Analysis of the external environment of the organization: methods

Work on a strategy is a complex and time-consuming process. The foundation for the choice of the development program of any enterprise, not only commercial, but also public, municipal, is the analysis of the external environment of the organization. The effectiveness of this study determines the success of forward planning. The article describes the methods and tools for analyzing the external environment.

analysis of the external environment of the organization

External environment

No organization can exist in a vacuum. It is influenced by dozens of factors from the outside. The peculiarities of the “chameleon” of the external environment, which should always be taken into account, are dynamism, continuous movement and change. The market structure moves to another state, new preferences appear for consumers, currency rates “jump”, new legislative acts are issued. If an enterprise is flexible, responsive and coping with change, then it is on the road to success.

The analysis of the organization’s external environment can be divided into two areas: the study of the “near” environment and the “far” one.

"Near" factors

"Far" factors

Impact on the company of a direct nature. Factors contribute to effective work or complicate her life.

Indirect influence on the company, that is, through the factors of the “near” environment.

  • Consumers.
  • Suppliers.
  • Competitive environment.
  • State
  • Local power structures.
  • Trade unions and trade associations.
  • Economy.
  • Legislation.
  • Political trends.
  • The life of society in the social and cultural spheres.

Analysis of the external environment of the organization

To achieve its own goals and thrive, it is not enough for the company to simply “monitor” the external environment, to be able to “see” and apply possible alternatives. On the way of the company there are always dangers and obstacles that must be avoided. The solution of these problems is carried out with close study of the elements surrounding the company.

case study

Analysis of the organization’s external environment is a study of factors affecting a company for preparing a long-term list that reveals all existing and proposed elements of opportunities and threats. The study of factors consists of two stages.

1 step

2 step

Collecting information about changes in the social, economic, political and technological environment of the company.

Discussion of the data prepared for the preparation of the list, highlighting the opportunities and threats that are worth paying attention to.

The work of the management in this regard does not end with the definition of the list. The department heads will have to establish new regulatory indicators based on the identified threats and develop a list of significant success factors for the departments.

Value and Analysis Tools

analysis of the external environment of the organization on the example of the enterprise

Based on a study of the enterprise environment, management receives a forecast of unplanned circumstances, develops measures to prevent dangerous market situations, and turns threatening factors into an alternative for development.

Strategic analysis of the external environment of the organization involves solving three problems.

Where did we go, and what is our place among the competitors?

What are our goals for the future?

What should be done to get from the existing situation in the future?

The objects under study include products and their elements, the implementation of production tasks, development and marketing activities. The purpose of the study is to identify shortcomings that reduce the effectiveness of the implementation of functions and the achievement of the planned results.

analysis of environmental factors of the organization

There are the following tools for analyzing the external environment of the organization:

  • SWOT matrix;
  • matrix of opportunities and threats;
  • PEST analysis;
  • environment profile;
  • Porter's model “5 forces of competition”.

To study the competitive positions of business areas, several approaches are used:

  • Matrix of the Boston Advisory Group;
  • the McKinsey System from General Electric;
  • approach "Arthur D. Little" and others.

Methods of analysis of the organization’s external environment

In the practice of strategic management, there are special research methods that are studied not only by individual enterprises, but also by industrial complexes. The most popular are six directions.

Method

Characteristic

Functional value

Associated with the study of products and production processes. Creates opportunities to reduce costs. Demands the adjusted marketing and financial and analytical activity on firm.

Benchmarking

Measurement and comparison of all stages of development and implementation of world-class products.

Business field research

Research of cash flow, investment activity. Conducted for the entire organization, by activity, by areas of work. Identifies how market strategies affect profits.

Classic comparative

Study in a specific period of time or static.

Comparative industry.

Various economic indicators of one particular industry are being studied.

Quantitative analysis.

It is based on absolute, relative indicators, indices, which are presented in tabular or graphical form.

Enterprises employ several methods in combination. The development options that emerge from research allow you to create more accurate forecasts.

tools for analyzing the external environment of the organization

Swot

A widely known and recognized approach is a SWOT analysis of the organization’s external environment. Its great advantage is comprehensive research, that is, a parallel study of external and internal elements of the environment. The term SWOT is deciphered using the initial letters of English words: strength, weakness, possibility and threat.

The use of this method makes it possible to identify the interrelationships of the pros and cons of the picture of a business, to find a link between the factors that develop and inhibit movement toward a goal. According to the SWOT-approach, firstly, they determine strengths and weaknesses, then opportunities and threats. The list is developed based on the situation in which the company finds itself.

The second stage is the selection of relationships between elements. Found links will be used in the preparation of the strategy. Links are established in parallel with the filling of the table.

SWOT matrix

External environment

Capabilities

Threats

Internal environment

Forces

Measures that need to be implemented in order to realize the possibilities when implementing organizational forces

Measures based on elements of force and used to avoid hazards

Weakness

Measures that are needed to overcome weaknesses on the basis of opening opportunities

Measures that reduce weaknesses to a minimum to avoid hazards

PEST

PEST-analysis of the external environment of the organization is carried out in order to study the external factors of indirect influence. The content of the method is easy to remember, since the PEST includes environmental elements from the spheres of politics, economics, society and technologies.

Politics and scope of law

Economy

Society and culture

Technologies

Legislative and state factors:

the formation of monetary policy;

tax laws, antimonopoly and others;

the balance of power in politics;

communication government and the entrepreneurial world.

Aspects in the business performance of firms:

inflation;

interest rate;

exchange rates;

indicators of economic growth or recession.

Factors determining the living conditions, preferences of the population of the country and regions:

fertility rate;

migration;

average life expectancy;

mentality;

incomes of the population;

life conditions;

education;

attitude to the profession;

shopping preferences and habits.

Are the driving force of progress (R & D):

discoveries;

know-how;

a revolution in the production and processing of information;

development of communications and transport;

computerization.

All four types of factors overlap, so the direction of the analysis is important to correct. Changes in one direction lead to changes in another: new opportunities or dangers.

How to evaluate information about the environment?

methods of analyzing the external environment of the organization

The final stage of research is the elaboration of the information collected during its course. Results are used as a basis for prospective development of plans. Evaluation is performed to detect the perceived weakening and prospective effects on the firm.

Methods of analyzing the external environment of the organization allow many different ways to assess. Consider the method of "5 by 5", proposed by A. Meskon. The meaning of the technique is to solve 5 tasks about 5 factors:

  • What are the five elements of the external environment you call, having information about the current situation of the enterprise?
  • What five factors are the most dangerous for the company?
  • What are the five factors that are important for competing firms based on the information you have about their plans?
  • What are the five factors that are important for the implementation of your chosen strategic programs?
  • Which five areas with opportunities for change are beneficial for the organization?

In order to reasonably answer each question, it is necessary to accumulate information about the company's environment and make a prediction of the state. The second assessment methodology involves 4 questions containing the order of selection of factors important for the future.

  • How the factor is capable to influence firm (to weaken or strengthen)?
  • Is the factor able to intensify and how to observe it?
  • How much will it affect the enterprise?
  • Can the influence weaken and when?

STEP Analysis Example

Let us analyze the organization’s environment using the example of an enterprise.“The construction company“ TOT ”has been operating since 02.09.2010 in the Perm Territory. Formed in the form of LLC. The main areas of work include the construction, repair of buildings and structures, to the additional - the implementation of retail construction, paintwork and other materials.

STEP analysis of the construction organization’s external environment

The factors of economics affecting the company include:

  • inflation growth;
  • tax rates;
  • season (the peak of construction and repair work falls on the summer);
  • rising prices for energy, transportation, raw materials, communication costs.

Among technological factors, we note:

  • production capacity at an optimal level;
  • improvement of competition technologies;
  • Information Technology;
  • availability of new technologies and licensing.

The factors of society include:

  • way of life of residents of the city and district;
  • representation of customers and the public about the company;
  • information picture about the organization in the media.

Among political factors we single out:

  • industry policy;
  • legislative base of the market;
  • alleged changes in legislation.

So, it is necessary to pay special attention to significant factors related to the state of the economy and technology.

SWOT study example

The purpose of the analysis of the organization’s external environment is to prepare alternatives, directions for business development, and resource allocation. Before completing the SWOT table, we prepare a list of elements of the internal environment in four segments (marketing, financial, industrial and organizational activities), with an assessment to highlight the strengths. In addition, you will need a list of opportunities, threats with consequences and ways to avoid hazards. It is necessary to note the threat of non-use of opportunities.

Analysis of environmental factors of the organization based on the SWOT matrix

External environment

Capabilities:

the expansion of the customer base;

range expansion.

Threats:

customer care;

the strength of competing firms;

loss of suppliers.

Internal environment

Forces:

reputation and prominence in the area;

financial stability;

modern equipment;

weighty market share.

The field of power and opportunity. How will the forces help to apply opportunities?

The field of force and threat. How to escape or minimize the dangers with the help of an enterprise?

Weaknesses:

small staff and high personnel turnover;

the location of the office and shop on the outskirts of the city;

qualification level of staff.

The field of weakness and opportunity.How to use the opportunities to overcome the weaknesses of the business?

The field of weakness and threat. How to get rid of weaknesses and eliminate the dangers?

In all 4 fields, it is necessary to study combinations of pairs from the external and internal environment, select the necessary field for the preparation of alternatives. An analysis of the organization’s external environment, using the example of the TOT enterprise, allows us to conclude that forces and threats prevail in the matrix, which means that the strategy requires the use of the specific strengths of the company to overcome the dangers.

The choice of the field of force and threat made as a result of the research does not cancel the obligatory work to eliminate weaknesses: decrease in turnover, increase the level of skills of workers.

Conclusion

strategic analysis of the external environment of the organization

Environment analysis is the basis of strategic planning, defining mission and corporate goals. Creating plans is impossible without such a tool as an analysis of the external environment of the organization. An example of a construction company study shows how strategy developers can take control over business.

Survey of the environment allows you to win in the competition priceless time for forecasting, planning, developing measures to prevent threats and realize opportunities.

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