What Is a Micro-Environmental Analysis?

A micro-environmental analysis is a review of the internal climate of a business. The review typically covers all aspects that are under the operating control of the business. Services or products a company manufactures or provides, operational decisions, and marketing activities are assessed and analyzed in this type of analysis. Attributes and personal expertise of founders and company leadership exert an influence over a company’s micro-environment. That is why it's typical to include key company personnel, and their managerial assets and liabilities, in the micro-environmental analysis.

Typically, the micro-environmental analysis will be done in times of poor performance, but may also be done on a regular schedule. Operational efficiency will usually be measured and compared to past performance. All operational decisions under the control of the firm will likely be assessed. These include manufacturing and supply chain operations. A comparison to historical data may be used to measure progress or loss of productivity in the company.

Often, an analysis of this type is undertaken to plan for a move to a more efficient production model, or a retooling of physical plant capabilities. Efficiency or manufacturing experts may be called in as consultants to make recommendations for changes based on investigatory findings. The firm's human resources will usually be reviewed to make sure staffing is adequate to meet anticipated production and marketing needs. The company’s board of directors often will hire an outside firm to conduct the analysis, in order to assure objectivity in the review. This increases the likelihood that that report will be accurate and unbiased.

Marketing research is typically a major focus of a micro-environmental analysis, as sales drive revenue. Product or service pricing may be reviewed to assure pricing strategies remain competitive and profitable. As customer relationship strategies are an important revenue driver, the analysis may focus heavily on how the firm's customer relations function. At times, a company's internal culture may drift from a targeted focus on customer service.

Company leadership may be looked at in terms of whether or not an individual is performing according to the company's governing mandates. For example, in a micro-environmental analysis, the board of directors may conclude that a gifted and valuable member of the management team is being underutilized in his or her current capacity. Or, additional career development may be deemed necessary to groom a rising star, who will be expected to assume greater leadership responsibilities as part of a leadership succession plan.

An external macro-environmental analysis differs from a micro-environmental analysis in that it examines the climate outside the business. Typically a macro-environmental analysis would inventory and address threats posed by the rise of new competitors. These may include new products from existing competitors, or dangers posed by emerging competition.