External analysis

External analysis
Primary topic
Related topics
Methods and techniques

External analysis (external environment analysis) of the company is one of the most important strategic analysis method. It incorporates many management techniques developed in areas of marketing, strategic management and system analysis. Most common external analysis methods are[1]:

Due to the complexity of areas to analysis, an important task is an integrated - general - view of the entire enterprise, both in terms of its environment and the internal situation. Strategic analysis can therefore be divided into two analyzes: external and internal, which in turn consist of subsequent detailed analyzes. External analysis allows to identify processes and phenomena that do not occur directly in the enterprise but are related to it through impact. They create opportunities or threats, which is why it is important to be able to predict them. To improve the external analysis, it is worth dividing the environment into macro and micro-environment, also known as the competitive environment. The macro-environment consists of further processes and phenomena, global, affecting the enterprise indirectly.

The main elements of micro-environment[edit]

Macro-environment which is the most important in external analysis is based on several main elements[2]:

  1. Economic environment:
    • Inflation level - The dynamics of economic growth translates directly into opportunities and threats to the company.
    • Unemployment rate - The level of unemployment on the one hand influences the demand, while on the other hand, with low unemployment, demands for wage increases appear, which additionally increases the wage bill and may lead to an increase in inflation.
    • Interest rate - An increase in interest rates is a threat to developmental, expansive business strategies. In turn, the opportunity is to lower interest rates. Inflation is inherent in interest rates.
  2. Political and legal environment - political and legal issues can have a big impact on the company. Legal issues may be particularly interesting. The analysis of trends in changes in the law concerning, for example, orders to apply certain standards may indicate an industry or sector that will develop above average. Legal changes may also apply to tax or employment issues.
  3. Technological environment - in recent years, the development of the Internet, which has contributed to the emergence of e-business, is of particular importance. The traditional distribution channel was eliminated and a new way of communication appeared. The development of technology has also caused the emergence of new industries, such as biotechnology. Technological progress is also accompanied by the deindustrialisation process.
  4. Socio-cultural environment - The company operates within the society from which its consumers and employees come from. Therefore, in order to properly assess the situation of the company, its socio-cultural environment should be analyzed. The main factors that should be considered are: civilization progress, lifestyle, views.
  5. Demographic environment - the demographic environment affects in particular the strategy of the state and many enterprises - it includes factors describing the population of individual countries and changes in the population.
  6. International environment - this is primarily the impact of the economic, political or legal situation of the rest of the world on the above-mentioned macro-environment in the country where the enterprise is located. In the external analysis of enterprise it include among others: globalization of the economy, armed conflicts, international operations of enterprises

References[edit]

Footnotes[edit]

  1. Roos, G., Bainbridge, A., & Jacobsen, K. (2001). Intellectual capital analysis as a strategic tool. Strategy & Leadership, 29(4), 21-26
  2. Kozlinskis, V., & Guseva, K. (2006). Evaluation of some business macro environment forecasting methods Journal of business economics and management, 7(3), 111-117.

Author: Magdalena Lewicka