COMP5331: Web Pub and Web Ad
8. External Analysis
Dickson K.W. Chiu
PhD, SMIEEE
1
What is External Analysis?
External Analysis
Scan and evaluate various external environmental
sectors impacting performance
Opportunities
Positive external environmental trends that
improve the organization’s 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
Resources:
Physical
Capital
Human
Information
Processes
Organization Functions:
Production-Operations
Marketing
Financial-Accounting
Human Resource Mgt.
Research and Development
Information Systems
Managerial Activities:
Planning
Organization
Leading
Controlling
Outputs
Goods
Services
Performance
Measures:
Financial
Productivity
Achieve Goal
Environment
Environment
Organization
Inputs
Organization
Environment
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External Environmental Sectors
Specific Environment

External sectors that directly impact the
organization’s strategic decisions by opening up
opportunities or threats
General Environment

External sectors that indirectly affect the
organization’s strategic decisions and which may
pose opportunities and threats
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Organization’s External Environment
General
Environment
Technological
Specific Environment
Industry-Competitors
Substitute
Products
Political-Legal
Organization
Bargaining
Power of Bargaining
Suppliers Power of
Buyers
Economic
Current
Rivalry
Potential
Entrants
Demographic
Sociocultural
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Specific Environment

Industry


Competitive Variables



Group(s) of organizations producing similar or
identical products
Compete for customers
Compete for resources
Assess an organization’s specific environment

Porter’s five forces model
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Five Forces Model
Potential Entrants
Threats of New Entrants
Bargaining
Power
of Suppliers
Industry
Competitors
Suppliers
Bargaining
Power
of Buyers
Buyers
Rivalry Among
One assumption of Porter’s five
Existing Firms
forces model is that some
industries are inherently more
attractive than others; that is, the
Substitute
profit potential for companies in Threat of
Products
or Services
that industry is higher. As this
figure indicates, the interaction
Substitutes
and strength of five forces
influences profit potential.
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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).
Sociocultural
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
•
Geographic location
•
Birth rates
•
Employment status
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General Environment - Sociocultural
Sociocultural
• Country's culture
• Society's
•
•
•
•
•
•
Traditions
Values
Attitudes
Beliefs
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
• Manufacturing
• Robotics
• Biotechnology
• Medicine and medical
• Telecommunications
• Consumer electronics
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Responsibilities for External Analysis at Different
Managerial Levels

Lower Level Managers/Supervisors



Middle Managers






Observe and interact
Collect and consolidate
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
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