Key External Forces
External forces can be divided into five broad categories: (1) economic forces; (2) social,
cultural, demographic, and natural environment forces; (3) political, governmental, and legal forces; (4) technological forces; and (5) competitive forces. Relationships among these forces and an organization
are depicted in Figure 7-2. External trends and events, such as rising food prices and people in African
countries coming online, significantly affect products, services, markets, and organizations worldwide. Important Note : WHEN IDENTIFYING AND PRIORITIZING KEY EXTERNAL FACTORS IN STRATEGIC PLANNING, MAKE SURE THE FACTORS SELECTED ARE
SPECIFIC, IE QUANTIFIED TO THE EXTENT POSSIBLE; PERHAPS MORE IMPORTANTLY MAKE SURE THE FACTORS SELECTED ARE ACTIONABLE, IE MEANINGFUL IN TERMS OF HAVING STRATEGIC IMPLICATIONS.
For example, regarding actionable, to say “the stock
market is rising” is not actionable because there is no apparent strategy that the firm could formulate to capitalize on that factor. In contrast, a factor such as “the GDP of Brazil is 6.8 percent” is actionable because the firm should perhaps open 100 new stores in Brazil. In other words, select factors that will be helpful in deciding what to recommend the firm to do, rather than selecting nebulous factors.Changes in external forces translate into changes in consumer demand for both industrial and consumer products and services. External forces affect the types of products developed,
External forces can be divided into five broad categories: (1) economic forces; (2) social,
cultural, demographic, and natural environment forces; (3) political, governmental, and legal forces; (4) technological forces; and (5) competitive forces. Relationships among these forces and an organization
are depicted in Figure 7-2. External trends and events, such as rising food prices and people in African
countries coming online, significantly affect products, services, markets, and organizations worldwide. Important Note : WHEN IDENTIFYING AND PRIORITIZING KEY EXTERNAL FACTORS IN STRATEGIC PLANNING, MAKE SURE THE FACTORS SELECTED ARE
SPECIFIC, IE QUANTIFIED TO THE EXTENT POSSIBLE; PERHAPS MORE IMPORTANTLY MAKE SURE THE FACTORS SELECTED ARE ACTIONABLE, IE MEANINGFUL IN TERMS OF HAVING STRATEGIC IMPLICATIONS.
For example, regarding actionable, to say “the stock
market is rising” is not actionable because there is no apparent strategy that the firm could formulate to capitalize on that factor. In contrast, a factor such as “the GDP of Brazil is 6.8 percent” is actionable because the firm should perhaps open 100 new stores in Brazil. In other words, select factors that will be helpful in deciding what to recommend the firm to do, rather than selecting nebulous factors.Changes in external forces translate into changes in consumer demand for both industrial and consumer products and services. External forces affect the types of products developed,
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| Figure 7-2 Relationships Between Key External Forces and an Organization |
the nature of positioning and market segmentation strategies, the type of services offered, and the choice of businesses to acquire or sell. External forces directly affect both suppliers and distributors. Identifying and evaluating external opportunities and threats enables organizations to develop a clear mission, to design strategies to achieve long-term objectives, and to develop policies to achieve annual objectives. The increasing complexity of business today is evidenced by more countries developing the capacity and will to compete aggressively in world markets. Foreign businesses and countries are willing to learn, adapt, innovate, and invent to compete successfully in the marketplace. There are more competitive new technologies in Asia today than ever before, as recently introduced for example by Lenovo in China and Samsung in South Korea.
The Process of Performing an External Audit
The process of performing an external audit must involve as many managers and employees as possible. involvement in the strategic-management process can lead to understanding and commitment from organizational members. Individuals appreciate having the opportunity to contribute ideas and to gain a better understanding of their firm’s industry, competitors, and markets.
To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends. Individuals can be asked to monitor various sources of information, such as key magazines, trade journals, and newspapers. These persons can submit periodic scanning reports to a committee of managers charged with performing the external audit. This approach provides a continuous stream of timely strategic information and involves many individuals in the external-audit process. The Internet provides another source for gathering strategic information, as do corporate, university, and public libraries. Suppliers, distributors, salespersons, customers, and competitors represent other sources of vital information
Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These key external factors should be listed on flip charts or a chalkboard. A prioritized list of these factors could be obtained by requesting that all managers rank the factors identified, from 1 for the most important opportunity or threat to 20 for the least important opportunity or threat. These key external factors can vary over time and by industry. Relationships with suppliers or distributors are often a critical success factor. Other variables commonly used include market share, breadth of competing products, world economies, foreign affiliates, proprietary and key account advantages, price competitiveness, technological advancements, population shifts, interest rates, and pollution abatement.
Freund emphasized that these key external factors should be (a) important to achieving long-term and annual objectives, (b) measurable, (c) applicable to all competing firms, and (d) hierarchical in the sense that some will pertain to the overall company and others will be more narrowly focused on functional or divisional areas. A final list of the most important key external factors should be communicated and distributed widely in the organization. Both opportunitiesand threats can be key external factors.
The Process of Performing an External Audit
The process of performing an external audit must involve as many managers and employees as possible. involvement in the strategic-management process can lead to understanding and commitment from organizational members. Individuals appreciate having the opportunity to contribute ideas and to gain a better understanding of their firm’s industry, competitors, and markets.
To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends. Individuals can be asked to monitor various sources of information, such as key magazines, trade journals, and newspapers. These persons can submit periodic scanning reports to a committee of managers charged with performing the external audit. This approach provides a continuous stream of timely strategic information and involves many individuals in the external-audit process. The Internet provides another source for gathering strategic information, as do corporate, university, and public libraries. Suppliers, distributors, salespersons, customers, and competitors represent other sources of vital information
Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These key external factors should be listed on flip charts or a chalkboard. A prioritized list of these factors could be obtained by requesting that all managers rank the factors identified, from 1 for the most important opportunity or threat to 20 for the least important opportunity or threat. These key external factors can vary over time and by industry. Relationships with suppliers or distributors are often a critical success factor. Other variables commonly used include market share, breadth of competing products, world economies, foreign affiliates, proprietary and key account advantages, price competitiveness, technological advancements, population shifts, interest rates, and pollution abatement.
Freund emphasized that these key external factors should be (a) important to achieving long-term and annual objectives, (b) measurable, (c) applicable to all competing firms, and (d) hierarchical in the sense that some will pertain to the overall company and others will be more narrowly focused on functional or divisional areas. A final list of the most important key external factors should be communicated and distributed widely in the organization. Both opportunitiesand threats can be key external factors.
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