What is an External Environment? The external environment consists of a general environment and an operating environment. The general environment consists of the economic, political, cultural, technological, natural, demographic and international environments in which a company operates. The operating environment consists of a company's suppliers, customers, market intermediaries who link the company to its customers, competitors and the public.
Both the general and operating environments provide business opportunities, harbor uncertainties and generate risks to which a business must adapt. For example, countries with large populations may coincide with a large market size for particular products. However, to offer its products in these markets, a company may be required to contend with a government that erects obstacles to trade in the form of tariffs, product standards and customs procedures.
Purpose of Environmental Analysis Successful businesses adapt their internal environment — including human and financial resources, policies, technologies and operations — to the external environment.
The company performs an environmental analysis to identify the potential influence of particular aspects of the general and operating environments on business operations. This analysis identifies the opportunities and threats in a business environment in terms of a company's strengths and weaknesses. For example, a company may consider the impact of operating in a communist country and the threats posed by government-controlled resources.
A company might also consider the opportunities of a government-controlled market in terms of competing products, the implications of well-educated and well-paid consumers to product development and sales and the impact of the location of its primary suppliers in a country in economic crises. Environmental Analysis Process An organization relies on strengths to capture opportunities and recognize weaknesses to avoid becoming a victim of environmental threats. A company performs an environmental analysis to gain an understanding of these strengths, weaknesses, opportunities and threats.
The environmental analysis then influences corporate planning and policy decisions. An environmental analysis is a three-step process in which a company first identifies environmental factors that affect its business. Your business plan can, however, take external factors into account. For instance, if you know your top competitor is going on a hiring binge, that will affect how you plan to recruit and reward employees.
Internal and External Analysis You can't write a good business plan based on guesses. To get the hard facts that you need requires internal and external analysis. Internal analysis looks at your company's strengths and weaknesses, such as the uniqueness of your product a strength and a lack of financing a weakness. External analysis looks at the outside factors that can affect your success.
Technology: The classic example is the internet, which changed how business around the world is performed. Social Factors: The growing senior population in the United States is interested in products it wouldn't have cared about at Law: New laws about pollution or sexual harassment can have a huge impact on your business. Economics: If you do a lot of business overseas, changes to tariffs or exchange rates will affect your bottom line.
Politics: The United States government imposes many regulations on business, and so do state and local governments. Direct Competitors: A good business plan has to consider your rivals and the products and services they offer.
Prospects: Prospects are potential buyers who don't do business with you yet. In your business plan, you can work out how to turn them into customers. While there are many external factors that can affect your business, you can identify the core ones with the acronym PESTLE, for political, economic, social, technological, legal and environmental factors. SWOT is another way to group your analyses. It breaks all factors, internal and external, into four classes: strengths, weaknesses, opportunities and threats.
Your company's strengths and weaknesses are internal factors. Your opportunities and threats are external. The Importance of External Analysis Your business plan has to deal with the importance of external environments in managing organizations. To make the business plan effective, you need detailed information about how the external environment affects you. If, say, you're making an external analysis of your direct competitors, you might want the following information: Where is your competitor located?
What are their annual sales? Who are the major managers and board members? Is the company owned by another corporation? What is the company's product line? What are its strengths?
What are its weaknesses? How do the company's products compare to yours? The standards can include ease of use, appearance or other criteria of your choice. How do they price their products? What are their marketing activities? Who are their suppliers? Are they expanding or cutting back? What are the strengths and weakness of their marketing and sales literature? You can find this sort of information by reading annual reports, press releases, presentations to investors and articles about the company.
The results of your external analysis tell you how to compete effectively.Competition from bigger firms with larger marketing budgets and only as good as the information that makes it. Key Success Factors: Property report magazine thailand are the key plan factors, external production costs is a potential threat. Just like any planning tool, a SWOT analysis is sales or environment.
Technology: The classic example is the internet, which changed how business around the world is performed.
Management The capability of the management team and the leadership styles employed by managers will also have a major impact on the morale of staff and volunteers in a non-profit organisation and organisation culture. You can share it with key employees so they too understand where the company is going. For instance, a company might project the volume of products likely to be sold in a country in light of existing poor economic conditions and significant trade barriers. How are they changing?
Change is a certainty, and for this reason business managers must actively engage in a process that identifies change and modifies business activity to take best advantage of change. Financial resources are another area that can be regarded as a strength or a weakness. External Environment Factors Table 2 below identifies important aspects of the external environment in which the business operates. This analysis is divided into five areas: economic, technological, political-legal, sociocultural, and future. Economic conditions are global as well as national, and when there is a global financial crisis as in , changes in the external environment can be dramatic. However the flow on affects of drought will eventually work their way through to all businesses in the effected community.