Environmental Analysis
Introduction to Environmental Analysis
Environmental analysis is a critical process for businesses to understand the forces that
influence their performance. It involves examining both external and internal factors to identify
opportunities and threats, and to align business strategies accordingly.
Components of the Business Environment
The business environment is broadly categorized into two main components:
Macroenvironment: These are the larger societal forces that affect the microenvironment.
They are external forces that a business has little to no direct control over.
Microenvironment: These are the actors close to the firm that affect its ability to serve its
customers. They are often considered internal forces or forces that a business can influence
to a greater degree.
Methods of Environmental Analysis
Two common methods for conducting environmental analysis are:
STEEPLED Analysis
STEEPLED analysis is an extension of PESTEL (or PESTLE) analysis, examining eight external
forces that influence a firm.
Social (Sociocultural):
This includes attitudes, values, and lifestyles that impact consumer purchasing behavior,
pricing expectations, promotional effectiveness, and purchasing habits.
Key considerations: Income and labor, educational attainments, living conditions, health
factors, attitudes toward work/leisure.
Technological:
This force considers the current, previous, and future state of technology. Firms must
leverage technology-related opportunities.
Key considerations: Available technology, emerging technology, consumer proficiency in
using technology, attitudes towards technology.
Economic:
This involves analyzing consumer purchasing power and spending patterns.
Key considerations: Regional, national, or international economic conditions, taxation,
inflation, major/minor industries.
Environmental:
This refers to the physical and natural resources used by the firm and the impact of its
operations on the environment. Environmental sustainability is crucial as customers are
increasingly aware of a firm's ecological footprint.
Key considerations: Natural resources, local plant or wildlife, waste disposal/recycling,
attitudes toward sustainability, ecological change/balance.
Political:
This encompasses laws and government policies that affect businesses, including political
stability, trade policies, fiscal policies, and taxation. Government agencies and pressure
groups also influence demand patterns.
Key considerations: Government structure and stability, political party dynamics, public
policy, international agreements.
Legal:
This focuses on legislative bills and regulations within the firm's operating area, such as
consumer law, health and safety laws, and trade regulations. Compliance with legal
requirements is mandatory.
Key considerations: Compliance with regulating bodies, laws related to contracts and
employment, union dynamics and issues.
Ethical:
This involves social values that define what is considered right or wrong, shaping business
behavior. Firms need ethical guidelines for their employees.
Key considerations: Impacts of reputation on business success, confidentiality.
Demographic:
This force relates to the vital statistics of a population, such as age, race, ethnicity, and
location, which strongly correlate with consumer buying behavior.
Key considerations: Total population make-up, ethnic diversity, age group dynamics,
gender differences, population shifts.
SWOT Analysis
SWOT analysis is a framework for identifying and analyzing internal strengths and weaknesses,
and external opportunities and threats.
Strengths: Internal capabilities, resources, and positive situational factors that help a firm
achieve its objectives.
Weaknesses: Internal limitations and negative situational factors that hinder a firm's
performance.
Opportunities: Favorable forces or trends in the external environment that a company can
exploit for its advantage.
Threats: Unfavorable external forces or trends that may challenge a firm's performance.
Relationship between STEEPLED and SWOT: After conducting a STEEPLED analysis,
entrepreneurs can identify opportunities and threats from the external macroenvironment. This
information then feeds into the external components of a SWOT analysis. Internal strengths and
weaknesses are assessed separately by focusing on organizational resources. The goal is to
develop strategies that capitalize on opportunities, mitigate threats, convert weaknesses into
strengths, and leverage strengths.
Components of the Microenvironment
The microenvironment consists of actors that are closely related to the firm and affect its ability
to serve its customers.
Company: This includes all interrelated groups within the organization, such as top
management and various departments. Top management sets the mission, objectives,
strategies, and policies.
Suppliers: These are partners who provide the necessary resources for the firm to create and
deliver customer value.
Marketing Intermediaries:
These entities help the firm promote, sell, and distribute its products to final buyers. They
include:
Resellers: Wholesalers and retailers who buy and resell products.
Physical distribution firms: Companies that assist with stocking and moving products.
Financial intermediaries: Banks, credit companies, and insurance firms that provide
financial assistance.
Marketing services agencies: Firms that help with marketing research, advertising, media
planning, and consulting.
Competitors: Firms must understand their competitors to stay ahead. This involves providing
greater customer satisfaction, adapting to consumer needs, positioning offerings effectively,
and considering their own size and market position relative to competitors.
Publics:
These are groups with an actual or potential interest in or impact on an organization's ability
to achieve its objectives.
Financial publics: Those who affect the firm's ability to get funds (e.g., banks, analysts,
stockholders).
Media publics: Outlets that carry news, features, and editorial opinions (e.g., newspapers,
blogs, social media).
Government publics: Government bodies that may influence or regulate the firm.
Citizen-action publics: Consumer organizations, environmental groups, and other
pressure groups.
Internal publics: Employees, managers, volunteers, and the board of directors.
General public: The overall attitude of the public towards the firm and its products.
Local publics: Residents and organizations in the local community.
Customers:
The most critical actors in the microenvironment. Firms aim to engage target customers and
build strong relationships.
Consumer markets: Individuals and households buying for personal consumption.
Business markets: Organizations buying for further processing or use in operations.
Reseller markets: Businesses buying to resell for profit.
Government markets: Government agencies buying for public services.
International markets: Buyers from other countries.