The Role of Environmental Analysis
Planning ahead enables a person to think about the future. As a result, planning allows one to establish direction and purpose, which eventually leads to enhanced performance. The same principle applies when creating a marketing plan. This concept is vital as the development and implementation of market plans are natural parts of a progressing business. However, even if planning is integrated into the formulation of a market plan, success is still not guaranteed. Lack of ability to amend a plan, poor implementation techniques and absence of accurate market trend foresights are among the common causes of failure. Due to several reasons, businesses tend to fail in spite of their developed plans. Thus, most managers begin to lose their confidence over the whole planning mechanism.
In spite of the variety of reasons, a common similarity shared by these failed plans is their failure to coordinate strategies with their objectives (2002). When analyzed, such concept is simple to comprehend and yet it remains a wonder how businesses tend to overlook it. The inability of the company to align its marketing objectives with their strategies is perhaps attributable to their lack of discipline, more specifically to their lack of appropriate market planning guidelines.
Situational analysis, being a part of the market planning process, is an integral procedure and a very powerful tool for organizations and businesses to instigate effective marketing plans. As the initial procedure of creating a market plan, situational analysis aims to comprehend the environmental as well as the organizational influences that surround a particular business establishment. To put it simply, situational analysis is the process of reviewing the present situation of the company, which includes the review of relevant matters such as the history of the firm, analysis of its market environment, competitors and consumers. There are actually two types of situational analysis, both are equally significant. One is the external analysis and the other focuses on the internal environment. When conducting an external situational analysis, the business’ customers, market and competitors are analyzed. Relevant information regarding the company’s market segments, their competitor’s relative weaknesses and strengths as well as the industry as a whole. An analysis of the external environment requires more than just a summary of what the competition is doing. The external environment is comprised of two elements -- the societal environment and the industry. The societal environment includes a review of major trends in society affecting organizations across all industries. These trends include political, economic, social and legal. While not necessarily having a direct, immediate impact on the business, these trends are important to the long-run health and direction of the business. For example, the number of dual career couples does not directly impact the short-run performance of the company, but does certainly impact future policies and directions the company may take in the long run. An analysis of the industry takes a look at factors that have a more direct bearing on the business. Hence, in addition to analyzing the competition other groups must be similarly evaluated to ascertain that no opportunities or threats within the environment are overlooked (1994).
On the other hand, internal situational analysis focuses on the identification of the company’s distinctive competencies, expected growth, their assets as well as their liabilities. The internal analysis also illustrates the core values of a company, and in what ways can these values be enhanced or beneficial to the market plan (2002). The evaluation of the internal environment of the company involves the analysis of the company’s structure, culture and resources. When a strategy is selected for implementation, it must be appropriate given the way the organization is structured or the way an organization must be restructured. The strategy must be consistent with the organization's culture. Finally the organizational resources must be available to actually implement the strategy that was formulated. Without the proper people, skills, abilities, finances and physical resources, the strategy cannot be implemented (1994).
Having varied focal points, it is clear that a marketing plan cannot work out without the other. Perhaps, the role of environmental analysis can be further realized through the description of the SWOT system.
Most organizations have depended on the use of SWOT analysis as this system makes it easier for them to formulate objectives, which will specifically act upon the various areas of the company that need improvement. The following discussion outlines the effective characteristics of the SWOT system:
1. It helps in the identification of the company’s strengths and weaknesses.
The strengths and weaknesses actually characterize the internal analysis of the company. Issues such as the reputation of the company, the type and quality of its product, manufacturing costs, the effectiveness of their sales team, profitability, innovativeness on research and development, market share and other issues of the company’s capabilities are recognized as strengths and weaknesses ( 2002).
The primary role of these identified capacities of the company is that is serves as an excellent method to recognize a company’s status in the market. This identification can help the company gauge whether they are at a competitive disadvantage or not. This can be done in the analysis of a company’s competitor as well. Through the analysis of a company’s abilities and inabilities, the firm will be able to develop strategies that will be specifically designed for the enhancement of their strengths. In turn, this step strategically lessens a company’s weakness and reveals the flaws of their competitors.
Taking Batelco, one of Bahrain’s largest telecommunication companies, as an example, its strengths are its products and its increasing services abroad. Considering these are the company’s strengths, Batelco may have chosen to simply make the most of these strengths. However, like any other companies, Batelco has its own set of disadvantages. The need for them to reorganize their system, enhance their customer and consulting services as well as establish a better human resource system are among their identified weak spots. By being able to recognize these issues, the company will be guided as to what areas of the company need greater priority and what areas would have to be retained.
2. It helps in the identification of the company’s opportunities and threats.
While the internal side of the company represents its strings and weaknesses, the opportunities and threats on the other hand is external in nature. Opportunities may be recognized in rising markets, extending service networks, growing economies or capitalizing on the competitor’s flaws. Threats on the other hand, represents issues such as the introduction of new competitors, changing market trends, alliances formed by competitors as well as the transforming demographics.
Both of these factors are interrelated with the company’s strengths and weaknesses. Opportunities may be used in the maximization of the company’s strengths. For instance, the opportunity of a growing telecommunication market, such as in the case of Batelco, may be used to enhance its products and services. In turn, this step will lead the company towards a better position in the market, augment their monthly sales revenue as well as their profitability. Threats are linked to a company’s weakness, which in general in not beyond the organization’s immediate control. Weaknesses are related to threats in such a way that the flaws may be resolved through improvement. As a result the company will be able to overcome its identified threats. Similar to the case of Batelco, the improvement of their identified weak spots may be done so as to outdo or outsmart their primary threats, and that is the removal of their monopoly status and the entry of a new competitor.
3. It serves as a conceptual framework for the company.
The identification of the various environmental factors that could possibly affect a company’s growth and success also serves as a significant conceptualization of what the firm wants to achieve and in what ways it would be able to achieve them. Moreover, the analysis provides them an overview of how the company wants to see itself in the coming months and years. Goals such as increasing the company’s market coverage, advertise a new product, implement a new marketing strategy, double the monthly revenue or triple the company’s profits are the most common aims of a company.
In other words, the situational analysis helps the company realize the actual situation and facilitates its formulation of clear and specific objectives. Through the information gathered in the SWOT analysis, companies will be able to make use of their strengths and create applicable strategies that will assist in the achievement of these goals.
4. It leads to a more appropriate and dependable market plan.
Overall, the identification of the strengths, weaknesses, opportunities and threats of a company leads to the formulation of a successful marketing plan. The environmental analysis is then an effective and important tool in creating a good plan as it helps in leveraging the strengths of the company while reducing its weaknesses. In the end, realizing the important role of situational analysis in the whole marketing plan will prove to be vital in strengthening the business or company within the market place and providing significant advantages which will push a company ahead of its competitors. When a company chooses to conduct a situational analysis or not, a choice between employing long-term focus or short-run focus is involved. However, based from the description made on external and internal analysis, it is clear that situational analysis, or the long-term focus, is the key to long-term success. This is because choosing the long-term focus helps the company management to evaluate their decisions and objectives well. Short-run focus on the other hand has this tendency to blind companies, making them uncertain of the future (1994).
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