Introduction
Environmental analysis is quantitative, qualitative, involves identifying and analyzing environmental variables that influence a business organization. The framework of environmental analysis has created an amount of concern and attention to business administration and management. It has resulted in business literature like PESTEL analysis and SWOT analysis.
The paper discusses environmental analysis based on Johnson and Johnson company overview, industry comparison and financial analysis. Secondly the paper discusses how the company can use the SWOT analysis; use of the company’s opportunities, weaknesses, strengths and threats or similar analysis to try and predict the future outcomes of the business. Use of sensitivity forecast and sensitivity analysis based on research analysis and environmental analysis will enable us to conduct a sensitivity analysis based on the projected sales growth to enhance a best case study and worst case study.
Environmental Analysis
Defined as the inherent factors the organization takes into account in a business environment and effects on the organizational business. Environmental analysis involves identification, analyzing, scanning, and future prediction of the environmental factors and variables. Identifying involves the environmental analysis for an organization and tries to improve the position of the business based on the intrinsic environmental factors. The organization must first find out which factors affect its business. Identification is done on the various levels and departments to equip the management with knowledge on factors that affect the organization first. (Williamson, 34). Uses of different and several frameworks enable identification and remind the organization to consider different factors. Good identification of the environmental factors can be used to show the factors that exist making it easier to employ and improve the factors.
Scanning is a term used in environmental analysis to refer to the process of finding which business environmental factors have the most and least effects. This is because different factors have different effects. Knowing the environmental factors that are most important to the organizational business will enable and assist management improvement. There are tools available to enable the business to analyze the factors.. The tools are chosen to reveal the collected information and analyze it to enable the company to show effects of the factors.
There are many types of analysis which involve knowing the mode, mean, regression and correlation. The methods used enable data and information to be stored in appropriate ways for future reference. When the business organization has identified the significant environmental variables and factors, analysis is done to determine which factor is more important that the other. It is important to know the effects of the environmental variables in the future. This enables effective function by the organization to analyze the recent and future information. By predicting and looking at each trend the environmental variable is likely to take, a strategic pattern can be observed and processed for which the business organization can use to develop the environmental analysis (Williamson, 77).
Johnson and Johnson have much strength useful to the company. Strengths are useful in a company because they reduce the risk in a company. It enables the company to visualize the likely future and take the required measures and appropriate actions. It is enhanced by deploying the company’s resources to seize available opportunities resulting in focus strategies and continuous planning based on the recent and actual performance that is likely to continue as the future scenarios. The company’s threats mainly involve competition from other companies that sell the same products. Threats can be used to predict the future whereby the company analyzes its weaknesses, uses strategies and measures to reduced risks. This is an effective measure to enhance prediction of the future as the company management knows risks involved and competitors in the market domain and how to avoid all the risks.
Business opportunities and weaknesses can be used to predict the future by the company’s management finding new markets for their products and services. New opportunities may include merging with rival companies to increase the market share, takeover of competitor companies to reduce the competition and lose of profits. Weaknesses can be use to predict the future outcomes of a company by analyzing areas the company is weak. Johnson and Johnson management will carry out research to find out areas in the company that are weak. The areas may include production of services and products that are poor in quality, poor management or lack of market for their products and services. The company will improve these areas resulting in certainty of the company hence the company’s future outcomes can be predicted.
Sensitivity Forecast and Analysis
Sensitivity forecast and analysis is a method used by investors to determine how different values of important business variables are tested, used and gauged to predict future investments outcomes changes due to assumptions by the consumers. According to Cadle (72) “it can be applied to property investments where forecasting a 15% vacancy rate produces a rate of investment of 16% versus an 18% rate of return for a 5%vacancy factor”. It enables the organization to know the values of different variables and which among the variables have the most and least effect to the company (Williamson, 78).
The company’s projected sale growth shows that it will continue to increase from the year 2005 to 2007 due the favorable factors. From the year 2008 to 2009 the company will experience a negative sales growth which may result due to unfavorable factors. The favorable condition in the years 2005 to 2007 may be caused by the company’s strengths and opportunities. Strengths in the company are areas which are strong and operate effectively. The strengths may include its ability to attract more customers than its rival firms, improved and better marketing methods, merging with other companies to increase the scale of economics and having better after sale services which satisfies the needs and interests of the customers (Carlberg, 92).
Opportunities arising from the period of 2005 to 2007 may be the cause of the increased sales growth (Cadle, 56). Opportunities are new chances, ways, methods and openings in a business venture which result in an increase in markets, service and product production. An opportunity is a factor which bring rise to favorable condition and an advantageous way for the company to increase its growth. Examples of opportunities include; discovery of new production methods, creating new markets, production of new services and products to consumers and merging or take over by the company to reduce losses caused by competition and improve the scale of economy. To enhance opportunities and strengths the company should aim to cut on expenses.
The projected sales growth of Johnson and Johnson from the period starting from 2008 to 2009 turns negative. The year 2009 is mostly affected due to the unfavorable business environment resulting to a negative growth. Factors like business threats and weaknesses may be the causes of the negative growth. The difference between weaknesses and threats is that weaknesses are internal factors arising from the organizations while threats are external factors resulting from other firms and the environment. Threats and weaknesses are factors that cause business organization to collapse and be unable to conduct their operations efficiently (Carlsberg, 112).
Threats in a business may include competition from other firms producing the same services and products, political, social and economic instability, lack of a market to sell company’s products and services, lack of raw material for production and diversion of production of goods and services to other firms and companies (Cadle, 76). Weaknesses are mainly internal factors affecting the growth of the company negatively. The weaknesses are caused by the organization’s shareholders, the management and its staff. Weaknesses in the company includes; poor decision making by the management, poor services and products offered by the staff to the clients, lack of discipline by both the management and the staff, lack of adhering to the rules and regulations of the company and poor training and hiring of the staff and management.
Johnson and Johnson company positive projected growth will be caused by the favorable conditions in the environment. Favorable conditions like strengths and new opportunities are important in the company and ways to improve should be analyzed to ensure growth and prediction of the company’s future outcomes. These factors result to the best case scenarios in the company. Ways to prevent unfavorable condition like threats and weaknesses should be enhanced to prevent negative sales growth and collapse of the company. These factor best show the worst scenarios in the company.
Conclusion
Environmental analysis plays an important role to an investor by enabling him to identify and analyze the environmental variables that influence a business organization. The investor is able to know the environmental variables with most and least effect on the business. Sensitivity forecasting and analysis is a technique useful to investors to know the different values of important variables tested and to know how to analyze sensitive investments outcomes changes due to assumptions in the business environment.
Works Cited
Cadle, James, et al. Business Analysis. London. British Computer Society, 2010.
Carlberg, Conrad & Carlberg, George. Business Analysis with Microsoft Excel. New York: Que Publishing, 2002.
Williamson, David, Cooke, Peter, & Jenkins, Wyn. Strategic Management and Business Analysis. New York: Butterworth-Heinemann, 2004.