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The external environment

The strategic position / strategic analysis

Assessing the strategic position consists of analysing:

  • the environment (competitors, markets, regulations, discoveries etc). Key factors are often summarised as opportunities and threats.
  • the strategic capability of the organisation (resources, competences). Key factors are often summarised as strengths and weaknesses)
  • the culture, beliefs and assumptions of the organisation
  • the expectation and power of stakeholders (what do the shareholders want? Will employees co-operate?).

The external environment

Since strategy is concerned with the position a business takes in relation to its environment, an understanding of the environment’s effects on an organisation is of central importance to strategic analysis. The historical and environmental effects on the business must be considered, as well as the present effects and the expected changes in environmental variables.This is a major task because the range of environmental variables is so great. Many of those variables will give rise to opportunities of some sort, and many will exert threats upon the organisation.

The two main problems that have to be faced are, first, to distil out of this complexity a view of the main or overall environmental impacts for the purpose of strategic choice; and second, the fact that the range of variables is likely to be so great that it may not be possible or realistic to identify and analyse each one.

The resources of the organisation

There are internal influences as well as outside influences on the firm and its choice of strategies. One of the ways of thinking about the strategic capability of an organisation is to consider its strengths and weaknesses (what it is good or not so good at doing, or where it is at a competitive advantage or disadvantage, for example). Considering the resource areas of a business such as its physical plant, its management, its financial structure and its products may identify these strengths and weaknesses.

Again, the aim is to form a view of the internal influences and constraints on strategic choice. The expectations of different stakeholders are important because they will affect what will be seen as acceptable in terms of the strategies advanced by management. However,the beliefs and assumptions that make up the culture of an organisation, though less explicit, will also have an important influence.