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CHAPTER FOUR
External Environment
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CHAPTER OBJECTIVE
CHAPTER OBJECTIVE
n After studying this chapter, you should be able to do the
following:
1.Describe how to conduct an external strategic-management
audit.
2. Discuss 10 major external forces that affect organizations:
economic, social, cultural, demographic, environmental,
political, governmental, legal, technological, and competitive.
3. Describe key sources of external information, including the
Internet
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Purpose of External Analysis
o To understand the external environment as it affects the enterprise
o To identify opportunities and threats of environment
• Opportunity
o A condition in the general environment that helps a company achieve
strategic competitiveness
• Threat
o A condition in the general environment that may hinder a company’s
efforts to achieve strategic competitiveness
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Analysis of the External Environments
§ 3 levels of analysis:
§ General changes in business(Macro) environment
• Focused on the future
§ Changes within the industry
• Focused on factors and conditions influencing a firm’s
profitability within an industry
§ Activities of competitors and other specifics
• Focused on predicting the dynamics of competitors’ actions,
responses and intentions
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Importance of External Environmental Analysis
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External Environmental Analysis…
§ Scanning: Identifying early signals of environmental
changes and trends
§ Monitoring: Detecting meaning through ongoing
observations of environmental changes and trends
§ Forecasting: Developing projections of anticipated
outcomes based on monitored changes and trends
§ Assessing: Determining the timing and importance of
environmental changes and trends for firms’ strategies and
their management
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Steps in Environmental
Analysis
Assess the nature of the
environment
Audit environmental
influences
Identify key
competitive forces
Identify
competitive position
Identify key
opportunities
and threats
Strategic
position
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External Environment
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General Environment
n Dimensions in the broader society that influence
and industry and the firms within it
¨ Economic
¨ Sociocultural
¨ Global
¨ Technological
¨ Political/legal
¨ Demographic
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General Environment
n The Economic Segment
¨ Inflation rates
¨ Interest rates
¨ Trade deficits or
surpluses
¨ Budget deficits or
surpluses
¨ Personal savings rate
¨ Business savings rates
¨ Gross domestic product
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General Environment (cont’d)
n The Sociocultural Segment
¨ Women in the workplace
¨ Workforce diversity
¨ Attitudes about quality of
worklife
¨ Concerns about
environment
¨ Shifts in work and career
preferences
¨ Shifts in product and
service preferences
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General Environment (cont’d)
n The Global Segment
¨ New global markets
¨ Changing existing
markets
¨ Important
international events
¨ Critical cultural and
institutional
characteristics of
global markets
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General Environment (cont’d)
n The Technological Segment
¨ Product innovations
¨ Applications of knowledge
¨ Focus of private and
government-supported
R&D expenditures
¨ New communication
technologies
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General Environment (cont’d)
n The Political/Legal Segment
¨ Antitrust laws
Ø Called competition law :ensuring that fair
competition exists in an open-market economy
¨ Taxation laws
¨ Deregulation philosophies
¨ Labor training laws
¨ Educational philosophies and
policies
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General Environment
n The Demographic
Segment
¨ Population size
¨ Age structure
¨ Geographic
distribution
¨ Ethnic mix
¨ Income distribution
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Industry Environment
n Set of factors directly influencing a firm and its
competitive actions and competitive responses
¨ Threat of new entrants
¨ Power of suppliers
¨ Power of buyers
¨ Threat of product substitutes
¨ Intensity of rivalry among competitors
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Porter’s Five Forces
Model of Competition
Threat of
Threat
Newof New
Entrants
Entrants
Bargaining Bargaining
Power of Power of
Suppliers Buyers
Threat of
Substitute
Products
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Five Forces Model of Competition
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Threat of New Entrants
threat for the present firm
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Bargaining Power of Suppliers
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Bargaining Power of Buyers
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Threat of Substitute Products
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Intensity of Rivalry
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Industry Analysis (EFE)
Summarize & evaluate:
Economic Demographic Governmental
Social Environmental Technological
Cultural Political Competitive
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Competitor Analysis
Industry
Environment
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Competitor Environment
n All of the companies that the firm competes
against.
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Competitor Environment
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END
CHAPTER FOUR
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Homework
Case analysis
n (Hill ,p-74 )pharmaceutical industry
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