Strategically planning your company’s decisions requires carrying out an environmental analysis that allows you to understand the complexities of the scenarios that surround it, in order to detect threats and opportunities first than the competition, especially when carrying out your marketing strategies.
In this article we are going to teach you everything you need to know about analyzing a company’s environment and how this strategic planning tool is put into practice. First, let’s start by explaining some key concepts to get into context with the methodology.
What is Strategic Planning?
Throughout our history, many types of planning have emerged to respond to conflicts and social problems from their multiple dimensions. Strategic planning could be said to be the second type of planning identified throughout history, followed by normative planning and preceded by strategic-situational planning.
Strategic planning dates back to war and the tactics used on the battlefield to defeat an opponent. This type of planning considers an adversary and a goal to achieve in the short, medium or long term. Therefore, it is defined as a systematic process where plans are developed and implemented to achieve objectives within changing and competitive environments.
Why is strategic planning important?
Strategic planning is important because it allows you to establish the tasks and the path that your company or organization must follow to achieve its objectives and planned goals, always taking into account the changes and demands imposed by its environment, which becomes essential for decision-making. This is where the environment and its analysis play a key piece in strategic planning.
Basic concepts of environmental analysis
To understand what environmental analysis is, you must first understand the following key concepts:
The environment
The environment is everything that is outside the limits of your company, that is, that you cannot control but you can influence. It is characterized by being dynamic, that is, very changing, and complex, since multiple actors and scenarios are involved, and uncertain because it cannot be controlled and is very unpredictable.
There are two ways to classify the environment, by its context and by its location. According to your context, we have there are:
Stable environments
They are characterized by being simple, static and low uncertainty.
Intermediate environment
Could be:
- Simple, dynamic and intermediate uncertainty.
- Complex, static and intermediate uncertainty.
Turbulent environment
Characterized by being complex, dynamic and highly uncertain.
According to its location, the environment is divided into:
Macro environment, general or generic
It refers to a more global framework of the environment, for example: the set of political, economic and social factors that can affect all companies located in a specific geographic space in the same way.
Microenvironment, specific-competitive
They are considered the closest factors that influence a set of companies that have common characteristics or are in the same sector. The factors that stand out in this type of environment are:
- Customers.
- Suppliers.
- Competitors.
- Intermediaries.
How to analyze your company’s environment?
To analyze a company’s environment, you must first identify whether your company is in a turbulent, stable, or intermediate environment.
For example, those companies that operate in a country like Venezuela where there is hyperinflation and political instability may consider their environment to be turbulent due to the levels of uncertainty and complexity that exist within the country.
This first step is important to move on to the next because the perspective with which you are going to identify the multiple elements that intervene in your environment will depend on this.
Secondly, you must jointly use other strategic planning tools that allow you to analyze both environments separately, both the external (through a PESTEL matrix) and the internal (by creating a SWOT matrix or identifying Porter’s Five Forces).
Tools to analyze the environment
As we already mentioned, to analyze your company’s environment, you must use multiple tools. Here are the most used ones:
Pestel Matrix
To analyze the macro environment, a Pestel Matrix tends to be created. Its initials come from the acronym of the words:
- Political.
- Economic.
- Sociocultural.
- Technological.
- Ecological.
- Legal.
This tool allows you to do an analysis that responds to the current context in which your company or organization operates.
This way, you can examine the impact of each factor on your company and the relationship that exists between them. In this matrix, you must:
- Identify the factors external to your organization corresponding to each letter of the acronym
- Describe how this factor affects your company.
- Set your impact level (positive or negative)
- Indicate the time of incidence or impact that each factor will have on your company. For example: 3 months, 6 months or a year.
It should be noted that those factors that generate a positive impact are considered an opportunity while those that are negative automatically represent a threat.
In this sense, one of the objectives of the Pestel Matrix is to detect precisely these opportunities and threats, which can then be included in the SWOT matrix when carrying out the internal analysis; and anticipate scenarios in the environment that your company can take advantage of to optimize the business model or increase sales.
For example, by making a Pestel Matrix, you can identify among the economic factors:
- The financial policies of the country in which your company operates.
- The banking conditions that exist regarding loans and financing.
- Interest rates.
- Inflation levels.
All of this, of course, with the intention of detecting how beneficial or not the environment is for investment and how you can take advantage of that scenario.
Porter’s Five Forces Analysis
To analyze the microenvironment, a Porter’s Five Forces analysis must be carried out. Created by economist Michael Eugene Porter in 1979, this strategic planning tool consists of determining at what level within our company (high, medium, low), the following forces are found:
- Force 1: Bargaining power of buyers.
- Force 2: Bargaining power of sellers or suppliers.
- Force 3: Threat of new entrants.
- Force 4: Threat of substitute product.
- Force 5: Rivalry between competitors.
Porter’s Five Forces model represents a descriptive synthesis of all the aspects that influence the intensity of competition within a commercial sector.
For Porter, competition in a sector is not only determined by the degree of rivalry between competitors, it also affects:
- The possible entry of new competitors.
- The existence of substitute products.
- The bargaining power of customers and suppliers.
That is why these five forces help you describe your closest environment, which, like the external environment, also generates uncertainty and you must first specify the competition.
With this analysis, your company can have a much more strategic vision in decision-making if it knows how its competitive environment is operating, how the relationship with its suppliers and customers is developing, and what threats are found around it, reflected in products and services that can substitute or replace yours in the market.
SWOT matrix
Another tool to analyze your microenvironment is the SWOT Matrix which allows you to establish your:
- Strengths
- Opportunities
- Weaknesses.
- Threats.
And cross them with each other to create marketing strategies that adapt to each scenario.
Those opportunities and threats that you place in your SWOT Matrix, as we already mentioned, should have originated from the analysis of the Pestel Matrix since these two qualities are related to the influence of the external environment, while the weaknesses and strengths correspond to internal qualities of your company, which only you can identify by preparing a realistic analysis of the state of your organization.
In conclusion, to analyze your company’s environment you must have a basic understanding of what strategic planning is and what the methodological tools are designed to understand the qualities of your environment.
Among those tools, we saw that there is the PESTEL Matrix, Porter’s Five Forces and the SWOT Matrix. They all have in common, when analyzing a company’s environment, they allow you to consider the environment as an uncertain, complex and dynamic element that needs to be analyzed first than the competition when creating marketing strategies.`
