To what extent can environmental analysis conducted by marketing managers ever be considered as objective and impartial?

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To what extent can environmental analysis conducted by marketing managers ever be considered as objective and impartial?

Introduction

Environmental analysis is undeniably one of the most critical tasks that an organisation has to perform in order to survive in the market. Organisations need to monitor and analyse the information offered by the environment to identify key threats and opportunities. In order to derive meaning from the infinite information the environment has to offer, many organisations perform analysis with formal and scientific approaches. This research sets out to investigate the possibility of an objective an impartial environmental analysis by first detailing the forces that affect the general marketing environment. The stages in an environmental analysis are then examined. Finally a discussion about the factors that influence the analysis process is raised, along with issues of objectivity and impartialness.

The Marketing Environment revisited

The term “marketing environment” is often used to describe the surrounding that an organisation operates in. Kotler (1994, pp 173) defines market environment as consisting of “the actors and forces that affect the company’s ability to develop and maintain successful transactions with its target customers.” Another definition of the marketing environment describes it as “the…forces that directly or indirectly influence an organisation’s acquisition of inputs and generation of output…” Dibb et al., (1999, pp35). It can be concluded therefore that the general marketing environment consists of both external and internal factors and forces which can influence the organisations operations.

According to Baker (1998), the marketing environment can be broken down into three main levels: Macro, micro and internal.  At the macro level, the environment is further broken down into four sub-categories of factors, also commonly known by the acronym PEST (Baker, 1998):

(a)        Political forces – e.g., the overall political stability, trade and other government policies.

(b)        Economic forces – e.g., the general level of economic activity, industry infrastructure, distribution of wealth and taxation levels.

(c)        Sociological forces – e.g., the cultural and demographic factors like race, language and religions, and spending patterns.

(d) Technological forces – e.g., the nature of the industry and its core technology, the products and equipment involved, and skills to manage current and new technology.

The second level, micro-environment, consists of people and organisations in the organisation’s immediate environment that affects its ability to serve its markets (Kotler, 1991). There are many factors in the micro-environment which govern the structure of industries and markets and the nature of competition (Baker, 1998). Porter’s 5 Forces theory (see Figure 1) illustrates the competitive external forces: the threat of new entrants to the industry, the threat of substitutes, the bargaining power of suppliers and buyers, and the level of rivalry among the already existing firms. These “determine the intensity of industry competition and profitability” Porter (1985, pp6).  

Figure 1. Forces Driving Industry Competition

Adapted from Porter (1985, pp 4)

The third level of the marketing environment is the internal environment. Forces within an organisation can greatly affect its performance and profitability. A firm’s organisational strategy is largely dictated by the availability of assets, its understanding and utilisation of resources, skills, competencies and its organisational culture (Baker, 1996).

Environmental Analysis

It is because of the vast numbers and variety of factors in each of the three levels which have the potential to affect a firm’s performance that environmental analysis should be, and is considered a vital organisational task. Kotler (2000, pp 136) states that “Successful companies…recognize that the marketing environment is constantly spinning new opportunities and threats and understand the importance of continuously monitoring and adapting to that environment.” This applies to all types and size of firms. There are many different models that describe the analysis process, but to keep within the context of this essay, the model of organisations as interpretation systems proposed by Daft and Weick (1984) will be used for discussion.

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Daft and Weick (1984) characterised environmental analysis into 3 distinct tasks – scanning, interpreting and learning. Managers must first scan the environment to collect data on the actual and potential changes, trends and events. According to Aguilar (1967) and Auster and Choo (1993), environmental scanning is the “acquisition and use of information about events, trends, and relationships in an organisation’s external environment, the knowledge of which should assist management in planning the organisation’s future course of action.” Choo op. cit. (1998, pp 72)

However, the environment produces an infinite amount of information, and in practice organisations can only attend ...

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