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It should be noted that the external environment of a company is a source of both crucial business resources and potential threats. Analysis of the company’s environment is a tool by which strategy developers can predict the emergence of rivals or opportunities, develop a situational plan as well as outline a strategy for achieving goals. The purpose of this paper is to determine the ways through which a decision-maker can identify strategic factors in the external environment of a company.
Strategic Factors and Environment
Analysis of the societal environment allows identifying the strategic factors. In particular, a decision-maker can conduct a PEST analysis to determine the main trends as applied to the four forces, which are “political, economic, socio-cultural and technological factors” (Frynas and Mellahi 43). This tool will allow specifying those aspects of the external environment that affect the business directly and indirectly. The political situation should be studied due to the fact that it determines the authority and regulates the environment of the enterprise. Moreover, it affects the way the company receives its key resources.
The economic aspect should be analyzed to comprehend how the distribution of resources occurs at the state level (Frynas and Mellahi 43). In addition, this strategy will allow specifying important consumer preferences. In terms of the technological factor, the analysis will reveal trends in the development, which are often the cause of changes and market losses or lead to the emergence of new products.
Next, the decision-maker should evaluate the degree to which these trends will affect the primary stakeholders. This information will allow them to identify the developments, which will have an impact on the future environment (Koontz and Weihrich 51).
The analysis should be arranged in the form of a matrix, in which the factors of the macro environment and the strength of their influence will be indicated. The obtained results will allow assessing the external situation in the areas of production and commercial activities. Those strategic issues that have a high probability of impact and occurrence should be regarded as strategic factors (Alon et al. 103). After the analysis of the matrix, the decision-maker should determine whether these factors are opportunities or threats (in some cases, they can be both).
Thus, the approach allows considering those aspects that are related to the external environment of the enterprise while dividing them into several groups. Each factor should be analyzed separately to determine the difficulties that may arise when operating in a certain area and the opportunities that may open up to the corporation (Frynas and Mellahi 44). It is convenient to study these four factors taking into account the long-term perspective, that is when it is necessary to predict what changes the company is expecting in the future. After that, it will be possible to choose strategies that are most appropriate in the current situation (Frynas and Mellahi 44). The decision-maker will be able to quantify costs and apply risk management techniques if necessary.
It can be concluded that PEST analysis is an effective tool, which can allow corporations to determine strategic factors in their external environment. It enables evaluating the probability of impact and occurrence of the four primary aspects. When the decision-maker has scanned the environment and determined the scale of influence of each of the four factors, they may categorize the most important aspects as opportunities or threats.
Alon, Ilan, et al. Global Marketing: Contemporary Theory, Practice, and Cases. 2nd ed., Routledge, 2016.
Frynas, Jedrzej George, and Kamel Mellahi. Global Strategic Management. 3rd ed., Oxford University Press, 2015.
Koontz, Harold, and Heinz Weihrich. Essentials of Management: An International, Innovation, and Leadership Perspective. 10th ed., McGraw-Hill Education, 2015.