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In Business, What Is Environmental Analysis?

Environmental analysis is also called a SWOT analysis and is broken down into internal and external factors that need to be evaluated.
An internal factor that can be a strength or weakness is how well a company's employees work together.
Evaluating a company's strengths and weaknesses will allow management to apply strategic planning.
SWOT stands for strengths, weaknesses, opportunities, and threats.
Article Details
  • Originally Written By: Susan L. Kerr
  • Revised By: C. Mitchell
  • Edited By: C. Wilborn
  • Last Modified Date: 13 August 2014
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Environmental analysis in a business or corporate setting is usually a means of measuring how a company is doing and identifying ways to improve in order to ensure success into the future. In these cases, the relevant “environment” is the business climate generally; this includes internal corporate culture as well as larger marketplace trends and needs. Business experts sometimes refer to this sort of analysis by the acronym SWOT, which stands for “strengths, weaknesses, opportunities, threats.” These four factors make up the bulk of any study, and can generally give a pretty good indication of how a company is doing and how it can be expected to do moving forward. The results can help leaders make good decisions and improve efficiencies, often without making any major changes.

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Why It’s Done

Gauging a company’s general place in its environment is often thought of as an important part of corporate stewardship. Corporate leaders often engage in informal SWOT analysis fairly regularly, but actually committing to a more formal review can be a good way to make sure that the business is staying on top of changing trends and, if not, it can be a good way to spot little changes that can be made to help get things back on track. People sometimes draw an analogy to regular medical check-ups. Most doctors encourage their patients to get evaluated once a year even if they’re feeling just fine, and by the same token business practices should be scrutinized every so often even if things seem to be going well.

The process is also important when it comes to identifying opportunities, such as new markets or the acquisition of new technology. Its ongoing nature makes it a valuable tool for evaluating the financial potential of various strategies, too.

Getting Started

Small businesses can often conduct SWOT analysis completely in-house, but bigger companies more commonly hire outside consultants to do the actual analyzing. It’s often the case that an outside view can be more helpful even if the work can be done internally, since advisers who are completely separate from the company won’t be swayed by biases and can in many cases give a more objective overview.

The analysis begins with a blunt assessment, usually in list form, of the company’s internal and external assets and problems. Business strengths are usually the starting place. Internal strengths may include a stable workforce, proprietary systems and methods, and property ownership or location. Internal weaknesses, on the other hand, may include labor-union problems, obsolete equipment, or aging facilities. Examples of external opportunities can include new-market creation, beneficial alliances, and positive trade agreements, while external threats may take the form of negative governmental regulations, international conflict, or natural disasters. Once all of these have been identified, the planner or planning team will set about drawing up some specific goals.

Setting Goals

Goal-setting is an important part of the process because it helps a company project where it wants to be in a realistic and supportable way. Strategic planners evaluate the operating environment and determine whether or not certain goals are obtainable with existing strategies. If they are not, new strategies must be developed or old ones must be adjusted.

An organization's health and performance as a whole is really important here. Rather than focusing on the performance of one part, analysts look at everything together in order to get a more complete view of what is achievable and what problems might arise along the way. When organizations have comprehensive views of their internal and external environments they are often better able to plan an effective growth strategy. At the same time, early threat identification allows organizational leadership to take timely action in developing a survival plan and setting “remediation” goals to get things back on track.

Importance of Good Information

Good environmental analysis depends on a constant stream of pertinent information. Specialists usually spend a lot of time scouring online, printed, and TV business news sources to get a sense of the external conditions that may impact operations and performance, and they evaluate and use this data to determine the best course of action for particular industries. Understanding competition, trends, and general market dynamics is an important part of assessing business environment.

Common Metrics

Environmental analysis uses a series of numerical ranks and assessment rubrics 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. In most cases the outcomes of these measures should be monitored closely and adjusted as necessary.

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Discuss this Article

allenJo
Post 2

@Mammmood - Good point. I don’t think people understand what environmental analysis really means. They might think it has to do with how “green” or environmentally safe an organization is. Really it has to do with the business environment of a company, and how to position it for long-term success in a constantly changing marketplace.

Mammmood
Post 1

Our company hired a consultant to come in and do an environmental analysis of the business, just as described in this article. The consultant was called an “efficiency expert,” which I think scared a lot of employees into thinking they weren’t doing their jobs fast enough. In fact he was just looking for ways we could improve the business. He met with us individually and asked for our input, then shared those ideas with the boss—anonymously of course. We also worked on a company mission and vision statement together, which forced us to focus on our strengths as compared to the competition.

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