Advantages and Disadvantages of Business Environment Analysis

Advantages of Environmental Analysis

Formulation of business policies and strategies should be based on a careful business environmental analysis. The following as the merits of a proper environmental analysis.

Business Environment Analysis - Advantages, Disadvantages
Business Environment Analysis – Advantages, Disadvantages

1. Helps in Achieving 0bjectives

When a company neglects to adjust its strategy to the business environment, or does not react to the demands of the environment by changing its strategy, the company cannot achieve success in attaining its objectives. However, environmental analysis enables the business enterprises to study the environment and formulate the strategies accordingly, which will result in successful attainment of objectives.

2. Identification of Threats

Business Environment analysis and diagnosis give businessmen time to anticipate opportunities and to plan to take optional response to these opportunities. It also helps strategies to develop an early warning system to prevent threats or to develop strategies, which can turn a threat to the firm’s advantage.

3. Happenings in the Market Place

Every firm should be in constant touch with the market place and should be aware of what is happening in the marketplace. If the company fails to adjust or react to the demands of the environment, by changing their strategies, it can’t achieve corporate objectives.

4. Threats Inherent in any Opportunity

Business Environmental diagnosis helps the businessmen in two ways. 1. He can ascertain the possible threats to the business. This will enable him to take proper preventive measures. 2. He can identify the opportunities and avenues in which the businessman can operate successfully and achieve the object.

5. Forecasting the Future

Changes in the environment are often frequent and all of a sudden. Moreover, such changes cannot be predicted precisely well in advance. Again the entrepreneur can anticipate only a few of such changes and not all. If the anticipations and expectations are precise and accurate, the decisions are likely to be better. Hence business environment analysis helps to forecast the future prospects of the business concern.

6. Threats and Opportunities

Some factors of the environment present threats to the company’s present strategy and the accomplishment of the objectives. While some factors, on the other hand, present greater opportunities for a great accomplishment of the objectives. A thorough analysis of the environmental factors shall enable the analyst to recognize the inherent risk involved and also enable him to take advantage of the opportunities.

In every threat there is an opportunity and in every opportunity there is a threat. By properly analyzing the environment and anticipating the changes likely to occur in the environment, the business manager can estimate the future and adjust his plans accordingly. Of course, not all the future events can be anticipated but some can and are, the extent to which the expectations are accurate, managerial decisions are likely to be better. Moreover, the process of environmental analysis reduces the time pressures on a few which are not anticipated.

Limitations or Disadvantages of Environment Analysis

Environmental analysis suffers from certain limitations also. These limitations are as

1. Lack of Forewarning of Unforeseen Events

Environmental analysis does not predict the future. It does not eliminate uncertainty for the organization also. Business enterprises sometimes face events, which are unexpected during analysis. Environmental analysis, however, should aim at minimizing the frequency and extent of surprises that may attack a business organization.

2. No Assurance as to Organization Effectiveness

Environmental analysis does not ensure organizational effectiveness. It acts only as inputs in strategy development and testing. Sometimes, managers place uncritical faith in the data without thinking about the data’s verifiability or accuracy. If this is the case, it may lead to misleading outcome.

3. Not fully Reliable

Normally, people place too much reliance on the information collected through environmental scanning. But in practice, it is not so. When there is overloading of information, one is likely to get confused.

4. Absence of Strategic Approach

Success of any organization lies in adventure and strategic risk-taking. Environmental analysis often makes an individual too cautious in his approach and he is likely to be left behind the events. So this analysis should be strategically done.