In order to effectively analyse and evaluate frameworks that affect the external environment of a business entity, it is crucial to explore aspects such as life cycle of a business, strategic group management, Porter’s five forces analysis, and PESTLE analysis. Analysing the external environment of a firm refers to the process of identifying opportunities, threats, strengths and weaknesses that affect the company in fulfilling its mission.
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Opportunities are external, current and future situations that can positively influence a firm if properly utilised.Threats are either current or future external situations that may negatively affect the operations of a firm if not eliminated at the right time (Magretta 2013).External Forces are firm characteristics that may either be tangible or non-tangible but can be leveraged upon in order to optimise the performance of a business organisation. Weaknesses refer to company characteristics which may either be tangible or non-tangible. They should be minimised at all times in order to avoid negative influence in the overall performance of a firm.
In regards to strategic group planning, it is vital to underscore the fact that for successful and profitable operation of a firm, the influence and interests portrayed by stakeholders should be put into consideration since stakeholders play a key role in the well being of a business organisation (Osita, Onyebuchi & Justina 2014). Second, the focus area for a business entity should address pertinent issues that affect profitability by keenly exploring the prevailing threats, opportunities, weaknesses and strengths (Al-Debei & Avison 2010).
The latter may demand thorough integration of information analysis as part and parcel of environmental scan. In other words, continuous engagement of all stakeholders is vital.
Life cycle also affects the external environment of a business entity. There are seven key stages of a business life cycle that management teams should analyse regularly so as to assess performance. The life cycles refer to various inter-related stages of development that a firm traverses before it can attain maturity in terms of profit maximization. They include the seed, start-up, growth, establishment, expansion, maturity and finally the exit stage. At the initial stages, market acceptance of a firm is an external environmental factor that ought to be put into consideration. As an organisation continues to grow towards maturity, external forces such as demand and supply of its products will continue to influence it either negatively or positively (Helms & Nixon 2010).
When it comes to PESTLE analysis, politics is an external environment factor that may influence a business. For instance, political stability of a region where a business is located, government policies regarding imports and exports as well as bilateral and multilateral trade agreements attached to politics may all affect firms in one way or another (Anderson, Potočnik & Zhou 2014). Economically, interest rates and exchange rates at any given time in the operation of a business may lead to either losses or gains.
Government policies that target environment protection (ecological factors) may also limit the operation of firms. In addition, the nature of technology in the equipment used by a firm as well as latest adoption of various technological platforms such as ecommerce may improve or jeopardise the operations of a firm. The targeted marketed and the best way it profits a firm is determined by the socio-demographic profile of a chosen region. For example, the production and marketing of smartphones should target markets with generally a youthful socio-demographic demographic profile because such a population segment prefers stylish products.
Threats faced by organisations may lead to downward trend in productivity if a firm fails to optimise the use of the available opportunities and strengths. For example, industry or organisational rivalry is a major threat faced by several firms in most types of markets (Yüksel 2012). Other threats include lack of skilled manpower, and unpredictable exchange rates. On the other hand, opportunities such as expansion into other markets, a positively transforming economy, an ageing population, new technology and gap in the market are bound to boost the performance and overall profitability of a firm.
Al-Debei, M.M. & Avison, D 2010, ‘Developing a unified framework of the business model concept’, European Journal of Information Systems, vol. 19, no. 3, pp.359-376.
Anderson, N., Potočnik, K. & Zhou, J 2014, ‘Innovation and creativity in organizations a state-of-the-science review, prospective commentary, and guiding framework’, Journal of Management, vol. 40, no. 5, pp.1297-1333.
Helms, M.M. & Nixon, J 2010, ‘Exploring SWOT analysis-where are we now? A review of academic research from the last decade’, Journal of strategy and management, vol. 3, no. 3, pp.215-251.
Magretta, J 2013, Understanding Michael Porter: The essential guide to competition and strategy, Harvard Business Press, New York.
Osita, C., Onyebuchi, I. & Justina, N 2014, ‘Organization’s stability and productivity: the role of SWOT analysis’, International Journal of Innovative and Applied Research, vol. 2, no.9, pp. 23–32.
Yüksel, I 2012, ‘Developing a multi-criteria decision making model for PESTEL analysis’, International Journal of Business and Management, vol. 7, no. 24, p. 52.