This document provides an overview of environmental analysis techniques used to understand the external business environment. It defines environmental analysis as identifying external and internal factors that can affect organizational performance. Major techniques discussed include SWOT analysis, PESTLE analysis, and Porter's Five Forces framework. Each has benefits but also limitations. Conducting environmental analysis helps align business strategies with the operating environment.

1. ENVIRONMENTAL ANALYSIS
ASSOC. PROF. HAUWA LAMINO ABUBAKAR

2. OBJECTIVES
By the end of this chapter you will be able to understand:
1. Determine the concept of business environment
2. Understand the environmental analysis process
3. Identify the major techniques for carrying out environmental
analysis
4. Determine the benefits and limitations/criticism of each
Technique

3. CONCEPT BUSINESS ENVIRONMENT
 Business leaders can control aspects of the internal environment that can
positively or negatively affect a company's operating and financial results.
 For example, leaders shape their company's culture, establish the
company's organizational structure and create policies that guide
employee behavior.
 The greatest challenges to business success may be a consequence of the
external environment over which a company has little, if any, control.
 To address these challenges, business leaders conduct an environmental
analysis and develop policies and processes that adapt company
operations and products to this environment.

5. ENVIRONMENT ANALYSISONCEPT OF
ENVIRONMENTAL ANALYSIS
 Environmental Analysis is a process to identify all the external
and internal elements, which can affect the organization’s
performance.
 The environmental analysis entails assessing the level of threat
or opportunity various factors might present.
 These evaluations are later translated into the decision-making
process.
 The analysis helps align strategies with the firm’s environment

6. ENVIRONMENT ANALYSIS
 Environmental analysis models are useful tools and techniques
that can help you understand your organisational environment
and think more strategically about your business;
1. SWOT (strengths, weaknesses, opportunities, threats)
analysis
2. PESTLE (political, economic, social, technological, legal and
environmental) analysis
3. Porter's Five Forces framework

7. ENVIRONMENT ANALYSIS PROCESS

8. ENVIRONMENT ANALYSIS PROCESS
SCANNING
 It is the process of analysing the environment.
 The main aim of environmental scanning is alerting the
organization to potentially significant external impingement
before it has fully formed or crystallized.
MONITORING
 It entails perspective follow up and a more in-depth analysis of
the relevant environmental trends identified at the scanning
stage.
 The purpose of monitoring is to assemble sufficient data to
discern (make out) whether certain patterns are emerging.

9. ENVIRONMENT ANALYSISNVIRONMENT
ANALYSIS PROCESS
FORECASTING
 Forecasting is concerned with the development of plausible
directions, scope, speed, and intensity of environmental change
to layout the evolutionary path of anticipatory change in the
environment.
ASSESSMENT
 Assessment involves drawing up implications/ possible impacts.
 In an assessment, the frame of reference moves from
understanding the environment of the focus of Scanning,
Monitoring and Forecasting-to identifying what that
understanding of environment means for the organization

10. INTERNAL ANALYSIS
Factors you want to identify
when trying to understand
the business environment;
1. Resources
2. Organisational
Capabilities
3. Value Proposition
4. Value Chain
5. Bench Marking
6. CompetitiveAdvantage
ASSESSMENT (Cont.)
1. Is the Company strategy working?
2. What are the organisations capabilities
3. Is the customer value proposition
competitive
4. Is the Comopany comlpetitively
stronger than rivals
ENVIRONMENT ANALYSISNVIRONMENT
ANALYSIS PROCESS

11. SWOT ANALYSIS
 SWOT is an acronym for Strengths, Weaknesses, Opportunities and
Threats.
 Strengths (S) andWeaknesses (W) are considered to be internal factors
over which you have some measure of control.
 Opportunities (O) andThreats (T) are considered to be external factors over
which you have essentially no control.
 SWOT Analysis is the most renowned tool for audit and analysis of the
overall strategic position of the business and its environment.

12. SWOT ANALYSIS
 Its key purpose is to identify the strategies that will create a firm
specific business model that will best align an organization’s
resources and capabilities to the requirements of the
environment in which the firm operates.
 SWOT Analysis is instrumental in strategy formulation and
selection.
 It is best when used as a guide, and not as a prescription.

14. ADVANTAGES OF SWOT ANALYSIS
SWOT Analysis helps in strategic planning in following manner:
1. It is a source of information for strategic planning.
2. Builds organization’s strengths.
3. Reverse its weaknesses.
4. Maximize its response to opportunities.
5. Overcome organization’s threats.
6. It helps in identifying core competencies of the firm.
7. It helps in setting of objectives for strategic planning.

15. LIMITATIONS OF SWOT ANALYSIS
There are certain limitations of SWOT Analysis which include;
1. Cost of extensive research and analysis of environment
2. Insufficient information gathering hindering to faulty analysis
3. Volatile environment which brings about inconsistency in analysis
4. It does not determine final decision.
5. Level of expertise is needed.

16. PESTEL ANALYSIS
 The most used detailed analysis of the environment is the
PESTEL analysis.
 This is a bird’s eye view of the business conduct.
 Managers and strategy builders use this analysis to find where
their market, at a current time.
 It also helps foresee where the organization will be in the future.

18. LIMITATIONS OF PESTLE ANALYSIS
1. The static nature of the analysis ensures that unexpected
environmental changes are not considered in a company's
business projections.
2. In addition, the environmental analysis is but one source of
information that's evaluated as a company develops a
strategic plan.
3. The benefit of the analysis is also limited by the reliability and
timeliness of data used in the analysis.

19. PORTERS FIVE FORCES
 Porter's Five Forces Framework is a tool for analyzing
competition of a business.
 It draws from industrial organization (IO) economics to derive
five forces that determine the competitive intensity and,
therefore, the attractiveness (or lack of it) of an industry in
terms of its profitability.
 An "unattractive" industry is one in which the effect of these five
forces reduces overall profitability.
 The five-forces perspective is associated with its originator,
Michael E. Porter of Harvard University.

20. PORTERS FIVE FORCES
 Porter refers to these forces as the microenvironment, to
contrast it with the more general term macro environment.
 They consist of those forces close to a company that affect its
ability to serve its customers and make profit.
 A change in any of the forces normally requires a business unit
to re-assess the marketplace given the overall change in
industry information.

21. PORTERS FIVE FORCES
Porter's five forces include three forces from macro environment.
1. the threat of substitute products or services
2. the threat of established rivals
3. the threat of new entrants
The two others from micro environment
1. the bargaining power of suppliers
2. the bargaining power of customers

22. PORTERS FIVE FORCES

23. PORTERS 5 FORCES: MACRO ENVIRONMENT
1. Threat of New Entrants (High): Profitable industries that yield high
returns will attract new firms. New entrants eventually will decrease
profitability for other firms in the industry. Unless the entry of new firms
can be made more difficult by incumbents.
2. Threat of substitutes (High): Substitute goods or services that can be used
in place of a company's products or services pose a threat. Companies that
produce goods or services for which there are no close substitutes will have
more power to increase prices and lock in favourable terms
3. Bargaining power of customers (High): The bargaining power of
customers is also described as the market of outputs: the ability of
customers to put the firm under pressure, which also affects the
customer's sensitivity to price changes.

24. PORTERS 5 FORCES: MICRO ENVIRONMENT
4. Bargaining power of suppliers (High): The bargaining power
of suppliers is also described as the market of inputs. Suppliers
of raw materials, components, labor, and services (such as
expertise) to the firm can be a source of power over the firm
when there are few substitutes.
5. Competitive rivalry (High): For most industries the intensity
of competitive rivalry is the major determinant of the
competitiveness of the industry. Having an understanding of
industry rivals is vital to successfully market a product.

25. CLASS DISCUSSION
1. If you were a Strategic Manager at Dangote Cement Company, and
you wanted to venture into South Africa, which business analysis
model would you apply to make a strategic decision and why?
2. If you were a CEO at EmergingYoung Entrepreneur, which business
analysis model would you apply to aid in expanding to other
African countries?
3. If you were a Strategist at Central Bank of Nigeria, which business
analysis model would you apply and why?
4. As theVice Chancellor of Nile University, which strategic
environment analysis technique would you adapt to make strategic
decisions.

26. GROUP ASSIGNMENT /PRESENTATION
1) With the current assumption of your organization, determine
which Environmental AnalysisTechnique you will adapt with
the current state of your industry. Justification should be
provided.
2) Make a comprehensive analysis of your Industry using;
1) SWOT Analysis
2) PESTLE Analysis
3) Porter’s five ForcesTechnique