5.5 Tools of environmental analysis

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.
There are several tools and techniques used for conducting environmental analysis, including:
1. PESTEL ANALYSIS – PEST analysis is an analysis of the political, economic, social and technological factors in the external environment of an organization, which can affect its activities and performance. It describes a framework of macro-environmental factors used in the environmental scanning component of international business management.

Political factors
It deals with the political environment of the country in which the company operates its business.
The political environment studies the following elements;

• Entry mode regulations
• Government stability
• Tariff & tax laws
• Government policies

Economic factors
Economic factors are critical to the business of the company because they give direction to the businesses wherever the economy leads them.
Some of the economic factors are as follows;

1. Foreign currency exchange rate
2. Fiscal and monetary policies
3. Unemployment rate
4. Credit accessibility
5. Disposable income of potential customers
6. Interest rate
7. Inflation rate

Social factors
Countries and their geographies and people are different because of many social factors like norms, beliefs, values, culture, tradition, and mindset of the people. They have got a great impact on the businesses that are running their operations in a specific society.
Some of the main social factors are as follows;

1. Wealth distribution
2. Education level of customers
3. Domestic structure
4. Social lifestyle of people
5. Demographics
6. Gender
7. Cultural implications

Technological factors
The development in technology is excellent and the rate at which things are changing is great. The advancement in technology is also influencing businesses greatly, and they have to keep up with the changing technology.
Some of the technological factors are as follows;

1. Innovative tech platform
2. Tech development rate
3. Tech obsolescence rate
4. Latest discoveries

Legal factors
Country’s regulations and legalities keep on changing over time, and their changes would impact the business environment. If the government regulation sets boundaries for the businesses and companies have to operate within the limits of those boundaries.
Some of the legal factors are as follows;

1. Safety and health regulations
2. Patent infringements
3. Regulations for competition
4. Employment Regulations
5. Regulations of Product/services

2. Scenario Planning
Scenario planning is a technique of depicting future possibilities and preparing accordingly. It is also called contingency planning.
Scenarios are carefully crafted stories about the future representing a wide variety of ideas and integrating them in a way that is communicable and useful. They are stories about how the future might unfold and affect business issues.

3. SWOT ANALYSIS -It is an analysis of an organization’s strengths and weaknesses alongside the opportunities and threats present in the external environment. SWOT is an acronym which stands for:
Strength; Strength is the positive characteristic of the firm that may include strong strategy, strong human resources, production efficiency, etc. They are a success factor for achieving a competitive advantage.
Weakness; Weakness is the characteristic of the firm which might restrict the firm’s performance. Such as unclear goals, inferior products, weak promotion, etc.
Opportunity; An opportunity is a condition in the general environment that if exploited effectively, helps a company to achieve strategic competitiveness.
Threat; A threat is a condition in the general environment that may hinder a company’s efforts to achieve strategic competitiveness.
It’s been a significant tool for environmental analysis since it gives about which the company has strengths & which not and which are opportunities and which are not.