis

Internal and external environmental forces.

By the Mind Tools Content Team

Most organizations work within a business environment of constantly changing forces that guide (and sometimes hinder) their overall strategic direction. This article examines these environmental influences in more detail.

The business environment can be separated into the internal and external environment as shown in the diagram below. Both of these environments have a huge impact on an organization, and the strategic decisions it makes.

The Internal Environment

Environmental analysis begins with an examination of internal factors and how these help or hinder organizational performance. An organization will wish to carry out an internal analysis that examines the strengths and weaknesses of its:

• Physical resources, including its products
• Financial resources
• Human resources
• Intellectual resources
• Operational capacity and efficiency
• Strategic capabilities/competence
• Organizational structure
• Organizational culture

The results of this analysis can then be fed into a SWOT analysis (see later). Porter’s Value Chain can also help the organization to pinpoint strengths contained within the organization by examining which of its activities create value for the company.

The External Environment

Organizations need to identify the key opportunities and threats that are likely to arise from the external environment. The external environment can be split into two areas, the near environment and the far environment.

The Near Environment

This comprises the industries and sectors, competitors and markets where the organization competes for resources and consumers (it is sometimes referred to as the ‘competitive’ environment). All organizations need to be aware of the factors and conditions that impact on their particular industry or sector. For example, the boundaries between separate industries may change, resulting in convergence, such as is the case with the computing, telecoms and entertainment industries. Key to making sense of the near environment is an awareness and understanding of the competitive forces that exist. Porter’s Five Forces model was devised to help organizations to do exactly this by assessing:

• The threat of entry of new rivals
• The bargaining power of buyers
• The bargaining power of suppliers
• The threat of substitute products

Despite being devised in the 1980s, Porter’s Five Forces is still a favored method of industry analysis today. As well as analyzing its industry, an organization will wish to carry out market segmentation in order to understand customers and satisfy their needs better than the competition.

Many organizations segment consumer markets differently from industrial markets.

Consumer markets tend to be segmented along differing customer characteristics such as:

• Geographic: e.g. country, region, neighborhood.
• Demographic: e.g. age, gender, occupation, race, religion.
• Psychographic: e.g. interests, values, opinions.
• Behavioral: e.g. brand loyalty, readiness to buy, user status (first-time buyer, regular buyer, etc.).

Industrial markets tend to be segmented by:

• Location: e.g. distance from vendor.
• Company type: e.g. size, product or service offered.
• Behavioral characteristics: e.g. buyer status, purchasing methods.

By segmenting its industry and markets, an organization can gain a better understanding of its customers and potential customers, and therefore tailor its products and services to match customer needs as closely as possible.

The Far Environment

The six main pressures and influences on organizations in the ‘far’ external environment are represented by the acronym PESTLE which represents the following external forces:

• Political: the existing and potential influences that government places on organizations, via government agencies, pressure groups, etc.
• Economic: the impact that the national and international economy has on all types of organizations. For example, when bank interest rates are low, people have more disposable income to spend on a range of goods and services; but when interest rates are high, consumer spending will reduce.
• Social: changes in society have a considerable impact on how organizations set strategies. When analyzing the external environment, organizations should consider demography, i.e. the impact that the size and structure of the population has on customer demand and on the workforce, e.g. an aging population. Social culture will also affect the demand for goods and services, e.g. increasing environmental awareness has created a demand for eco-friendly products.
• Technological: advances in technology probably have the most profound effect on organizational strategy. The arrival of the internet, for instance, has transformed the way that organizations sell their products, and how they communicate with customers and employees across the globe.
• Legal: organizations need to be aware of existing and upcoming local, national and international legislation that affects their business, including employment law, competition law, and health and safety regulations.
• Environmental: factors such as environmental protection laws and regulations, and social attitudes to energy consumption and waste disposal can all affect organizations and the way they do business.

A PESTLE analysis is a popular technique that can be used to examine the many different external factors affecting an organization, in order to help organizations systematically identify any threats. Once an organization has identified the main characteristics of the external environment in which it operates, it should look for ways to minimize any possible threats and exploit new opportunities.

Spotting The Opportunities

Johnson and Scholes point out that if organizations consistently compete with market rivals that have the same or similar products or services, then everyone will find the market tough and unattractive. This can be countered if an organization can spot a strategic gap in the market.

Strategic gap: ‘An opportunity in the competitive environment that is not being fully exploited by competitors.’ [1]

Johnson and Scholes suggest the following areas in which organizations may find such opportunities: [2]

• Opportunities in substitute industries: e.g. a software company substitutes paper encyclopedias for online versions.
• Opportunities in other strategic groups: [3] e.g. privatization of the rail network in the U.K. means that bus operators can apply for rail franchises.
• Opportunities for complementary products: e.g. people go to the gym to stay in shape and look good, so some private gyms also have beauty salons on site.
• Opportunities in new market segments: e.g. Starbucks has turned coffee into an experience, not just a drink, by providing customers with the opportunity to customize their beverage, and enjoy it in a relaxing atmosphere.
• Opportunities over time. Where an organization anticipates a change in the competitive environment, it can gain first-mover advantages, e.g. eBay anticipated that the internet could revolutionize the ‘small ads’ business, which it has turned into a multi-million dollar enterprise.

SWOT Analysis

The combination of outputs from the analysis of both the internal and external environment is a SWOT analysis, which helps organizations analyze their overall Strengths, Weaknesses, Opportunities, and Threats. These are often set out in table form as shown below. The example shown is for a small pharmaceutical company.

This approach, however, does not put the strengths, weaknesses, opportunities, and threats in context. In particular, it does not relate them to one another, or illustrate how a particular strength will allow an organization to exploit an opportunity or counter a threat. Nor does it highlight whether acknowledged weaknesses might leave the organization vulnerable to a threat or unable to exploit an opportunity.

To develop strategies that take into account the SWOT profile, therefore, it is a good idea to carry out a matching process, by constructing a TOWS matrix as shown below.

• S-O Strategies represent opportunities that are a good fit with the organization’s strengths.
• S-T Strategies indicate ways for the organization to use its strengths to counter external threats.
• W-O Strategies help the organization to overcome its weaknesses to pursue opportunities.
• W-T Strategies help the organization to prevent its weaknesses from rendering it vulnerable to external threats.[4]

In addition, an organization should consider its SWOT profile in terms of how it compares to those of its competitors.

The Importance of Scenario Planning

Given the rapid pace of political, environmental and technological change in today’s society, strategic decisions can be increasingly difficult to make. Scenario planning can be a very useful way to analyze the environment in this regard.

‘Scenario planning is a discipline for rediscovering the original entrepreneurial power of creative foresight in contexts of accelerated change, greater complexity, and genuine uncertainty.’ [5]

It differs from conventional market research or financial forecasting techniques by depicting alternative ‘futures’ instead of projecting forward current trends. [6] This enables organizations to model a series of potential futures and to modify their future plans according to the most feasible scenarios. Scenarios are not predictions, then, but plausible, well-illustrated hypotheses of various ‘what if’ possibilities.

In order for organizations to make informed and appropriate strategic choices, they must first develop a clear understanding of both their internal and external environment.

Internal analysis of the organization involves a thorough examination of the firm’s strengths and weaknesses.

External analysis looks at the opportunities and threats posed by competitors in the organization’s industry and markets, and by existing and potential opportunities and threats that exist in wider society.

The results of internal and external analysis can be brought together and summarized in a SWOT analysis, which can then be used to inform future strategic development.

[1] Johnson and Scholes, Exploring Corporate Strategy (FT Prentice Hall, 2005) p 99.]

[2] Ibid pp 99-100.

[3] Strategic groups are industry subgroups that compete directly for the same customers, or for similar resources. For example, grocery retailing has several strategic groups, including supermarkets, minimarts and corner shops.

[4] www.quickmba.com (May 25, 2005).

[5] Pierre Wack, Royal Dutch/Shell, 1984. GBN Global Business Network, Scenarios.

[6] 'Scenario Planning' http://www.economist.com/node/12000755

Join Mind Tools and get access to exclusive content.

This resource is only available to Mind Tools members.

Already a member? Please Login here

Gain essential management and leadership skills

Busy schedule? No problem. Learn anytime, anywhere. 

Subscribe to unlimited access to meticulously researched, evidence-based resources.

Join today and save on an annual membership!

Sign-up to our newsletter

Subscribing to the Mind Tools newsletter will keep you up-to-date with our latest updates and newest resources.

Subscribe now

Business Skills

Personal Development

Leadership and Management

Member Extras

Most Popular

Latest Updates

How to Build Confidence in Others

How to Create Psychological Safety at Work

Mind Tools Store

About Mind Tools Content

Discover something new today

Pain points podcast - presentations pt 1.

How do you get better at presenting?

NEW! Pain Points - Presentations Pt 2

Learn how to present like a pro

How Emotionally Intelligent Are You?

Boosting Your People Skills

Self-Assessment

What's Your Leadership Style?

Learn About the Strengths and Weaknesses of the Way You Like to Lead

Recommended for you

Seeing the big picture with mind maps.

Exploring ideas from all angles

Animated Video

Business Operations and Process Management

Strategy Tools

Customer Service

Business Ethics and Values

Handling Information and Data

Project Management

Knowledge Management

Self-Development and Goal Setting

Time Management

Presentation Skills

Learning Skills

Career Skills

Communication Skills

Negotiation, Persuasion and Influence

Working With Others

Difficult Conversations

Creativity Tools

Self-Management

Work-Life Balance

Stress Management and Wellbeing

Coaching and Mentoring

Change Management

Team Management

Managing Conflict

Delegation and Empowerment

Performance Management

Leadership Skills

Developing Your Team

Talent Management

Problem Solving

Decision Making

Member Podcast