An environmental analysis evaluates internal and external factors affecting an organization's performance, especially its marketing effort. Internal factors are referred to as the strengths and weaknesses of the organization. External factors are opportunities and threats presented by forces outside of the company. In general, this information is used by strategic planners in forecasting trends a year or more in advance. This method is distinct from surveillance, which focuses on a specific area or time.
A common synonym for environmental analysis is SWOT analysis, an acronym for strengths, weaknesses, opportunities, and threats. Another equivalent term is environmental scanning, referring to the ongoing nature of evaluating trends.
In this type of analysis, internal strengths may include a stable workforce, proprietary systems and methods, and other factors. Internal weaknesses may include labor-union problems, obsolete equipment, or aging facilities. External opportunities can include new-market creation, beneficial alliances, and positive trade agreements. External threats may be comprised in part of negative governmental regulations, international conflict, or natural disasters.
Using environmental analysis, strategic planners evaluate the operating environment and establish organizational goals. They determine whether or not the goals are obtainable with existing strategies. If they are not, new strategies must be developed or old ones must be adjusted. Several sources of information guide their strategic decisions.
A constant stream of pertinent information is necessary to perform an analysis. Online, printed, and TV business news sources report on external conditions that may impact operations and performance. Planners evaluate and use this data to determine the best course of action to avoid problems or to capitalize on opportunities. Metrics evaluating overall performance are another data stream used in strategic planning.
An organization's health and performance as a whole, rather than focusing on the performance of one part, is an important aspect. With a comprehensive overview of external forces, an organization is more able to respond to positive events as part of its growth strategy. Conversely, early threat identification allows organizational leadership to take timely action in developing a survival strategy.
Environmental analysis uses internal metrics in evaluating employee performance, customer satisfaction, maintenance costs, and similar factors. These metrics can be used to take early corrective action or to offer rewards to workers or customers. The outcomes of these measures should be monitored closely and adjusted as necessary.
There are more uses for this type of analysis than just fine-tuning performance. It is also central in identifying opportunities, such as new markets or the acquisition of new technology before its competitors. Its ongoing nature makes it a valuable tool for evaluating the financial potential of various strategies.