As many contemporary corporate leaders will contend, operating a business in today’s global marketplace has become more difficult to manage on many levels, due to the continual evolution of technology and industry changes that occur. In their book, The External Environment of Business: Political, Economic, Social and Regulatory, Pagano and Verdin (1997) assert that even the most efficient leaders run into substantial obstacles because of circumstances that are beyond their control (Pagano & Verdin, 1997). For instance, 30 years ago, most people purchased their favorite music on a vinyl disc, cassette, or compact disc format. Today, however, most people are accustomed to downloading their favorite tunes for playback on an MP3 device. Those who were not able to foresee or adjust to industry changes, were forced to leave the market.
In the ebook, The Strategy Behind an External Analysis (soon to be released on audiobook), my research work revealed that the significant elements which affect a company’s external environment include the regulatory, technological, economic, social, and political factors (Berry, 2014). That’s because these components can have a profound effect on the products a company produces; the costs involved to manufacture, produce, and market them; and the profit margins that can affect their commerce and growth. For example, forces like oil cartels, automation, deregulation, environmental protection policies, equal opportunity legislation, and changes in social mores, influence the external arena. In fact, these changes are occurring so rapidly, that leaders are scrambling diligently to keep afloat, let alone maintain a competitive edge. Not only have innovative technological advances like smartphones and tablets changed the kinds of products being manufactured, but these inventive devices continue to help pave the way business is conducted.
Another significant reason for including an external analysis as part of a company’s strategic planning process, is that it can also serve to help increase awareness on how an organization relates to the rest of society. This is an excellent way a company can assess more clearly, how they conduct themselves in a socially responsive manner. In the book, Developing Business Strategies, David Aaker (2001) suggests that an evaluation of the external environment also helps companies identify such proponents as: (a) consumer demographics and segmentation, (b) what factors motivate buyers, and (c) what the consumers needs are.
External analyses also include a look at competitor strategies so they can ascertain more clearly what they are up against such as performance, image, objectives, culture, and cost structures. Plus an external analysis also helps clarify what environment factors play a role in how the firm achieves successful outcomes including technological, government, economic, cultural, and demographic (Aaker, 2001). In conclusion, by implementing external analyses that ask the right questions, leaders are in a better position to create the kind of strategies that will lead their firms to achieve the most successful outcomes.
Well, that’s it for this week folks! Thanks for stopping by. I appreciate your continued support! In the meantime, I am happy to announce I have just accepted a full time position as the Publications Writer for the Performing Arts Center at the College of Southern Nevada. To get ready for this exciting new position, I will be taking some time off. However, I will return with new posts again in November so stay tuned! Until then … keep organized and have a very Happy Halloween celebration!
A satisfied customer is the best business strategy of all. – Michael LeBoeuf
If you are interested in more tips and information on effective strategic planning or want to find out how to purchase any of our accelerated learning Business Life titles, please visit our website at:
Aaker, D. (2001). Developing business strategies (6th ed.). New York, NY: John Wileyand Sons, Inc.
Berry, M. A. (2014). Organizational management: The strategy behind an external analysis. Las Vegas: Kindle Direct Publishing.
Pagano, A., & Verdin, J. (1997). The external environment of business: Political, economic, social and regulatory (2nd ed.). Chicago, IL: Stipes Pub. LLC.