What is the Purpose of an Environmental Analysis in Strategic Planning?
We have discussed environmental analyses here before. One of our most frequently visited blogs covers the SWOT Analysis and alternatives. An environmental analysis can be done in a variety of ways. At NMBL we typically utilize the PESTLE method where we look at the Political, Economic, Social, Technology, Legal and Environmental factors that exist in our clients’ planning process. The purpose of the PESTLE analysis or the environmental analysis is to assess and analyze the key external factors that act on an organization. Breaking these factors into groups is critical to understanding the external environment around the organization and should be utilized to generate forward-looking thinking. In simple terms, if you knew a hurricane was coming you wouldn’t take your boat out. This forward-thinking and holistic analysis is critical to our approach to nonprofit strategy. You can also check out how we apply a PESTLE Analysis to a client’s circumstances.
Let’s take a look at the areas of an environmental analysis and the value of each of them through the PESTLE framework. It’s also important to recognize that there may be some crossover between these sections. For example, a potential new tax credit being approved will likely fall into the political category but tax credits also likely have economic impacts.
Political
The political environment can have a significant impact on nonprofits, especially when looking at the local, state, and federal levels. Whether looking at potential laws being passed, tax implications of new referendums, or in more recent times, the impacts of the PPP program, all of these have had a dramatic impact on all organizations whether they realize it or not. It is important to understand what is coming up and how it may impact your organization.
Economic
Looking at the broader environment, economic impacts can be both short-lived or have long-term impacts. For example, giving to nonprofits tends to follow the stock markets, so understanding when to capitalize on the rise and fall is critical. Likewise, interest rate trends have a longer-lasting effect because they do not shift dramatically on a daily basis but do fluctuate over time. These changes, while often slow, have an impact on the cost of capital for an organization.
Social
Depending on the mission of your organization the social climate can play an incredible role in your organization. More than anything, your organization needs to be aware of what role it can play and what those effects are. In this section of the analysis, you will understand and elaborate on what those social impacts may be and how to read them.
Technological
Technology has dramatically changed the way we operate, especially during the pandemic. Can you imagine trying to go through the pandemic with dial-up internet? How will technology continue to affect your organization, will your nonprofit do more virtual fundraisers? Will you shift from an in-house server to google drive? Will your team continue to work from home and need more technology to support their efforts? It could be Monday.com, Zoom, Slack, etc. How will social media affect your industry? All of these technological pieces need to be understood on the impacts they will have on your industry and business.
Legal
Laws change regularly, and how they impact your organization can change as well. Keeping a pulse on laws that may impact your organization is critical to building your future. If new tariffs are on the horizon for parts that go into your products that will impact your costs. If health insurance coverage laws change, that can have an immediate financial impact. Often times your organization can’t control any or even all of these, but what you can control are your awareness and planning.
Environmental
How does the environment affect your organization? Sometimes it is more obvious than not. If you manage a nonprofit responsible for parks, or a landscaping company, the environment is an integral feature of your work, but what if you are a consulting company like NMBL. Well, the pandemic shut down how we interacted with clients, and we had to adjust how we worked with clients, how we marketed to new clients, and how we interacted in general. To be fair, when we developed our analysis for our organization we did not put in a pandemic and plans for it, you can’t cover everything, but obviously, now we factor the novel challenges presented by the pandemic into our planning.
Utilizing a strategic planning technique to prepare for the decision-making phase of a strategic planning process is essential for peeling back the layers of an organization. Understanding the organization and its environment, internally and externally, is the first step toward developing a plan for achieving new strategies or refocusing on incomplete ones. Using the proper planning analysis and technique is essential for framing your current situation and your future path. The PESTLE analysis ensures that your organization is not making decisions and planning in a vacuum, and it better informs you of the context in which you work.
Find our whole “Purpose of” series here:
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