QS Study

Factors that consider analyzing External Environment of a business –

The external environment includes the areas of General, Industry, and Competitor environment. The general environment is the broader social dimensions that influence an industry and the firms within it. It is grouped into 7 dimensions or ‘environmental segments’ which cannot be controlled or manipulated. However, segment intelligence of each of these can help reorient strategy to mitigate influence in the long term. The letters in PESTLE, also called PESTEL, denote the following things:

  • Political factors,
  • Economic factors,
  • Social factors,
  • Technological factors,
  • Legal factors,
  • Environmental factor.

Often, managers choose to learn about political, economic, social, and technological factors only. In that case, they conduct the PEST analysis. PEST is also an environmental analysis. It is a shorter version of the PESTLE analysis. STEP, STEEP, STEEPLE, STEEPLED, STEPJE, and LEPEST. All of these are acronyms for the same set of factors. Some of them gauge additional factors like ethical and demographical factors.

External Environment Analysis: An Opportunity is a general environment condition that is exploited helps a company achieve strategic competitiveness. A threat is a general environmental condition that may hinder a company’s efforts to achieve strategic competitiveness. There are four components of external environmental analysis namely –

  • Scanning: is the process of identifying the early signal of environmental changes and trends.
  • Monitoring: is the process of detecting meaning through ongoing observation of environmental changes and trends obtained through scanning.
  • Forecasting: is the process of developing projections of anticipated outcomes based on monitored changes and trends.
  • Assessing: is the process of determining the timing and importance of environmental changes and trends that impact a firms strategies and their management.

The analyses provide a good look at factors like revenue, profitability, and corporate success. If you want to take the right decisions for your firm, employ environmental analysis. The analysis you should conduct depends on the nature of your company.

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