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.<br><br>This analysis identifies the opportunities and threats in a business environment in terms of a company's strengths and weaknesses.<br><br>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.<br><br>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.<br><br>The environmental analysis then influences corporate planning and policy decisions.<br><br>An environmental analysis is a three-step process in which a company first identifies environmental factors that affect its business. For example, the company might consider if a market is "difficult" because of its remote geographic location or the area's unfavorable economic conditions.<br><br>The company then gathers information about the selected set of environmental factors that are most likely to impact business operations. For example, the company might review government and industry reports and surveys that relay information about trade barriers that companies face in particular countries.<br><br>This information serves as input to a forecast of the impact of each environmental factor on the business. 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.<br><br>Limitations of Environmental Analysis An environmental analysis reviews current environmental conditions to forecast a future business environment.<br><br>The static nature of the analysis ensures that unexpected environmental changes cannot be considered in a company's business projections. In addition, the environmental analysis is but one source of information that's evaluated as a company develops a strategic plan.<br><br>The benefit of the analysis is also limited by the reliability and timeliness of data used in the analysis. As a result, the analysis does not guarantee business success.
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