Future-Proof Your Strategy: Environmental Analysis

Big picture, strategy is the sine qua non of sustainable growth and long-term success. Get it right and the sky’s the limit. Get it wrong and you are unlikely to realize your goals, your purpose or your mission, and you will struggle to successfully tailor your offerings, leverage your resources and capabilities or take the right actions to operationalize your business plan over time.

We contend that many of the organizations and decision-makers that continue to ride the waves of success do so because of their capacity to do one thing, and it’s this: strategic analysis. These are leaders that constantly and consistently analyze their own strategies and the competitive context in which they operate. Such leaders are strategists that use analytical tools to make reasoned and reasonable recommendations about how to position themselves relative to their peers, as well as the actions they need to take to maximize value creation for their customers, stakeholders and employees.

In this series, we detail four foundational analytical tools to help any organization future-proof its strategy. This installment follows Tool No. 1: Competitor Analysis.

ENVIRONMENTAL ANALYSIS

Back in the 1980s, photographic film behemoth Kodak was a household name. So ubiquitous was the company that the term “Kodak moment” had become entrenched in popular lexicon, connoting something worthy of documenting and remembering.

Kodak leadership made a good decision in 1981: to commission research on innovation and the emergence of new technologies in the digital photography space. The idea was to determine what opportunities and challenges might be gathering on the horizon. But then they made a poor decision — or a sequence of poor decisions — that meant they were ill-prepared to pivot and adapt when the promise of digital was realized a decade or so later. Kodak’s leaders decided not to pursue deeper analysis of the widespread implications and the radically new business models that accompanied digital disruption. The result? The firm finally filed for bankruptcy in 2012, and Kodak’s moment was over.

The Kodak story illustrates the significant impact that the broader competitive and macroeconomic environment can exert on your firm’s value proposition and the importance of scanning for the bigger trends and disruptions that can reconfigure your strategic outlook. Those trends could be technological, regulatory, institutional, cultural or societal changes. Analyzing these risks and opportunities today and thinking about how they might evolve over time is just as critical to the long-term success of your business strategy as understanding your competition.

The Environmental Analysis Tool can help you read and make sense of your broader context effectively.

This step-by-step framework empowers you to:

• Identify and decipher the forces that could influence your business model, operations and demand for your products and services
• Foresee and implement any necessary changes to your business model and strategy
• Predict the behavior of competitors within your industry and market
• Pinpoint opportunities to lead change or reshape your environment — to bend the rules of the game to your advantage — by engaging with relevant stakeholders

How do we use it?

Step 1: List factors.

The first step in an environmental analysis is to set out all the factors of interest in your competitive setting.

Think about things such as:

• Demographic trends: What is the current or changing population distribution of the consumer base within your industry?
• Sociocultural influences: What are the values, beliefs, attitudes or preferences that influence consumer choices?
• Technological developments: Which new or emerging technologies are poised to shape consumers’ choices or competitive dynamics in the immediate or longer term?
• Macroeconomic impacts: How are large-scale economic trends (such as inflation or exchange rates) likely to impact your industry over the next six to 12 months?
• Political-legal pressures: Are you cognizant of all relevant laws, regulations and policies — and how they might change over the coming months or years?
• Global trade issues: What impact do globalization and international governance bodies have on your industry? Are there geopolitical risks on the horizon that you need to keep on your radar?

Step 2: Collect data.

Collect as much relevant data and information as possible, and analyze that data to better understand the factors you have listed. Dig as deep as you can to get a bigger-picture understanding of your broader strategic and operational environment. And think about what kinds of stakeholder groups or agents you may want to engage with to proactively influence your environment.

Environmental analysis equips you with understanding and knowledge about your broader competitive context so that you are better prepared to adapt your strategy, adopt new business models, and lead change and innovation over time.

The preceding is drawn from Future-Proof Your Strategy: 4 Essential Tools, a white paper that details foundational tools that can be used in strategic analysis — oftentimes the difference between a company’s success, resilience and failure.

This installment follows Tool No. 1: Competitor Analysis. Follow-up entries on Darden Ideas to Action will address Tools 3–4, tackling capabilities analysis and scenario planning.