Environmental Analysis

What is environmental analysis?

Why environmental analysis is important?

Benefits of environmental analysis

Makes one aware of environment-organization linkage
It helps organization to identify the present and future
threat and opportunities
Will provide a very useful and necessary picture of the
important factors which influence the business
Helps to understand the transformation of the industry
environment
Helps in identifying the risks
Helps in formulation of right strategies
Helps in modifications of the strategies
Keeps the manager alert, informed & often dynamic.

Process of environmental analysis

Scanning
Monitoring
Forecasting
Assessing

Approaches to environmental
analysis
Outside-in (macro) approach
Inside-out (Micro) approach

 Outside in develop scenarios

Scenarios analysis is a technique used to forecast the
occurrence of complex environmental events. It is
particularly useful for forecasting events in which many
variables play a role. Scenario allow the integrated
consideration of these multiple variables in explaining
the emergence of future conditions. A scenario is a
detailed description of how certain events may occur in
future and their consequences for the organization.

Steps to develop a scenario

Identify the environmental issues and prioritize them.
Select the most important one. List the organizational
assumptions with respect to these issues and identify
the possible variations in these assumptions.
Prepare a preliminary description of these issues and
how they evolved. Include the key environmental factors
which affect them.
Draw out the implications of the issue for organizational
performance. What has the organization done and what
can it do to cope up these issues.

 Develop detailed descriptions of the future in the form

of scenarios. Scenario can be developed as a best case,
worst case and most likely case set of assumptions.
Discuss the scenarios with top management and refine
them.
Develop contingency action plan for each scenarios.

Techniques for environmental

analysis
Verbal & written communication
Search & scanning
Spying
Formal forecasting

Steps in environmental forecasting

Identification of Relevant Environmental Variables
Identify the environmental variables critical for the firm.
All environmental variables do not have the same
relevance to all the industries or firms.

 Key variables can be limited in the following ways

a)Include all variables which can have a significant
impact although their probability is low. Delete others
with little impact and low probability.
b)Disregard major disasters, such as nuclear war.
c)Aggregate when possible into gross variables.
d)If the value of one variable is based on the value of the
other, separate the dependent variable for the future
planning.

 Collection of information
Selection of forecasting technique
Monitoring

What all can be forecasted?

 Economic
Political
Social
Technological

Techniques for Environmental

Forecasting
Econometric
Trend extrapolation
Scenario development

Methods of scenario development

Premising method
Systems diagram method
Critical site method
Newspaper headline method
Logical possibilities method
Judgement Models
Brain storming
Delphi Method
Strategic Issues analysis

Limitations
The selection of the variables included in the predictive
model.
The selection of the functional form for linking these
predictor variables to the variables being predicted.
The estimation of the correct values for the predictor
variables.