Environment Analysis

1. What is the importance and usefulness of analyzing the environment?

The process of analyzing the environment is a strategy that begins from the beginning of the human being, by evaluating where you are located, the next step can be strategically planned. In history, during wars this technique was widely used to seek an advantage that allows you to beat an opponent. As a company, this type of analysis guides us to plan short, medium or long term strategies, in order to implement them to achieve a common objective within an environment with constant changes and new competitors gaining power.

Companies must identify first to what type of environment they belong to or choose what scale of the environment they want to analyze for them to create strategies that will make them stronger.

Types of Environments:

  • Stable Environments: Those that are simple, static and have low uncertainty rate. A great example could be the agriculture industry or the grocery one that have been relatively stable in the last decades. 

  • Intermediate Environments: Medium uncertainty rate and can be either dynamic or static sectors. For example, the education sector that tends to behave the same for long periods of time, however, a problem like the pandemic could modify it completely. 

  • Turbulent Environment: Complex, dynamic, constant changing industries that have a high uncertainty rate. One example could be the stock market or the investment world that are quite unstable and each day it can behave differently. 

  • Macro-environment: Global surroundings, could be the social, political and economic factors that affect most companies in a country or region.

  • Micro-environment: Factors that affect specific companies that have similar characteristics or belong to the same industry. Some factors could be: a specific market segment, suppliers or competitors.

Why should a company do it?

• To be aware of what is going on in the surroundings and understand how the external issues might affect the operations or development of a company to create strategies for the company to do the best out of the situation.
• To identify how certain aspects could be affected or modified.
• It allows you to define the things you have to do to achieve the main objectives that were previously stipulated taking into account the changes in the environment. This becomes essential when making decisions. Here we see the importance of understanding where you are standing and analyzing them to know what the next step will be.
• Internal analysis also helps to find which issues you need to change or modified to achieve the company’s purpose.

• For a company to be proactive and be prepared with solution methods.
• To react in the best possible way always looking for the well-being of the company and stakeholders.
• To anticipate the problem and gain response time "
• Avoid erroneous decisions that could harm the company.
• It is recommended to do it for quality issues since by performing the various internal and external analysis methods it can be verified that the company continues to meet the needs of its customers and remains competitive.
• For simplifying the solution-making process, when you know exactly what is not working out finding a solution is easier.

As once Julius Caesar“ Divide and conquer".

2. How the environment analysis is conducted?

3. How are strategies designed?

Dealing with uncertainty

4. What was the most interesting information we found in our analysis?

There is not enough amount of analysis that can overcome uncertainty, not knowing the future is what keeps companies in constant innovation and improvement. However, analyzing the environment for companies gives them an opportunity for reaction, continuous improvement and prevention to face the constant changes in the world.

It is important to remember that even the best analysis will never guarantee success. Uncertainty is something we must learn to deal with.

In conclusion, external environment helps companies what to do next, it is a great idea to perform this type of analysis regularly to adjust to the circumstances and keep improving.

“The most important lesson I learned from Alibaba’s dark age was that you must make your team have value, innovation and vision. Also, there is always a chance for success if you don’t give up. And when you are small you should focus more on relying on your brain, not your strength.” -Jack Ma.

“The world is changing extremely fast. The big one will no longer defeat the smallest, rather the fastest will defeat the slow ones.” -Rupert Murdoch

Many theories answering to this questioned have been proposed, nevertheless the following two techniques are meant to be applied after performing any of the analysis mentioned before.

However, some experts believe that there are four main steps for developing strategies considering the environmental analysis:

  1. Identifying the factors that could affect the business.

  1. Scanning the things that have the highest influence in the company’s sector. 

  1. Analyzing all environmental factors to determine their effect and in what level. Here some methods could include benchmarking or scenario building. 

  1. Forecasting the impact of the variables mentioned.

In addition to the method mentioned previously, some people prefer to use the “Design Strategy Method” for this, it is basically creating a detailed plan that will increase the chances of having a successful strategy.

Mockplus defines this method as “Design strategy is a discipline which helps firms determine what to make and do, why do it and how to innovate contextually, both immediate and over the long term.”

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Their method involves five steps:

  1. Keep testing, adjusting and improving. 

  1. Make a realistic and executable strategy considering the factors and resources

  1. Research and analysis of the external and internal environment

  1. Set your design and business goals

  1. Define the product and brand you are focusing on creating or improving

Sometimes we believe that conducting an analysis can be too sophisticated and that small companies cannot do it, however the environmental analysis can start from asking employees how they feel about their work or even analyzing the national or sector events to plan the changes required.

Nevertheless, different management and innovation experts have developed several methods for companies to understand their environment:

  • SWOT Analysis: Allows to analyze both, the external and internal environments of a company and the resources they have. Helps companies to consolidate their strengths, mitigate their weaknesses to an acceptable level, identify possible threats to search for proper remedial strategies and identify new areas the company can use to grow. 

  • PESTEL and PEST Analysis: Allows companies to learn what external factors might affect them. It analyzes the Political, Economic, Social, Technological, Environmental and Legal factors. 

  • GAP Analysis: Analyses the company’s current position in the sector and helps to know where the company sees itself going. Determine the future goals taking into consideration the obstacles to reach them and helps to identify the areas of opportunity to do so. 

  • Balanced Scorecard: Shows a general scorecard that allows companies to evaluate their functionality. It focuses in the following things: financial, customer, process, learning and growth perspective. 

  • Blue Ocean Strategy: Seeks to build a plan that will position the brand in ab undisputed market (blue ocean). There are two main scenarios:                         1. Red ocean: The one scenario we should avoid, it involves competing in an existing market and it requires implementing many resources to build a competitive advantage or choose between cost and differentiation.                  2. Blue ocean: This is the one we want to obtain; it means creating new markets and perform in the least competitive situations to create a high demand by developing new value propositions. 

  • Porter Analysis: Experts consider this analysis the step before performing the SWOT analysis, helps to identify the company’s threats and opportunities. Measures the different forces in the market: Rivalry in the market, threat of new competitors, bargaining power of suppliers and of buyers and threat of new products or services. 

  • Work Environment Surveys: This one is specifically for internal analysis and evaluation; the idea is basically to know the opinion of the collaborators regarding their working conditions and global environment through anonymous surveys. For example, the ECOA survey of Tec de Monterrey.

Two types of analysis: External and Internal

External: Leaders have little or zero control of these factors, which makes them harder to predict and to respond to. External analysis focuses on the general (political, social, cultural) and operating (company’s suppliers, competitors, customers) environment.

External Environment Analysis Limitations: As mentioned previously, this type of environment is not controlled by the leaders of the companies, so it can change drastically at any time. Therefore, the reliability and timeliness of this can vary a lot, making a great external analysis will never guarantee a successful business.

Internal:Leaders tend to have more control of this part; it helps any company to see how their operations and administration is working and understand what they need to change or improve for them to achieve the company’s goals.

The following facts were the ones that I personally found really interesting and took into consideration for creating the strategies.

Sources are included in the document.

Opportunities:

Weaknesses:

Strengths:

Threats:

Leader in chain restaurants industry (controls 1.9% of the market).

Offers more than 300 different dishes.

Ghost kitchens to adapt to COVID (Alsea), this might be a great solution we could develop more.

Use good quality ingredients, fresh products and prepare the meals at the moment. This fact made me curious about the process mainly because VIPS is known for not having the best quality in the final products, so it would be interesting to analyze in which step the quality goes away.

Partnership with important brand like Disney, this could help to create menus or dishes that involve some characters from the brands, maybe creating a "Mickey Mouse" breakfast.

VIPS is not a truly healthy restaurant and has not a nutritional approach, this is important because the market that seeks for healthy foods is growing.

Badly maintained and not renovated facilities. I honestly believe that my whole life VIPS has had the same decoration and facilities.

Bad reputation in terms of food portions and ingredients, this is actually something that I noticed every time that I asked a friend their opinion of VIPS they mentioned this.

Lack of digitalization and delivery services. This surprised me because we all know that e-commerce is the future.

It's expected that people will be digitally engaged after the pandemic.

Improve experience through personalization. People are searching more and more unique experiences and VIPS could take this fact in its favor.

20% of mexican population is vegetarian and it is a segment in constant growth.

72% of the people think restaurants will not comply with sanitary measures. VIPS could invest in infrastructure to ensure customer safety or could search for new ways to deliver their services like e-commerce.

83% of the people want to avoid crowded areas. Consumers are still scared of going out to eat.

83% of the people prefer to cook at home than going to a restaurant.

70% of the people think that eating at restaurants would help them feel normal again.

Created by Angélica Acedo