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The analysis of the global environment of a company is
called global environmental analysis. This analysis is part of a company’s
analysis-system, which also comprises various other analyses, like the industry
analysis, the market analysis and the analyses of companies, clients and
competitors. This system can be divided into a macro and micro level. Except
for the global environmental analysis, all other analyses can be found on the
micro level. Though, the global environmental analysis describes the macro
environment of a company.[1] Obviously, a company is influenced by its
environment. Many environmental factors, especially economical or social
factors, play a big role in a company’s decisions, because the analysis and the
monitoring of those factors reveal chances and risks for the company’s
business. This environmental framework also gives information about location
issues. A company is thereby able to determine its location sites. Furthermore,
many other strategic decisions are based on this analysis. One may also apply
the BBW model.[2][3] In addition, the factors are analyzed to evaluate external
business developments.[4] It is finally the task of the management to adapt the
firm to its environment or to influence the environment in an adequate way. The
latter is mostly the more difficult option. There are different instruments to
analyze the company’s environment which are going to be explained afterwards.
Contents
1 PESTLE analysis
1.1 Political and legal factors
1.2 Economical factors
1.3 Social factors
1.4 Technological environmental factors
1.5 Environmental factors
2 Methods of the global environmental analysis
2.1 Environmental scanning
2.2 Environmental monitoring
2.3 Environmental forecasting
2.4 Environmental assessment
PESTLE analysis
One instrument to analyse the company’s external environment
is the PEST analysis. PEST stands for political, economical, social and
technological factors. Two more factors, the legal and environmental factor,
are defined within the PESTLE analysis.[5] To explain these environmental
factors, it is necessary to say that most of the factors depend on each other
and that they change over the years. Consequently, when one factor changes it
also affects the others. The equality for every company is the main
characteristic of the factors in an environmental analysis.[6] The different
environmental factors are covered below.
Political and legal factors
Political and legal factors are here regarded as a unit.
They refer to framework given by politics. The exist regulatory or legal
frameworks, which can be binding for regions, nations or on an international
basis. The frameworks deal with economical issues or issues concerning the
labour market.Subsidies for instance fall in the category of economical issues.
According to the degree of support through subsidies, a country can be more or
less attractive for a company. With respect to the labour law of a country, it
can highly influence location decisions, too. If e.g. the dismissal protection
in a country is very good, a firm may tend to choose a country with a more
flexible hire-and-fire-system. Furthermore, the stability of a political system
is a real important aspect for most firms. A social market economy with rights
for co-determination, regulations for patents, the company’s investment and
environment protection are main characteristics for a political stable system.
Economical factors
Economical factors deal with national or international
economical developments and have a direct influence on supplier and consumer
markets. Examples of economical factors that play a big role are: the GDP, the
rate of inflation, interests, the change rate, employment or the situation of
money markets. These economical factors influence demand, competition intensity,
cost pressure and the will to invest. For instance, if the gross domestic
product of a country is fairly low, the demand is in general lower than in
countries with a higher GDP.
Social factors
Social factors deal with social issues regarding the values,
ideas, opinions and the culture of market participants. Market participants can
be employees, customers or suppliers. Through their contact with the company,
they influence it due to their opinions. The company needs to follow the market
participant’s change of value and adapt its strategies. Nowadays, a change of
values concerning environmental protection is on the move.
Technological environmental factors
Technological environmental factors are meanwhile of a great
importance, especially for industrial companies, which underlie a fast
technological change. The increasing speed of technological changes, like in
microelectronics or robotics indicate risks chances for a company. Particularly
producing companies are affected of that fast evolution.
Environmental factors
At last, environmental factors are becoming more and more
important nowadays. They regard natural resources and the basis of human life.
Among those, the availability of raw materials and energy is the main topic. As
the availability of fossil fuels, like oil or coal, gets worse within the next
decades, the dependency on those fuels stays pretty risky. Moreover, to show an
ecological responsibility, companies should assess and reduce their ecological
damage. Through rare raw materials and increasing pollution, an environmentally
friendly management gets spotlighted more and more by the public interest.
Consequently, eco-friendly products or technologies can even signify a
competitive advantage.
Methods of the global environmental analysis
The segmentation according to the six presented factors of
the PESTLE analysis is the starting point of the global environmental analysis.
The analysis can be done with the help of a checklist that evaluates every
criteria of a segment. In this manner, the status of the global environment
shall be defined. In general, every segment needs to be worked on
systematically to recognize changes. Then, the factors and its impacts can be
interpreted right. After the segmentation, the analysis consists of four
further steps:
Environmental Scanning
Environmental Monitoring
Environmental Forecasting
Environmental Assessment
Environmental scanning[edit]
The first step is called scanning. Through environmental
scanning, every segment is analyzed to find trend indicators. Thus, after
having examined the segment, indicators for its development are defined.[8]
According to Fahey and Narayanan, scanning reveals ‘actual or imminent change
because it explicitly focuses on areas that the organisation may have
previously neglected’.[9] Scanning is also used to detect weak signals in the
environment, before these have conflated into a recognizable pattern, which
might affect the organization’s competitive environment.
Scanning can include every material published in the media
such as television, newspapers and periodicals.[10] This method of scanning is
called media-scanning. Product-scanning includes scanning of products which
announce re-emerging consumer behaviour. Looking for global trends on the
internet can be defined as online-scanning.[11]
Modes of scanning
Four modes of scanning can be distinguished. Francis Joseph
Aguilar (1967) differentiates between undirected viewing, conditioned viewing,
informal search and formal search.
'Undirected viewing' means reading a variety of publications
for no specific purpose with the possible exception of exploration. This mode
is the most cost-efficient one but it also offers the most benefits. There are
a lot of varied sources and information which means that the potential data are
unlimited. Data are imprecise and vague and there are no guidelines which
determine where the search should be focused.
Applying 'conditioned viewing' the viewer pays attention to
the particular kinds of data and assesses their significance for the
organization. The field of information is more or less clearly identified.
'Informal searching' can be defined as actively seeking
specific information in a relatively unstructured way.
The contrast of informal searching is called 'formal
searching'. This proactive mode of scanning contains methodologies for
obtaining information for specific purposes.[12]
Environmental monitoring[edit]
Environmental scanning is only one component of global
environmental analysis. After having identified critical trends and potential
events they have to be monitored. The next step in global environmental
analysis is called environmental monitoring. It can be defined as 'the process
of repetitive observing for defined purposes, of one or more elements or
indicators of the environment according to pre-arranged schedules in space and
time, and using comparable methodologies for environmental sensing and data collection'.[13]
Through environmental monitoring, data about environmental developments are
recorded, followed and interpreted. Out of this, historical development changes
that are important for the company can be recognized and evaluated.
Additionally, the relevance and the reliability of the data sources are tested.
Furthermore it is checked, where prognoses are required.
Environmental forecasting
The direction, intensity and speed of environmental trends
are explored through environmental forecasting. Especially the search for
possible threats is of importance. A prognosis of trends is necessary to get a
picture of the future. This is done by adequate methods, like strategic
foresight or scenario analysis.[8] Several other methods of forecasting are the
following: guessing, rule of thumb, expert judgement, extrapolation, leading
indicators, surveys, time-series models and econometric systems.[14]
'Guessing' and related methods totally rely on luck.
Consequently it is not generally a useful method. In addition, it is almost
impossible to evaluate the uncertainty of a guess in advance.
'Expert judgement' lacks validation being the only component
of forecasting. It is hardly to predict which ‘oracle’ is successful.
'Extrapolation' is effective when tendencies exist.
Forecasts are most effective when changes are predicted in tendencies.
Prediction in changes in tendencies is likely to miss concerning extrapolative
methods.
Forecasting based on leading indicators' needs a stable
relationship between the variables that lead and the variables that are led. If
the reasons for the lead are not clear the indicators may give misleading
information.
'Surveys' of businesses can give information about the
future. They rely on planning which needs to be realized. Changes in business
implicate changes in planning.
'Time-series models' are popular forecasting methods. They
describe historical patterns of data and they focus on “measurable
uncertainty”.
'Econometric systems' of equations are the main tool of
economic forecasting. They consist of equations which attempt to “model” the
behaviour of economic groups such as consumers, producers, workers, investors
etc. moderated by historical experience. There are several advantages of using
formal econometric systems: Economists are able 'to consolidate existing
empirical and theoretical knowledge..., provide a framework for a progressive
research strategy..., help to explain their own failures, as well as provide
forecasts and policy advice.'[15]
Environmental assessment
In the last step of the global environmental analysis, the
results of the previous three steps (Scanning, Monitoring, Forecasting) are
assessed. The discovered environmental trends are reviewed to estimate the
probability of their occurrence. Furthermore, they need to be analyzed to
evaluate whether they represent a chance or a risk for the company. The
dimension of the chances or risks is also of importance. Moreover, a reaction
strategy to the occurring risks or chances needs to be defined. This is done
with the help of the Issue-Impact-Matrix, an adequate instrument to evaluate
and prioritize trends. The forecasted environmental factors are here classified
with respect to their probability of occurrence and their impact on the
company. According to their classification, they demonstrate a high, medium or
low priority for the company. The factors with a high occurrence probability
and a high, significant impact on the company have the highest priority. The
higher the priority, the faster need to be reacted to avoid risks and to
benefit from chances.[16] The environmental assessment represents the last step
of the global environmental analysis.
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