Many elements impact the company and its activities. External environmental appraisal can affect the company in positive and negative ways. Recognizing the challenges and issues in the external environmental appraisal is crucial for any business. Also, you will know the levels of environmental appraisal.
Meaning of Environmental Appraisal
An appraisal of environment within which an industry operates is required to identify the elements that influence the external environment. Environmental appraisal assists managers in analyzing the structure of the competition, the company’s competitive standing, and its competitors’ positions. Potential threats and opportunities are recognized by examining and evaluating the external context. Managers must be aware of the risks and profit from the possible options on the market.
An environmental appraisal can also assist managers in analyzing the impact of globalization on the degree of competition in a specific sector.
The business climate never stays stable, but it changes quickly. As companies expand and grow, the shifts in the external environment oblige organizations to develop effective strategies to handle risky scenarios.
Environmental appraisal allows organizations to analyze competitors’ actions in the marketplace. By assessing the external conditions, businesses can increase their capabilities and strengths to adapt to the changes that occur in the external environment.
Definition of Environmental Appraisal
Abell states, “Environmental appraisal is the identification, measurement, and assessment of the environmental impact.”
Levels of Environmental Appraisal Analysis
In analyzing the external environment of a business, marketers can recognize and distinguish the opportunities from the risks, strengths, and weak points at different levels of environmental appraisal. External factors that aren’t dependent on the company and are not reliant on the actions of the business are external factors.
While weaknesses and strengths are internal, threats and opportunities are external and aren’t under the control of the business. Opportunities are the situations companies can utilize for their benefit at different levels of environmental appraisal. However, threats are adverse situations that, if not addressed promptly, could affect the business’s health. The analysis of the external environment is helpful after considering the following aspects:
1. Environment Scanning
The general environmental aspects are helpful in environmental appraisal scanning. These environmental factors are not part of the company’s internal environment and, therefore, cannot be controlled by the natural world. These elements affect businesses in a significant way. They are part of the macro-environment or the environment in general. The macro-environmental variables include political, economic, technological, legal, and social. It is one of the levels of environmental appraisal.
2. Industry Analysis
Industry analysis is a technique employs in evaluating the degree of competition and complexity in a sector. Marketers analyze the macro-environmental elements that affect a specific industry through industry analysis. It is one of the levels of environmental appraisal. Industry analysis can help strategic managers develop strategies to mitigate risks and make the most of the opportunities. Various environmental factors in the industry analysis include the bargaining ability of suppliers and buyers, the position of businesses and rivals, and the threat of new competitors and alternative options within the company.
3. Competitive Analysis
When evaluating an external setting, it’s vital to look at both the advantages and disadvantages of current and likely competitors. It helps an organization develop the strategies to succeed and endure in a highly competitive marketplace and at different levels of environmental appraisal. It also describes the system employed by companies. The impact of competition is in relation with the industry’s concentration level. i.e., when it is highly concentrated, the competitive impact is more significant, and the reverse is true. The competitive analysis aids businesses in identifying threats and opportunities through defensive and offensive strategies.
What is Environmental Appraisal?
Environmental Appraisal is the systematic process in which we consider all the dimensions of the environment that helps in development of the business enterprise. Also, we can formulate the business policy. It helps the managers in determining the structure of the competition, competitors position, company competitive strengths etc.
What are the Three Levels of External Environment?
There are three levels of environmental analysis.
1. Environmental Scanning 2. Industry Analysis 3. Competitive Analysis