Why should a company know the environment in which it operates?

Key information

  • A company's environment can be divided into micro- and macro-environments, which include various factors that affect the organization.
  • Keeping track of changes in the environment is necessary to maintain a competitive edge and adapt to new circumstances.
  • Consciously observing the environment can lead to opportunities and possibilities, such as lowering production costs, improving profitability and optimizing operations within the company.
  • Regular observation of the environment makes it possible to identify challenges and threats and develop a strategy for operating in new circumstances.
  • Market analysis enables you to make informed business decisions, set goals, strategies and optimize costs.
  • Assistance in analyzing the environment includes support in gathering information and conducting analysis of the environment for enterprises.

An enterprise's environment is the sum of factors (states, processes, or trends) that make up the environment in which it operates. The environment is constantly changing, constantly and relentlessly determining the activities within an organization. But... why else should an enterprise know the environment in which it operates?

Macro environment vs. micro environment

Making the definition more precise, we can divide it into micro and macro environment, understood as the one closer and the one further away. The first category includes factors that directly affect the organization, thus it is not the same for all. Realistically, it is up to the market position, as well as the competitive position of the entity to influence their formation. Among the most important groups belonging to the micro-environment are: suppliers, intermediaries, competitors, customers, local governments and local residents. On the other hand, the further environment similarly affects all business entities operating in a given market. They are usually independent of specific businesses, so they must adapt to it. Macro environment includes demographic, economic, political-legal, socio-cultural, technical and natural factors.

Market analysis a hedge against change

In an ever-changing world, where information is one of the most desirable and advantage-giving tools, being aware of what environment a company is operating in becomes almost crucial. A new competitor in the market, a different market segment, changing consumer behavior, a cheaper product from suppliers, or perhaps more regulations, tax breaks, bailouts - these are just examples of changes that occur in the micro and macro environment of a company. Ignorance of them, lack of awareness of their occurrence can be associated, respectively, with loss of competitive advantage, a decrease in demand for the company's products/services, incurring higher operating costs than possible, exposing oneself to non-compliance with the law, and squandering the opportunity to obtain additional financial resources.

Macro environment analysis using PESTEL

PESTEL analysis is a tool for assessing the macro-environment in which an organization or company operates, consisting of six categories of external factors: Political, Economic, Sociocultural, Technological, Ecological and Legal. Conducting a PESTEL analysis is valuable in a variety of situations, such as strategic planning, expansion into new markets or launching a new product or service.

PESTEL analysis is important because it allows organizations to understand the impact of external factors on their business and the market in which they are located, anticipate changes, and identify opportunities and threats from the macro environment. Conclusions that can be drawn from a PESTEL analysis include identifying key external factors affecting the organization, assessing their potential impact on the business, and identifying actions to be taken to adapt to them, take advantage of opportunities and avoid threats.

By developing long-term strategies that take into account anticipated changes in the macro-environment, an organization can be better prepared for the future. As a result, PESTEL analysis fosters more informed strategic decisions and contributes to market success.

Analysis of the environment using SWOT

SWOT analysis is a strategic management tool that identifies an organization's strengths and weaknesses, as well as opportunities and threats that may affect its development. Its purpose is to provide a comprehensive picture of the organization's situation and environment, which enables effective decision-making.

IT'S a versatile tool that can be used at various stages of an organization's operations, such as during strategic planning, before launching a new product or service, or when making important business decisions.

Conclusions that can be drawn from the SWOT analysis include identifying actions to strengthen strengths and minimize the impact of weaknesses, identifying areas where the organization should invest to take advantage of opportunities, developing risk management strategies to minimize the impact of risks on the organization, and setting priorities and courses of action that will contribute to the achievement of goals.

SWOT analysis - opportunities and possibilities

Noticing the changes that are taking place in a company's environment can be converted into opportunities and possibilities waiting to be exploited. Reducing production costs, improving the company's profitability are some of the long-term benefits that can arise from conscious observation of and response to stimuli coming from the environment. Sometimes the conclusions of the analysis can point to new opportunities to optimize operations within the company. Then it is important to check whether the company is functioning in symbiosis with the environment, taking advantage of the potential it receives, and perhaps there is an opportunity to map processes that need improvement? However, in order to take rational steps, it is necessary to know the specifics, how the environment works and to track the processes within it

SWOT analysis - challenges and threats

Sometimes regular observation of what is happening around the company can draw attention to negative changes that have come or are likely to come. Prompt identification of such factors will enable the organization, at least in part, to prepare a strategy for operating under new circumstances. Efficient use of resources, implementation of a new solution, improvement of those previously used will help overcome challenges and avoid risks. Stocking more of product X, in the event of a difficult market situation among suppliers, a new advertising campaign for service Y, when customers start looking for other solutions, or perhaps introducing new technologies to keep up with the pace of technological revolutions in more sectors of the economy? For each stimulus coming from the environment, a response can be prepared. The elements that remain important here are timing, predictive effectiveness and efficiency of action.

A study of the organization's environment? Or is it enough to simply act?

The appearance of spontaneous success of suddenly taken actions is something that every entrepreneur enjoys. However, can you rely on luck and intuition all the time? Yes you can, but only when supported by their awareness of what is happening in the company's environment. Noticing changes in the micro and macro environment of an organization through, among other things, market analysis provides the basis for making informed business decisions and setting its goals, long-term strategies and optimizing costs. There is no doubt that these affect its financial performance, the scope of its operations, its target group, as well as its growth prospects. It's up to you how much information and knowledge you draw from your company's environment.

Although many on their own account collect information, it is often too demanding time-wise, and the abundance of information (sometimes unnecessary) scares you - we are happy to help you with this.

If you are interested in a free consultation, just email us.

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    Maja Ciechanska

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