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Summary External Environment Analysis
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Summary of 2 pages for the course Strategy at Napier University, Edinburgh
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External environment analysis – chap 2 Ireland et al –The Management of Strategy – 10th edition
General environment: composed of dimensions in the broader society that influence an
industry and the firm within it.
Segments of the general environment:
- Demographic segment: population size, age structure, geographic distribution,
ethnic mix, and income distribution
- Economic segment: refers to the nature and direction of the economy in which a
firm competes or may competes
- Political/Legal segment: the arena in which organizations and interest groups
compete for attention, resources, body of laws and regulations guiding
interactions among nations
- Sociocultural segment: concerned with a society’s attitude and cultural values
- Technological segment: includes the institutions and activities involved in creating
new knowledge and translating that knowledge into new outputs, products,
processes, and materials
- Global segment: includes relevant new global markets, existing markets that are
changing, important international political events, and critical cultural and
institutional characteristics of global markets
- Physical Environment segment: refers to potential and actual changes in the
physical environments and business practices that are intended to positively
respond to and deal with those changes.
External environment analysis:
- Scanning: identify early signals of environmental changes and trends
- Monitoring: detect meaning through on-going observations of environmental
changes and trends
- Forecasting: develop projections of anticipated outcomes based on monitored
changes and trends
- Assessing: determine the timing and importance of environmental changes and
trends in firms’ strategies and their management
Opportunity: a condition in the general environment that, if exploited effectively, helps a
company achieve strategic competitiveness.
Threat: a condition in the general environment that may hinder a company’s efforts to
achieve strategic competitiveness.
Industry: a group of firms producing products that are close substitutes.
PORTER’s 5 forces model:
- Threat of new entrants: barriers to entry (economies of scale, product
differentiation, capital requirements, switching costs, access to distribution
channel, cost disadvantages independent of scale, government policy), expected
retaliation
- Bargaining power of suppliers (increasing prices and reducing the quality). A
supplier group is powerful when it is dominated by a few large companies and is
more concentrated than the industry in which it sells, satisfactory substitute
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