An external analysis can be defined as “the process of scanning and evaluating an organization’s various external environmental sectors to determine positive and negative trends that could impact organizational performance”(p. 66, Coulter 2005). A company’s strategic decisions can be influenced by a number of factors. The external environment can be one of those things and should be closely monitored. You should be aware of changes and trends in the environment around you, know what your customers prefer and what your competitors are up to. You should also be aware of the latest technological developments and maybe even political changes that might affect your strategic plan. Partly we are informed about changes and trends through the media, there are however large changes occurring that we notice first after a while if we do not try to capture the information earlier. Being able to see changes early and act accoardingly is a vital competitive factor. In order to do this an external analysis is appropriate to use. Why is this so important? Changes in a company’s environment can radically change the conditions for their operations. Additionally, the rate at which changes occur nowadays has increased tremendously.
The benefits of conducting an external analysis are that it helps to generate profits, helps to support change, helps to cut costs, and increases knowledge and supports learning. There are a number of models and tools that can be applied to analyze a company’s environment that you will find in the Tools-section.
Opportunities and threats are two things that a company is constantly looking for. The opportunities arise from positive external trends and the threats from negative trends. If you identify these early enough then you are able to redesign your current strategy in order to benefit from these opportunities and avoid the threats.
So how do you actually go about to do an external analysis? There are a few external environments you should be aware...