Political Legal Environment
The Michael Porter Five Forces
Threat Of New Entrants
Rivalry of existing firms
Threats of substitutes
Bargaining power of buyer
Bargaining power of suppliers
EXECUTIVE DIPLOMA IN BUSINESS ADMINISTRATION
STRATEGIC MANAGEMENT (BA423)
The study of the external environment is a crucial step in the mapping of business strategy for an organization.
Discuss how the assessment of external forces can be performed with business examples to support your analysis.
[Total 100 marks]
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Business environment is an element that will affect all the activities of an organization. Beside, it will bring firms both opportunities and threats because of its uncertainties. Business environment is uncertain, complex & dynamics; organization should apply more flexibility & discontinuity ways to manage them. A firm cannot control the environment because it is unpredictable in its direction and speed of change, such as interest rates, rate of inflation and exchange rate.
Business environment can classifies in two categories that are internal environment and external environment. Internal factors close to the company that have a direct impact on the organizations strategy, these factors include employee, customer, suppliers, shareholder, banker etc. External environment comprises those factors and trends outside the organisation that might have an influence upon an organisation and its future. Many external factors can have an effect upon an organisation - from changes in government legislation to the entry of new competition into a market.
All businesses and organizations operate in a changing world and are subject to forces that are more powerful than they are, and which are beyond their control. Any business strategy needs to take account of all these forces so that opportunities and threats can be identified and the organization can navigate its way to success by matching its internal strengths to external opportunities.
There are many ways and techniques that a firm can adopt to assess the external environmental forces. The most common and popular techniques are the PEST analysis and Industry Analysis, and these are illustrated below in figure 1.
Figure 1: External environment analysis
It is useful to consider as a starting point, what environmental influences have been particularly important in the past, and the extent to which there are changes occurring, which may make any of these more or less significant in the future, for the organization and its competitors.
PEST analysis (a mnemonic for Political, Economic, Social and Technological factors) is the most frequently used tool to consider the impact of the general environment. It provides a broad framework for considering a wide range of potential factors in order to summarise the most important influences of the general environment. Beside, it can evaluate the potential impact of these influences, while the opportunities and threats to be faced. Is positive or negative.
Each of the four headings can be broken down further to suggest more detailed consideration of particular factors and changes that might influence the organisation both currently and in the future. Whilst varying dependent upon the particular context, the list of factors and changes may include:...
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