The process of environmental analysis consists of the following stages :
- Environmental Scanning: Scanning means the process of analyzing the environment for identifying the factors which may influence the business. Its purpose is to identify the emerging trends or early warning signals. Such trends may have evolved over time or may have appeared suddenly. Environmental scanning alerts the organization to potentially significant forces in the external environment so that suitable strategic initiatives may be taken before these forces become critical for the organization, Scanning is basically exploratory in nature. There are so many environmental factors which influence the operation of a business. All these factors may not be relevant to an enterprise. Therefore, the critical and high priority factors must be identified. Several factors, e.g., managerial philosophy, age, size, power, geographic dimension, type of business of the organization influence the selection of relevant environmental factors.
- Environmental Monitoring : At this stage information from the relevant environment is collected. Once the relevant factors in the environmental are identified, adequate data about these factors are gathered so as to ascertain their emerging pattern and trends. Monitoring is a follow up and deeper analysis of relevant environmental forces identified through scanning. Several technique are used to collect the relevant facts about environmental factors. Company records, publications, spying and verbal talks with the employees, customers, dealers, suppliers and competitors are the main sources of data.
- Environmental Forecasting : Forecasting is the process of estimating the relevant events of future based on the analysis of their past and present behavior. It is necessary to anticipate future events before any strategic plans are formulated. Forecasting can focus on future aspects of the environment which affects the organization. Forecasts are made for economic, social, political and technological elements of environment, Several technique like time series analysis, econometric model, scenario building, Delphi method, etc. are used for the purpose of forecasting.
- Diagnosis (Assessment) : Environmental factors are assessed in terms of their impact on the organization. Some factors in the environment may entail an opportunity while others may pose a threat to the organization. The degree of impact may also vary from one factor to another. SWOT analysis, ETOP and other such techniques are used for environmental diagnosis.
The four stages given above are intertwined as can be seen form Fig. 2.1