When running a business, owners and managers need to know both the internal and external strengths and weakness of their operations and enterprises. In this lesson, we'll discuss the business environmental analysis report, which examines external factors that impact a business.
A Business and its Environment
When you start or run a business, you need to identify many factors. Managers should be able to identify a business' strengths and weaknesses by market information and by assessing internal and external factors. A manager needs to understand how environmental factors can influence and impact a business.
Business Environmental Analysis Report
A business environmental analysis report gathers and examines information about factors and conditions outside of a business. Typically, these reports focus on issues, trends, and factors that managers are unable to control. Reports assess how these external factors may help or hinder a business. When you begin to research and analyze these factors, you'll realize that the environment has a large impact on your business' success.
The Analysis Process
So, now that we understand how both internal and external factors can affect the success of a business, what do we do from here? There are four basic steps you can take when analyzing an external business environment:
Analyze environmental factors, such as new laws, trends, and technology.
Consider all environmental factors which would affect your business and how they can be monitored.
Analyze each environmental factor in detail to determine how much impact they will have on your business.
Develop strategies to keep up with factors and any changes that may occur.
Now that we have discussed the importance of a business environmental analysis report and the basic steps of the analysis report, it's important to know that there are many techniques that a business can choose from when wanting a detailed environmental analysis completed.
A few of the more common techniques are:
SWOT analysis: An analysis based on a business' strengths, weaknesses, opportunities, and threats. This analysis is more commonly used when a business is looking to make a big change. This type of analysis is a good choice when a business is wanting to look into both internal and external factors in order to make the most knowledgeable decision based on the business and current market factors.
Industry analysis: A good tool to use when trying to identify how strong the industry you are in is at the time. It will help identify the economic, political, and market factors and how they are currently influencing the industry.
Competitor analysis: Used when a business wants to identify the strengths and weaknesses of competing businesses. This information will help you make your business unique to customers.
PEST or PESTLE analysis: One of most common techniques that business use due to it being based on the economy in the present and future. This analysis will help a business see where it is now and where it should be in the future based on economic factors.
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When using a PEST or PESTLE analysis you will gather information on the following things, which make up the acronym PESTLE:
Political Factors: When dealing with political factors, ask yourself the question, ''how can the government leadership affect my business?'' Other important political considerations are government policies, tax laws, tariffs, and the stability of the government.
Economic Factors: Factors such as inflation rates, interest, the availability of credit, and unemployment in your area and surrounding areas are all general economic factors that can help you chart a course for your business.
Social Factors: These factors can easily affect the sales of a particular business. For example, demographics, educational levels, lifestyles, cultural diversity, and the distribution of wealth can all have an impact on the demand for a product or service.
Technological Factors: Changes in technology occur daily, so in your business it's important to always consider technological factors such as new discoveries and the lifespan of the technology used in your business.
Legal Factors: Businesses should always be aware of legal issues and the impact they may have on their business. Product and employment regulations, patents, and health and safety regulations are all important issues to consider.
Environmental Factors: With any business, you may hear the saying, ''location, location, location.'' So, how can the location or the environment affect your business? Geographic location, local and state laws, and the environment's effect on clients are all factors to consider.
When businesses take the time to complete a business environmental analysis report, it allows them to find out what environmental factors could potentially affect their business. This analysis gives a business the tools to grow and become a successful business.
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