Dickson K.W. Chiu

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COMP5331 Web Pub and Web Ad 8. External Analysis

• Dickson K.W. Chiu
• PhD, SMIEEE

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What is External Analysis?

• External Analysis
• Scan and evaluate various external environmental
  sectors impacting performance

Opportunities Positive external environmental
trends that improve the organizations performance
Threats Negative external environmental trends
that hinder the organization's performance
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Organizations as Open Systems
Open System Interacts with and responds to its
external environment

• Organizations function as systems
• Affect and impact environment

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Organizations as Open Systems (2)
Environment
Organization
Processes
Outputs
Inputs
Organization Functions Production-Operations Ma
rketing Financial-Accounting Human Resource
Mgt. Research and Development Information
Systems Managerial Activities Planning Organiza
tion Leading Controlling
Goods Services Performance Measures Financial
Productivity Achieve Goal
Resources Physical Capital Human Information
Environment
Environment
Organization
Environment
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External Environmental Sectors

• Specific Environment
• External sectors that directly impact the
  organizations strategic decisions by opening up
  opportunities or threats
• General Environment
• External sectors that indirectly affect the
  organizations strategic decisions and which may
  pose opportunities and threats

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Organizations External Environment
General Environment
Technological
Economic
Specific Environment Industry-Competitors
Current Rivalry
Organization
Substitute Products
Potential Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Political-Legal
Demographic
Sociocultural
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Specific Environment

• Industry
• Group(s) of organizations producing similar or
  identical products
• Competitive Variables
• Compete for customers
• Compete for resources
• Assess an organizations specific environment
• Porters five forces model

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Five Forces Model
Potential Entrants
Threats of New Entrants
Industry Competitors
Bargaining Power of Suppliers
Bargaining Power of Buyers
Suppliers
Buyers
Rivalry Among Existing Firms
One assumption of Porters 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.
Threat of Substitute Products
or Services
Substitutes
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General Environment
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).
Economic
Demographic
Sociocultural
Decision Making
Strategic Plan
Political-Legal
Technical
Sources of External Influence
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General Environment - Economic
Economic All the macroeconomic data, current
statistics, trends, and changes

Interest rates Monetary exchange
rates Budget deficit-surplus Trade
deficit-surplus Inflation rates GNP or
GDP Consumer income, spending, and debt
levels Unemployment levels Workforce
productivity
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General Environment - Demographics
Demographics Current statistical data and trends
in population characteristics

Gender Age Income levels Ethnic
makeup Education Family composition Geograph
ic location Birth rates Employment status
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General Environment - Sociocultural
Sociocultural
Country's culture Society's
Traditions Values Attitudes Belief
s Tastes Patterns of behavior
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General Environment Political-Legal
Political-Legal
Federal, state, and local
Laws Regulations Judicial
decisions Political forces
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General Environment - Technical
Technical Improvements, advancements, and
innovations that create opportunities and
threats
Communications Computing Transportation Ma
nufacturing Robotics Biotechnology Medicine
and medical Telecommunications Consumer
electronics
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Responsibilities for External Analysis at
Different Managerial Levels

• Lower Level Managers/Supervisors
• Observe and interact
• Collect and consolidate
• Middle Managers
• Coordinate
• Share with organizational units
• Gatherer and disseminator
• Monitor general environmental sectors
• Make needed strategic changes
• Upper Management
• Evaluate opportunities and threats

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Benefits of Doing An External Analysis

• Proactive managers anticipate change and plan
  accordingly
• Provide information for
• Planning
• Decision making
• Strategy formulation
• Acquire and control needed resources
• Cope effectively with increasingly dynamic
  environment
• Make a difference with higher performance

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Challenges of Doing an External Analysis

• Rapid environmental changes are difficult to keep
  up with
• Amount of time that analysis can consume
• Forecasts and trend analyses are not actual fact