Understanding the Firm’s External Environment
Businesses do not operate internally. What happens in its external environment plays a large role in how a business both offers its products/services and plans for future growth. Some of the main external factors include:
Competition – How others companies in a business’ niche compete with its products/services.
Economic – How do the current economic conditions (i.e. the recent U.S. recession) play a role in a business’ strategy?
Social – How are the demographics of your niche changing, and what impact might this have on your business? How are behaviors and sentiments towards your niche evolving, and how will that change your strategy?
Political – How do changes in government policy, including new laws and regulations, impact how you operate?
Technological – How does evolving technology change your means of production? How do technological modes of marketing your product (i.e. social media) change your operations?
A business’ external environment is complex and constantly evolving. But paying attention to these factors and monitoring them on a regular basis is vital for future growth. If you don’t pick up on what’s happening around you and how it’s impacting you, both positively and negative, how will you react to market changes and be able to beat your competition in the long-term?
This video clips comes from one of our online MBA courses on strategic management from a highly qualified and nationally renowned professional in business sustainability. Ms. Petro is an Adjunct Professor with us at California Miramar University, a 2010 Outstanding Professor of the Year award recipient, and one of the reasons why our on-campus, Our online MBA programs and Hybrid MBA programs have just been recognized by the San Diego Business Journal as one of the Top 10 in San Diego County for the second year in a row!
Transcript of the Lesson
The firm’s external environment is comprised of the following components: the remote environment, the industry environment and the operating environment. That’s really the underpinnings of this entire chapter. Let’s talk about that remote environment. Again, here’s what it looks like: you have an organization impacted by three: remote, industry and operating. We’re going to start with that larger box – the remote environment – before we move inside.
When we’re coming up with opportunities and threats for an organization, because we’ve just talked about strengths and weaknesses, we’re going to be talking about economic factors. What is happening out there in the economic environment? Didn’t many organizations get caught on their strategy, not being able to implement it effectively during this last U.S. recession?
Then we’ve got social factors. Are you taking into consideration how the demographics of your country is changing, and what the impact could be on the products and services that you provide?
Political factors. There are some organizations, such as Biotech, that are impacted far more by politics and regulation than, let’s say, a service industry such as consulting.
Then you’ve got technology factors. Knowing what we know about the proliferation of technology and the desire for less technological obsolescence, what is that impact on how you deliver what you’re delivering? For instance, if you are a training organization and you’ve got demographics that say the next generation is coming up going, ”I don’t want to receive information that way;” you need to deliver it in a different way. It’s the technology factor that would come into play as well.
Video Transcription by GMR Transcription
