6 Main Aspects of External Environmental Analysis (Explained)

Administrative and organizational environment and formal relations of the enterprise have sufficient effect on decision making or its method. This effect may be of internal or external environments. Internal environment includes factors, like – labour management relations, organizational structure, the approach of Management, the position of trade unions, etc. whereas external environment includes economic, social-cultural, political, legal and demographic factors prevailing in the country, which we have already studied. So, the internal and external environmental analysis in strategic management is essential.

Aspects of external environmental analysis
Aspects of external environmental analysis

Now, the question is, whether correct and appropriate decisions may be taken only on the basis of environmental information.

In response to this question, it may be said that it is not proper to take a decision only the basis of environmental information, because the decisions are not affected only by the environment.

Rather, the decisions are affected by several factors. The decision is a choice and decision is taken by the decision maker in an environment.

Hence, before taking decisions, not only the environmental is information be made the base.

Aspects of External Environmental Analysis

Following aspects of external environmental analysis may also be kept in view:

1. Trends and Experience of Strategic Planners/Entrepreneurs

The correct and appropriate decision cannot be taken only the basis of environmental information, because decisions are affected by the tendencies and experiences of strategic planners and entrepreneurs.

In practice, we see that most of the entrepreneur only express reaction towards environmental changes, the reason being that for assessing and planning the environmental changes, various effects efforts and functions are required.

Related: 14 Nature of Business Environment (Explained).

Hence, to save from it, they prefer to choose shortcuts only.

2. Stage or Age of Business Enterprise

Stage of the age of enterprise also affects the decisions. The entrepreneurs are of two types:

If the entrepreneur is quite new, meaning thereby that he has not promoted established any enterprise till now and if even the executive is inexperienced, then he cannot assess, where the enterprise will be centralized? In such conditions, he takes decisions on Environmental information. Then, it is not essential that the decisions may prove correct.

If the entrepreneur is experienced and has knowledge about success and failure of the enterprise, then he may take appropriate and practical decisions by developing some clear ideas on the basis of earlier experience.

Related: Top 12 Techniques of Decision Making (Step by Step).

Hence, it is clear that entrepreneurs of old Enterprises are experienced and knowledgeable. In such cases, not only the job of investigating or testing the environment becomes Limited, the decision taken on the basis of environmental information alone becomes practical.

3. Size and Power of Business Enterprise

The size and power of enterprise also affect the external environmental analysis, evaluation, and decision.

The Enterprises are two sizes – small and large. If the Enterprise is small-sized and weak, then the entrepreneur pays more attention to the environment, since there are many enterprises of small size.

internal and external analysis in strategic management
External analysis in strategic management

On the contrary, if the enterprise is large sized and strong, then the entrepreneur will pay very low attention to the environment.

For example, if an entrepreneur is financial, product and service qualitywise and production process-wise stronger than his competitors, then he will pay very little attention to the economic, sociocultural and technological environment and their factors.

In contrary situations, he will always depend upon these factors.

Related: 12 Main Characteristics of Decision Making (With Examples).

4. Technology of Technical Environment of Enterprise

We have earlier studied that technological or technical environment and its factors have also an important role in effecting the decisions, the reason being that on one side, they affect the products and services presented by the enterprise and on another side, they also widely affect the functions of entrepreneurship.

If technological changes are very frequent, sometimes more, sometimes less and no Changes sometimes, then sometimes capabilities or incapability are assessable and sometimes it is not assessed also.

Then, in decision making also, decisions have to be taken changed or sometimes improved, only on the basis of such changes.

Related: 25 Aspects and Coverage for Appraisal of Project Proposals.

Besides, if the technological environment is more dynamic (flying), then the entrepreneur or its factors.

Only then, he will be able to make the correct decision, otherwise not.

What is swot analysis?

5. Geographical Dimension of Enterprise

Geographical dimension of the enterprise also affects the decisions.

If the geographical coverage of the entrepreneurial activities is limited, then the entrepreneur will be less conscious of environmental investigation and their analysis, because it does not have much effect.

On the contrary situations, the entrepreneur will not only be more alert and conscious but will also take decisions at every moment, by keeping the environment into consideration.

Related: 13 Features & Nature of Business Environment (Updated).

6. Planning Process

External environment analysis is a complicated component of the entrepreneurial planning process.

If the strategic entrepreneur neglects the environmental situations, planning will not be very effective, as it is expected to be.

On the contrary, an entrepreneur may purpose the best strategy by effectively assessing the opportunities and challenges, with the help of better environmental analysis and evaluation.

Thus, now you all know the main Aspects of external environmental analysis.

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