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External Analysis – Theories, Frameworks And Its Relevancy In Strategic Decision Making

1485 words - 6 pages

To deal effectively with the wide array of factors affecting the ability of a business to grow and prosper, managers need advanced processes they feel will facilitate the optimal positioning of the business in its competitive environment. Such positioning is possible with strategic management because this process improves preparedness for unexpected internal or competitive demands. Therefore, strategic management is an all-encompassing approach for formulating, implementing and evaluating managerial decisions in a way that permits the business to reach its objectives.There appears to be general agreement among strategic planning researchers that the process consists of three major components: formulation (including setting objectives and assessing the external and internal environments); evaluating and selecting strategic alternatives; and implementation and control (Jennings and Disney, 2006; Houben, Lenie and Vanhoof, 1999).DefinitionEnvironmental scanning and industry analysis are also interchangeably termed as external analysis (Mcmillan & Tampoe, 2000) and serve as the first and foremost step in developing planning. In other words, environmental scanning is generally viewed by strategic management scholars as a prerequisite for formulating effective business strategies (Beat, 2000).Definitions of environmental scanning differ, but they all agree that environmental scanning is an efficient, organized means for an institution to collect relevant information regarding the external environment (Pashiardis, 1996). In simple words, it refers to the scanning and evaluating various external environmental sectors impacting performance (Coutler, 2002). According to Wheelen and Hunger (2006), external analysis would include both general (indirect) and specific environment (direct). The direct environment includes those elements or groups which are directly influenced by the actions of the company. Examples of these are the shareholders, the government, the suppliers, the local authorities, the competitors, the clients, the creditors and the employee's organizations. The indirect environment includes more general forces which primarily have an influence on the long-term decisions of the company. These are economic, socio-cultural, technological, political and juridical influences.The underlying premise is that scanning the task and general environment allows a firm to learn about opportunities and threats that it may be positioned to take advantage of or events that threaten its performance (Houben, et.al., 1999).Theories and FrameworkEnvironment as an open systemStrategic planning, of which environmental scanning is a part, assumes an open system whereby organizations must constantly change and adapt as the needs of the larger society change, i.e. interacts with and responds to its external environment (Coulter, 2002). It focuses on the process of planning, building a vision and community development.External analysis toolsThis section very briefly...

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