Evaluate the view that an uncertain and dynamic external environment requires more effective application of analytical tools and frameworks for environmental analysis!
19th October 2011
INTRODUCTION This essay is to assess the view, that an uncertain and dynamic external environment requires more effective application of analytical tools and frameworks for environmental analysis. To evaluate this statement this essay will go into details concerning the topics of present and future external environment, review of analytical tools, role of analytical toolkit in a dynamic environment and also the benefits and problems arising from dynamic change, showing that coping with the dynamic of the business environment is a challenge but also a chance for business success in the present and the future.
MAIN BODY First of all it is essential to analyse the meaning behind the term “external environment”. “Environments are conceptualized as extended social field(s)…with a causal texture” (Selsky, Goes and Babüroglu, 2007). The external environment of a company consists of market and competitors as well as industry and finally the macro-environment. These factors are considered to be the main drivers for a company’s business. Furthermore, in order to achieve sustainable success by understanding and eventually influencing the environment of their company, managers have to analyse and evaluate the external factors very accurately. Therefore it can be truly followed, that according to Johnson, Scholes and Whittington (2008, p. 54), “environment is what gives organisations their means of survival”.
Now, as it is clear what the definition of external environment implicates, it has to be asked why it is essential to understand the future environment. To answer this question, one has to look at the definition of strategy after Glueck. According to this, “a strategy is a unified, comprehensive, and integrated plan that relates the strategic advantages of the firm to the challenges of the environment” (Analoui, Karami, Strategic Management in small and medium enterprises, 2003, p. 46). As a consequence, it is absolutely essential to understand the environment, especially the future environment in order to be able to develop a proper strategy which is based on the effective application of analytical tools. Another important point to be made is the fact that the world, especially the global economy is changing, even faster than in the past. So it can be stated, that in order to deal with technological, political or economic change in providing valid forecasts, the understanding of the future environment is a key-factor of surviving in a globalized world (M. Trehan, R. Trehan, Jain, -1-
2009). Furthermore, surviving means being successful in business competition. Success in competition is based on the customisation of a business as a consequence of observing, analysing and again understanding the changing environment (Gitman, McDaniel, 2008).
Another interesting question is, which opportunity costs are involved in the process of understanding the environment. At first, it has to be asked what opportunity costs are. Referring to Gregory Mankiw (Principles of Economics, 2008, p. 54), these are “whatever must be given up to obtain some item”. Because of the fact, that the process of understanding the external environment also implicates the analysis of it, it shall be concluded therefore, that human resources, for example staff planners, line managers or other planning specialists are needed. However this analysis comes along with a big expenditure of documentation like written reports and the use of standardized analytical methods. (R.M. Grant, 2003) So, the set-in resources spend much time on the analysis of the environment. According to the definition of opportunity costs, it can now be concluded, that the time...