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External Analysis
Scan and evaluate various external environmental sectors impacting performance
Opportunities
Positive external environmental trends that
improve the organization’s performance
Threats
Negative external environmental trends that
hinder the organization's performance
Dickson Chiu 2006 COMP5331-8-2

Organizations as Open Systems
Open System
Interacts with and responds to its external environment
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Organizations function as systems
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Affect and impact environment
Dickson Chiu 2006 COMP5331-8-3

Organizations as Open Systems (2)
Environment
Organization
Inputs
Resources:
Physical
Capital
Human
Information
Processes
Organization Functions:
Production-Operations
Marketing
Financial-Accounting
Human Resource Mgt.
Research and Development
Information Systems
Managerial Activities:
Planning
Organization
Leading
Controlling
Outputs
Goods
Services
Performance
Measures:
Financial
Productivity
Achieve Goal
Organization
Environment
Dickson Chiu 2006 COMP5331-8-4

External Environmental Sectors
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Specific Environment
External sectors that directly impact the organization’s strategic decisions by opening up opportunities or threats
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General Environment
External sectors that indirectly affect the organization’s strategic decisions and which may pose opportunities and threats
Dickson Chiu 2006 COMP5331-8-5

General
Environment
Technological
Economic
Specific Environment
Industry-Competitors
Substitute
Products
Political-Legal
Organization
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
Current
Rivalry
Potential
Entrants
Demographic
Sociocultural
Dickson Chiu 2006 COMP5331-8-6

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Industry
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Group(s) of organizations producing similar or identical products
Competitive Variables
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Compete for customers
Compete for resources
Assess an organization’s specific environment
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Porter’s five forces model
Dickson Chiu 2006 COMP5331-8-7

Potential Entrants
Threats of New Entrants
Bargaining
Power of Suppliers
Industry
Competitors
Suppliers
One assumption of Porter’s five forces model is that some industries are inherently more attractive than others; that is, the profit potential for companies in that industry is higher. As this figure indicates, the interaction and strength of five forces influences profit potential.
Rivalry Among
Existing Firms
Threat of Substitute
Products or Services
Substitutes
Dickson Chiu 2006
Bargaining
Power of Buyers
Buyers
COMP5331-8-8

Trends in each of the five sectors of the general environment could have a potential positive effect on the organization (opportunity) or a potential negative impact (threat).
Sociocultural
Dickson Chiu 2006
Sources of
External Influence
COMP5331-8-9

Economic
All the macroeconomic data, current statistics, trends, and changes
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Interest rates
Monetary exchange rates
Budget deficit-surplus
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Trade deficit-surplus
Inflation rates
GNP or GDP
Consumer income, spending, and debt levels
Unemployment levels
Workforce productivity
Dickson Chiu 2006 COMP5331-8-10

Demographics
Current statistical data and trends in population characteristics
• Gender
• Age
• Income levels
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Ethnic makeup
• Education
• Family composition
• Geographic location
• Birth rates
•
Employment status
Dickson Chiu 2006 COMP5331-8-11

General Environment - Sociocultural
Sociocultural
• Country's culture
• Society's
• Traditions
• Values
• Attitudes
• Beliefs
• Tastes
• Patterns of behavior
Dickson Chiu 2006 COMP5331-8-12

Political-Legal
• Federal, state, and local
• Laws
• Regulations
• Judicial decisions
• Political forces
Dickson Chiu 2006 COMP5331-8-13

Technical
Improvements, advancements, and innovations that create opportunities and threats
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Communications
Computing
Transportation
Manufacturing
Robotics
Biotechnology
Medicine and medical
Telecommunications
Consumer electronics
Dickson Chiu 2006 COMP5331-8-14

Responsibilities for External Analysis at Different
Managerial Levels
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Lower Level Managers/Supervisors
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Observe and interact
Collect and consolidate
Middle Managers
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Coordinate
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Share with organizational units
Gatherer and disseminator
Monitor general environmental sectors
Make needed strategic changes
Upper Management
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Evaluate opportunities and threats
Dickson Chiu 2006 COMP5331-8-15

Benefits of Doing An External Analysis
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Proactive managers anticipate change and plan accordingly
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Provide information for
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Planning
Decision making
Strategy formulation
Acquire and control needed resources
Cope effectively with increasingly dynamic environment
Make a difference with higher performance
Dickson Chiu 2006 COMP5331-8-16

Challenges of Doing an External Analysis
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Rapid environmental changes are difficult to keep up with

Amount of time that analysis can consume
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Forecasts and trend analyses are not actual fact
Dickson Chiu 2006 COMP5331-8-17