The 1st step of the strategy management process is environmental analysis. An organization can only be successful if it is appropriately matched to its environment.

ENVIRONMENT ANALYSIS is the study of the organizational environment to pinpoint environmental factors that can significantly influence organizational operations.

MANAGERS commonly perform environmental analyses to help them understand what is happening both inside and outside their organizations and to increase the probability that the organizational strategies they develop will appropriately reflect the organizational environment.

In order to perform an environmental analysis efficiently and effectively, a manager must thoroughly understand how organizational environments are structured.

For purposes of environmental analysis, the environment of an organization is generally divided into 3 distinct levels:

  1. General Environment
  2. Operating Environment
  3. Internal Environment

Managers must be well aware of these 3 organizational environmental levels, understand how each level affects organizational performance and then formulate organizational strategies in response to this understanding.


The components normally considered part of the general environment are:

  • Economic
  • Social: Including Demographics and Social Values
  • Political
  • Legal
  • Technological


The operating Environment includes various components like:

  • Customer
  • Competition
  • Labour
  • Supplier
  • International Issues.


The level of an organization’s environment that exists inside the organization and normally has immediate and specific implications for managing the organization is the internal environment.

It includes marketing, finance and accounting,planning,organizing, influencing and controlling within the organization.