Reference Book: Business Environment by Francis Cherunilam(2005)

1. BUSINESS
ENVIRONMENT
ANALYSIS

2. TABLE OF CONTENT
1. EXORDIUM
2. WHAT IS BUSINESS ENVIRONMENT ANALYSIS???
3. STAGES OF ENVIRONMENTAL ANALYSIS
4. TECHNIQUES OF ENVIRONMENTAL ANALYSIS
5.
APPROACHES TO ENVIRONMENTAL ANALYSIS
5.1. Outside-In approach
5.2. Inside-Out approach
6. BENEFITS OF BUSINESS ENVIRONMENT ANALYSIS
7. COMPREHEND
8. ADDENDUM

3. 1. EXORDIUM
Business decisions, particularly strategic ones, need a clear identification of the relevant
variables and a detailed and in-depth analysis of them to understand their impact and
implications for the organizations. For example: What is the impact of the different aspects of
liberalization on a concern? What are the implications of the liberalization for the company? In
other words, what are the threats posed by the liberalization and what are the opportunities
unfolded by the liberalization?
A thorough analysis of the environment is necessary for finding answers to these. Hence, the
concept of Business Environment Analysis was framed. Environmental Analysis addresses to
the issues and answers question about how an environment affects business success.
2. WHAT IS BUSINESS ENVIRONMENT ANALYSIS???
Any organization, business and institution is operating under its specific environment. BEA is
one of the first steps in strategic management or the first move from any business’ perspective
before they made a decision. Also it is used to stay up to date on trend and keeping their
competiveness ahead of competitors.
Environmental analysis will help the firm to understand what is happening both inside and
outside the organization and to increase the probability that the organizational strategies
developed will appropriately reflect the organizational environment.
Technically speaking, Environmental analysis is a strategic tool. It is a process to identify all the
external and internal elements, which can affect the organization’s performance. The analysis
entails assessing the level of threat or opportunity the factors might present. These evaluations
are later translated into the decision-making process. The analysis helps align strategies with the
firm’s environment.

4. 3. STAGES OF ENVIRONMENTAL ANALYSIS
The following is the process of environmental analysis:
4. TECHNIQUES FOR ENVIRONMENTAL ANALYSIS
Techniques for environmental analysis refer to the methods of gathering relevant information for
appraising the environment.
William Glueck mentions the following techniques of environmental analysis:
• analyzing the environment for identification of
the factor which has an impact on the business
• "identify percursors or indicators of potential
environmental changes and issues"
Scanning
the environment to
detect warning signals
• entails perspective follow-up and in-depth
analysis of environmental trends
• "assemble sufficient data to discern whether
certain patterns are emerging"
Monitoring
specific environmental
trends
• anticipate the future to identify future threats and
opportunities
• "development of plausible directions to lay out
the evolutionary path of anticipatory change"
Forecasting
the direction of future
environmental changes
• draw up implications or certain impacts
• " understanding the environment and
identifying what that understanding of
environment means for the organisation"
Assessment
of current and future
environmental changes

5. 5. APPROACHES TO ENVIRONMENTAL ANALYSIS
5.1. Outside-in approach:
The outside-in or macro approach takes a very broad view of the business environment with a
long term perspective and develops alternative scenarios of the future.
In the macro environment analysis your identified opportunities and threats may affect many
industries, for example: a possible interest rate rise will affect the amount of disposable income
people have.
Spying
SearchandScanning
Formalforecasting
Verbalandwritteninformation
documented
information
that is
published or
unpublished
can be
collected
through
personal
contacts and
media,
seminar,
workshops
etc.
identify
sources of
information
and manage
the timely
availability
of the
required
information
done through
Management
Information
System (MIS)
unethical in
business but
is a mean to
obtain secret
information
regardnig
space and
research
gathers
competitve
information
predictong
the future
trends
similar to
steps in
formulating
and executing
a research
project
ENVIRONMENTAL
ANALYSIS
OUTSIDE-IN
(MICRO)
INSIDE-OUT
(MACRO)

6. There are many strategic analysis tools that a firm can use, but some are more common. The
most used detailed analysis of the environment is the PESTLE analysis. This is a bird’s eye
view of the business conduct. Managers and strategy builders use this analysis to find where their
market currently. It also helps foresee where the organization will be in the future.
PESTLE analysis consists of various factors that affect the business environment. Each letter in
the acronym signifies a set of factors. These factors can affect every industry directly or
indirectly.
 Political: The macro-political environment analysis will identify changes in the position
politicians take on issues. A current example is a shift towards greener policies in the
developed world. If an election is approaching you may look at the variation in policies
from each party and assess the impacts on your industry of each parties viewpoint
 Economic Trends: The macro-economic environment analysis will identify trends such
as changes in personal disposable income, interest rates, inflation, exchange rates and
unemployment rates.
 Social/Cultural Trends: The macro social/cultural environment analysis will identify
trends in societies, beliefs, behaviours, values and norms. Such as the number of part time
workers, attitudes towards global warming, make up of the family structure as well as
trends in population growth at relevant ages for your industry (There maybe zero
population growth in general but high growth in the number of people over 65). The
population may also shift from rural to cities or vice versa.
 Technological Trends: The macro technological environment analysis will identify
changes in the application of technology and uptake of technology. A current example is
a shift towards online transactions and in some areas a shift away from online
transactions.
 Legal Trends: The macro legal environment analysis is closely linked to the political
environment (politicians tend to make the laws), but also includes trends in court
decisions such as liability compensation. Most organisations need to be constantly aware
of changes in labour laws. An Example: Legal changes that resulted from the rise of Uber
has seen the value of taxi plates decline significantly in some countries.

7.  Environmental: The macro environment analysis will identify how changes in the
environment will impact on your industry.
The final step of the macro environmental analysis is to summarize the identified opportunities
and threats and determine if you should expect growth, stability or decline in the size of your
industry.
STEP, STEEP, STEEPLE, STEEPLED, STEPJE and LEPEST: All of these are acronyms
for the same set of factors. Some of them gauge additional factors like ethical and demographical
factors.
5.2. Inside-out approach:
The inside-out approach, which takes a rather narrow view of the environment, forecasts the
immediate future environment on the basis of the ongoing environmental monitoring and derives
the implications of it for the industry and firm out of it.
The SWOT analysis is a business analysis technique that an organization can perform for each of
its products, services, and markets when deciding on the best way to achieve future growth. The
process involves identifying the strength and weakness of the organization, and opportunities and
threats present in the market that it operates in. The first letter of each of these four factors
creates the acronym SWOT.
The SWOT analysis is a popular and versatile tool, but it involves a lot of subjective decision
making at each stage. Let us see what exactly the terms in SWOT mean:
 Strengths: Internal factors that are favorable for achieving the organization’s objective
 Weaknesses: Internal factors that are unfavorable for achieving organization’s objective
 Opportunities: External factors that are favorable for achieving organization’s objective
 Threats: External factors that are unfavorable for achieving organization’s objective

8. 6. BENEFITS OF BUSINESS ENVIRONMENT ANALYSIS
Environmental Analysis has several benefits like those mentioned below:
 The very idea of environmental analysis makes one aware of the environment-
organization linkage
 It helps organization to identify the present and future threats and opportunities
 Provides necessary and very useful picture of the important factors which influence the
business
 Helps to understand the transformation of the industry environment
 Contributes to identification of risk
 Technological forecasting indicates future opportunities and challenges
 Prerequisite for formulation of right strategies- corporate, business and functional
 Helps suitable modification of strategies as and when required
 Keeps the managers informed, alert and dynamic
7. COMPREHEND …
Modern business is dynamic. The only thing constant here is ‘change’. Keeping a track of the
changing trend and current market scenario is important. The organization should be flexible and
adapt itself to the environment. Hence, a thorough examination of the environment which affects
the business is necessary for its success.
The whole concept of environmental analysis is concerned with how the business is affected and
what can be done to reduce or avoid the same. Business can be affected in many ways. These
‘ways’ are collectively grouped under two heads: Internal Analysis and External Analysis.

9. The Internal Environment Analysis is all about scanning things within the firm. It’s about
identifying changes that has affected the particular firm alone. The main tool used for this
analysis is ‘SWOT’.
The SWOT analysis identifies the Strength, Weakness, Opportunities and Threats of the
organization. The above mentioned four factors are particular to an organization alone and has
nothing to do with other firms or other industry.
For example: Madurai city drools over Movies. There are many theatres around Madurai, but
INOX is always crowded. It being expensive when compared to others, has in no time gained
popularity among a large group of audience. People from all classes of income want to watch at
least one movie in INOX. Let us perform a SWOT analysis to know the reason behind its
success.
Strength:
• ease of buying tickets as online medium is
used
• comfortable and spacious seats resulting in
a very good ambience
• Hollywood, Bollywood, ollywood and other
regional movies are screened for 7 days
• variety of refreshments is available
Weakness:
• other ways of watching a movie,
downloading form the net, CD, DVD etc
has become more popular
• not easily affordable
Opportunities:
• showcasing international films in a big way
• opening few more screens in Madurai that
are more affordable
• expanding the chain by opening branches in
Sec B and C cities
Threats:
• competing with Sathyam, Imax and PVR
cinemas

10. There are outside factors like politics, socio-cultural etc. that not only affects the organization but
the whole industry. Identifying such factors and planning for the same is External Analysis. The
main tool for external analysis, we know, is PESTEL.
The political, economic, environmental, technological, legal, social facets are given the
limelight.
For example: Yoga Guru-Baba Ramdev and Acharya Balkrishna’s Patanjali Ayurved Ltd.
(PAL) is the third leading FMCG industry in India with a revenue of Rs.5000 crore as of 2015-
16. PAL was recently in controversy as they had not obtained the FSSAI grade when launching
their new product line of Instant Noodle. Patanjali has however gained popularity in no time. Let
us now perform a short PESTEL analysis to find out the reasons for the same.
Political:
• Baba Ramdev is friendly to the present
government
• hence, the current political environment is
conducive to the growth of PAL in the country
• there is full support from the government who
is encouraging more Indian manufacturing
industries
Economic:
• Since Patanjali Ayurved procures its raw
materials locally and thrust on export is
minimal, factors like currency exchange rates
have no significant impact
• the inflation rates and implementation of GST
will help PAL
Social:
• PAL uses ayurvedic raw materials to produce
its products which are free from chemicals
• people have become health conscious and
inclined towards natural products
Technological:
• Patanjali through Patanjali Yogpeeth Trust at
Haridwar is involved in R&D of ayurvedic
and herbal products
• Automation in drug production helps in mass
production of products without losing its
effectiveness
Environmental:
• Ayurvedic products are free from chemicals
• they are safe for the environment
• the residue produced is less harmful when
compared to other products
• India is a rich source of ayurvedic herbs
Legal:
• There are certain acts applicable to the
Ayurved industry
• A few of them are-
• Medicine Central Council Act- 1970
• Drugs and Cosmetics Act- 1940
• Drugs and Magic Remedies Act- 1954

11. 8. ADDENDUM
It is clear from the above facts that Environment analysis is of utmost necessity for a business
concern. It helps in formulating Business decisions and envisages organization modeling. Such
analysis will be useful only when the organization is true to itself. Theodor Billroth has rightly
quoted-
“Keep your analysis pure and virtuous. Don’t sugar-coat results.”
To conclude, I believe that every business organization must practice environment analysis to
withstand its market position in the long-run.
Presented by:
BHARTI GOYAL D.
III B.COM [CA]