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Week 5 External Environment Part 1

The document discusses analyzing a firm's external environment. It defines the general, industry, and competitor environments and explains they influence strategic actions. The general environment contains 7 segments - demographic, economic, political/legal, sociocultural, technological, global, and physical. Firms cannot control these segments but must understand their implications. The analysis process involves scanning, monitoring, forecasting, and assessing opportunities and threats across the segments. Various sources can provide information for this analysis.

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54 views23 pages

Week 5 External Environment Part 1

The document discusses analyzing a firm's external environment. It defines the general, industry, and competitor environments and explains they influence strategic actions. The general environment contains 7 segments - demographic, economic, political/legal, sociocultural, technological, global, and physical. Firms cannot control these segments but must understand their implications. The analysis process involves scanning, monitoring, forecasting, and assessing opportunities and threats across the segments. Various sources can provide information for this analysis.

Uploaded by

Lts
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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INFORMATION SYSTEM

STRATEGIC PLANNING
WEEK 5 EXTERNAL ENVIRONMENT ANALYSIS PART 1
STRATEGIC
MANAGEMENT
PROCESS
● Explain the importance of analyzing and
understanding the firm’s external environment.

● Define and describe the general environment.


KNOWLEDGE
OBJECTIVES ● Discuss the four activities of the external
environmental analysis process.

● Name and describe the general environment’s


seven segments.
IMPORTANT DEFINITIONS

A firm’s EXTERNAL ENVIRONMENT is


broken down into three parts:

● General
● Industry
● Competitor

A firm’s strategic actions are influenced by


the conditions in all three parts.
IMPORTANT DEFINITIONS

● General Environment
MACRO Dimensions in the broader society that influence an
industry and the firms within it

● Industry Environment
Set of factors that directly influences a firm and its
competitive actions and response

● Competitor Environment
MICRO Focuses on each company against which a firm
directly competes
THE EXTERNAL ENVIRONMENT

FIGURE

The External
Environment
OPENING CASE
BRITISH PETROLEUM (
EXTERNAL ENVIRONMENT AFFECTS A FIRM’S STRATEGIC ACTIONS

●BP SEEKS TO EXPAND ITS OIL RESERVES AFTER THE DEEPWATER


HORIZON OIL AND GAS DRILLING PLATFORM DISASTER IN THE GULF
OF MEXICO BY FORMING JOINT VENTURES IN RUSSIA WITH ROSNEFT
CORPORATION AND IN INDIA WITH RELIANCE INDUSTRIES.
●BP’S STRATEGIC ACTIONS ARE ALSO AFFECTED BY CONDITIONS IN
OTHER SEGMENTS OF ITS GENERAL ENVIRONMENT: E.G., THE
POLITICAL/LEGAL, SOCIAL/CULTURAL, AND PHYSICAL ENVIRONMENT
SEGMENTS.
THE EXTERNAL ENVIRONMENT
A FIRM’S EXTERNAL ENVIRONMENT CREATES:
● OPPORTUNITIES
E.G., THE OPPORTUNITY FOR BP TO ENTER OTHER GLOBAL
MARKETS, AND

● THREATS
E.G., THE POSSIBILITY THAT ADDITIONAL REGULATIONS IN
ITS MARKETS WILL REDUCE OPPORTUNITIES FOR BP TO
EXTRACT OIL AND GAS

COLLECTIVELY, OPPORTUNITIES AND THREATS AFFECT A


FIRM’S STRATEGIC ACTIONS.
THE EXTERNAL ENVIRONMENT
GENERAL
●THE GENERAL ENVIRONMENT IS GROUPED INTO SEVEN
ENVIRONMENTAL SEGMENTS:
[1] DEMOGRAPHIC
[2] ECONOMIC
[3] POLITICAL/LEGAL
[4] SOCIOCULTURAL
[5] TECHNOLOGICAL
[6] GLOBAL
[7] PHYSICAL

●TO SUCCESSFULLY DEAL WITH UNCERTAINTY IN THE EXTERNAL


ENVIRONMENT AND ACHIEVE STRATEGIC COMPETITIVENESS, FIRMS
MUST BE AWARE OF AND UNDERSTAND THESE SEGMENTS.
THE EXTERNAL ENVIRONMENT
GENERAL
● FIRMS CANNOT DIRECTLY CONTROL THE GENERAL
ENVIRONMENT’S SEGMENTS.

● HOWEVER, THESE SEGMENTS INFLUENCE THE ACTIONS THAT


FIRMS TAKE.

● SUCCESSFUL FIRMS LEARN HOW TO GATHER THE


INFORMATION NEEDED TO UNDERSTAND ALL SEGMENTS AND
THEIR IMPLICATIONS FOR SELECTING AND IMPLEMENTING THE
FIRM’S STRATEGIES.
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS

THE DEMOGRAPHIC SEGMENT


DEMOGRAPHIC SEGMENTS ARE COMMONLY ANALYZED ON A
GLOBAL BASIS BECAUSE OF THEIR POTENTIAL EFFECTS ACROSS
COUNTRIES’ BORDERS AND BECAUSE MANY FIRMS COMPETE IN
GLOBAL MARKETS.

DEMOGRAPHIC SEGMENT
• POPULATION SIZE

• AGE STRUCTURE
• GEOGRAPHIC DISTRIBUTION
• ETHNIC MIX

• INCOME DISTRIBUTION
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS

THE ECONOMIC SEGMENT


This segment refers to the nature and direction of the economy in
which a firm competes or may compete. Firms generally seek to
compete in relatively stable economies with strong growth potential.
With globalization and the interconnectedness of nations, firms must
scan, monitor, forecast, and assess the health of their host nation and
the health of the economies outside their host nation.

ECONOMIC SEGMENT • BUDGET DEFICITS OR SURPLUSES

• INFLATION RATES • PERSONAL SAVINGS RATE

• INTEREST RATES • BUSINESS SAVINGS RATES

• TRADE DEFICITS OR SURPLUSES • GROSS DOMESTIC PRODUCT


THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS

THE POLITICAL/LEGAL SEGMENT


THIS SEGMENT REPRESENTS HOW ORGANIZATIONS AND
GOVERNMENTS MUTUALLY TRY TO INFLUENCE EACH OTHER, AND HOW
FIRMS TRY TO UNDERSTAND THESE INFLUENCES (CURRENT AND
PROJECTED) ON THEIR STRATEGIC ACTIONS.

POLITICAL/LEGAL SEGMENT
• ANTITRUST LAWS
• TAXATION LAWS

• DEREGULATION PHILOSOPHIES
• LABOR TRAINING LAWS
• EDUCATIONAL PHILOSOPHIES AND POLICIES
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS

THE SOCIOCULTURAL SEGMENT


THE SOCIOCULTURAL SEGMENT IS CONCERNED WITH A SOCIETY’S
ATTITUDES AND CULTURAL VALUES. BECAUSE ATTITUDES AND VALUES
FORM THE CORNERSTONE OF A SOCIETY, THEY OFTEN DRIVE
DEMOGRAPHIC, ECONOMIC, POLITICAL/LEGAL, AND TECHNOLOGICAL
CONDITIONS AND CHANGES.
SOCIOCULTURAL SEGMENT
• WOMEN IN THE WORKFORCE

• WORKFORCE

• DIVERSITY ATTITUDES ABOUT THE QUALITY OF WORK LIFE

• SHIFTS IN WORK AND CAREER PREFERENCES

• SHIFTS IN PRODUCT AND SERVICE PREFERENCE CHARACTERISTICS


THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS

THE TECHNOLOGICAL SEGMENT


Technological changes occur through new products, processes, and
materials. The technological segment includes the activities involved
in creating new knowledge and translating that knowledge into new
outputs, products, processes, and materials. Given the rapid pace of
technological change and risk of disruption, it is vital for firms to
study this segment.

TECHNOLOGICAL SEGMENT
• PRODUCT INNOVATIONS • APPLICATIONS OF KNOWLEDGE

• NEW COMMUNICATION • FOCUS OF PRIVATE AND


TECHNOLOGIES GOVERNMENT-SUPPORTED R&D
EXPENDITURES
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS

THE GLOBAL SEGMENT


MARKETS AND CONSUMERS ARE MORE GLOBAL. THIS
SEGMENT INCLUDES RELEVANT NEW GLOBAL MARKETS,
EXISTING MARKETS THAT ARE CHANGING, IMPORTANT
INTERNATIONAL POLITICAL EVENTS, AND CRITICAL CULTURAL
AND INSTITUTIONAL CHARACTERISTICS OF GLOBAL MARKETS.
GLOBAL SEGMENT
• IMPORTANT POLITICAL EVENTS
• CRITICAL GLOBAL MARKETS
• NEWLY INDUSTRIALIZED COUNTRIES
• DIFFERENT CULTURAL AND INSTITUTIONAL ATTRIBUTES
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS

THE PHYSICAL ENVIRONMENT SEGMENT


CONCERNED WITH TRENDS ORIENTED TO SUSTAINING THE WORLD’S PHYSICAL ENVIRONMENT,
FIRMS RECOGNIZE THAT ECOLOGICAL, SOCIAL, AND ECONOMIC SYSTEMS INTERACTIVELY
INFLUENCE WHAT HAPPENS IN THIS PARTICULAR SEGMENT. THIS SEGMENT REFERS TO POTENTIAL
AND ACTUAL CHANGES IN THE PHYSICAL ENVIRONMENT AND BUSINESS PRACTICES THAT ARE
INTENDED TO POSITIVELY RESPOND TO AND DEAL WITH THOSE CHANGES.

PHYSICAL ENVIRONMENT SEGMENT

• ENERGY CONSUMPTION
• PRACTICES USED TO DEVELOP ENERGY SOURCES
• RENEWABLE ENERGY EFFORTS
• MINIMIZING A FIRM’S ENVIRONMENTAL FOOTPRINT
• AVAILABILITY OF WATER AS A RESOURCE
• PRODUCING ENVIRONMENTALLY FRIENDLY PRODUCTS
• REACTING TO NATURAL OR MAN-MADE DISASTERS
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS

THE PHYSICAL ENVIRONMENT SEGMENT


STRATEGIC FOCUS: FIRMS’ EFFORTS TO TAKE CARE OF THE PHYSICAL ENVIRONMENT IN WHICH
THEY COMPETE
EXAMPLE
● THE EXAMPLES NOTED IN THIS STRATEGIC FOCUS: SIEMENS AG, MCDONALD’S, PROCTER & GAMBLE,
AND GE SIGNIFY A GROWING COMMITMENT BY FIRMS AROUND THE GLOBE IN RESPONSE TO
EMERGING TRENDS IN THE PHYSICAL ENVIRONMENT SEGMENT.

● IN ADDITION TO POSITIVELY RESPONDING TO THE OBSERVED TRENDS IN THIS SEGMENT OF THE


GENERAL ENVIRONMENT, THERE IS SOME EVIDENCE THAT FIRMS ENGAGING IN THESE TYPES OF
BEHAVIORS OUTPERFORM THOSE FAILING TO DO SO.

● THIS EMERGING EVIDENCE SUGGESTS THAT THESE BEHAVIORS BENEFIT COMPANIES, THEIR
STAKEHOLDERS, AND THE PHYSICAL ENVIRONMENT IN WHICH THEY OPERATE.
EXTERNAL ENVIRONMENTAL
ANALYSIS
EXTERNAL ENVIRONMENTS ARE:
• TURBULENT
• COMPLEX
• GLOBAL
• UNCERTAIN
• AMBIGUOUS
• INCOMPLETE

• FIRMS ENGAGE IN EXTERNAL ENVIRONMENTAL ANALYSIS TO


BETTER UNDERSTAND AND COPE WITH THEIR ENVIRONMENTS.
• THIS ANALYSIS HAS FOUR PARTS:
SCANNING, MONITORING, FORECASTING, AND ASSESSING.
EXTERNAL ENVIRONMENTAL
ANALYSIS
EXTERNAL ENVIRONMENTAL
ANALYSIS
● Identifying opportunities and threats is an
important objective of studying the general
environment.

● OPPORTUNITY is a condition in the general


environment that if exploited effectively, helps a
company achieve strategic competitiveness.
EXAMPLE: Procter & Gamble (P&G) is reorienting beauty
products to better serve both men and women.
EXTERNAL ENVIRONMENTAL ANALYSIS

● THREAT IS A CONDITION IN THE GENERAL


ENVIRONMENT THAT MAY HINDER A COMPANY’S
EFFORTS TO ACHIEVE STRATEGIC COMPETITIVENESS.

EXAMPLE: MICROSOFT IS EXPERIENCING A SEVERE EXTERNAL THREAT AS


SMARTPHONES ARE EXPECTED TO SURPASS PERSONAL COMPUTER (PC) SALES IN THE
NEAR FUTURE.
EXTERNAL ENVIRONMENTAL
ANALYSIS
Firms use several sources to analyze the general environment:
 trade publications
 newspapers
 business publications
 academic research
 public polls
 trade shows
 suppliers
 customers
 employees

People in boundary-spanning positions can obtain a great deal of this


type of information.

Examples: salespersons, purchasing managers, public relations


directors, and customer service representatives, each of whom
interacts with external constituents

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