Several techniques are used for analyzing and diagnosing the environment. Two such techniques are given below :
1. SWOT Analysis : SWOT is acronym for strengths, weaknesses, opportunities and threats. While strengths and weaknesses can be identified by analyzing the internal environment (corporate appraisal), opportunities and threats can be identified by analyzing the external environment. SWOT analysis can also be modified into TOWS (Threats, Opportunities, Weaknesses and Strengths).
Strength : A strength is an inherent is an inherent capability of the company which it can use to again strategic advantage over its competitors. Country-wide distribution network, for example, is a strengths of Hindustan Unilever Limited.
Weakness : A weakness is an inherent limitation or constraint of the company which creates strategic disadvantage for it. Family fued is today a weakness of Reliance Industries.
Opportunity : An opportunity is a favorable condition in the company’s external environment which enables it to strengthen its position. Economic liberalization and globalization offers an opportunity to companies which want to enter banking, insurance, telecommunication sectors.
Threat : A threat is an unfavorable condition in the company’s external environment which causes a damage or risk to its position. Competition from multinational corporations is a threat for Indian firms.
SWOT analysis is helpful in the formulation of an effective strategy that can capitalize on the opportunities and neutralize the threats faced by an organization.
2. ETOP : ETOP is the acronym for environmental threats and opportunities profile. A specimen of ETOP is given below :
ETOP for a Bicycle Company
Social ↑ Customer preference for sports cycles which are fashionable, easy to ride and durable
Political → No significant impact
Economic ↑ Growing affluence among urban consumers, export potential high
Regulatory ↑ Bicycle Industry a thrust area for exports
Market ↑ Industry growth rate for sports cycles is high at 30 percent
Technological ↑ Technological up gradation in progress
Up arrows ↑ indicate fovourable impact (opportunity). Down arrows ↓ indicate unfavorable impact
(threat) while horizontal arrows → indicate a neutral impact.