EA or scanning is the process through which the organization monitors and comprehends various factors and determines the opportunities and threats provided by them for effective growth and survival the organization needs to monitor periodically the external environment. It is also the process of dividing the environment into these components to find out the nature, functions and relation between the opportunities and threats and determining from they come from. It is continuous process, to pick up signals or patterns of developing trends.
- Economic Environment – it includes those factors which give shape and form to the development of economic activities. It includes the general economic conditions like the parameters of demand and supply in the economy. Businesses use the macro economic data to analyze and forecast the future. These reports are available on the quarterly basis. It helps in predicting the government’s economic policy and expenditures, based on which through extrapolation on the growth of a particular industry can be predicted. The general economic conditions which impact the organization are economic system, national income in distribution, monetary policy and fiscal policy.
- Political and legal Environments – This is an important factor particularly for a mixed economy like ours. It includes political organization and their ideology, political stability, etc. It also includes the defence politics followed. Maintenance of good relationship with other countries, and the type of legal policies framed which governs a particular business. The political environment can be bifurcated into two parts depending on the nature of their import on business organization. (1) Promoting Environment: producing facilities for business (2) Regulatory Environment: Restriction on the operational part.
- Technological Environment – It includes inventions and techniques used to design, produce and distribute the things. This can help in (a) changing the relative competitive cost position of the organization. (b) Helps in creating new markets and new business segments. (c) It has the power to collapse or entrance the previously independent business by eliminating the segment cost barriers. (d) Technology helps in creating opportunities and organizations which recognize these opportunities reap immeasurable benefits.
- Socio cultural Environment – It consist of attitudes, beliefs, desires, expectations, education and customs of the society at any given period of time. In three ways – (a) organizational objective setting. (b) Organizational processes. (c) Products to be offered by the organization.
- International Environment – In the present scenario, the IE also has a profound impact on the business operations while liberalization has brought opportunities; it has also generated threats because of the entry of MNC’s in almost every sector. The study of IE is important to understand the implications of the entry of MNC’s in India and to scale operations abroad.
- Competitive Environment – as the organization is more concerned about the industry in which it operates, the organization should go for industry analysis. Industry can be defined as a group of organization that offers a similar product or class of products that are close substitute to each other.