Analysing the External Environment A. INTRODUCTION TO SESSIONtc A. INTRODUCTION TO UNIT For many companies in the UK and the United States the period 1950 to 1970 seems in retrospect to have been one of almost uninterrupted straight-line growth in a relatively stable environment. In such a situation managers look effective and perhaps they are effective if they do the same thing over and over again and appoint successors in their own image. Then in the 1970s a big change took place. Doing the same thing became almost a recipe for corporate disaster. The reason for this was simple. Instead of being routine and fairly predictable, the business environment had become increasingly volatile according to many managers the pace of change had accelerated (or so they thought). This process has continued into the 1990s, and at the same time many managers would claim that the complexity of the environment they face has also increased. This Session discusses the nature of the external environment and examines some of tools and frameworks used to assess the impact of external conditions upon the strategies of organisations. Your Objectives By the end of this session you should be able to Appreciate the nature of the external environment and its implications. Understand the process of environmental analysis as a critical element of strategic management. Apply some of the key tools and frameworks available to help evaluate the strategic implications of conditions and changes in the external environment. B. THE NATURE AND IMPLICATIONS OF THE EXTERNAL ENVIRONMENTtc B. THE NATURE OF THE EXTERNAL ENVIRONMENT What do we mean by the external environment Broadly, the external environment comprises those factors and trends outside the organisation that might have an influence upon an organisation and its future. Many external factors can have an effect upon an organisation - from changes in government legislation (e.g. the ending of Duty Free sales to travellers within Europe), to the entry of new competition into a market (e.g. the opening of a new supermarket near to an existing shopping centre). Some environmental changes might affect all or many organisations, whilst others may be limited to only one or two. The complexity of the external environment faced by different organisations is likely to vary greatly. A global corporation will face many influences, some changing from country to country, such as consumer legislation, whilst others like technological changes are intrinsically more international. In contrast, the influences faced by a village shop are likely to more limited in range and variety, such as the number of local customers and their buying habits, though perhaps no less critical to the future of the business. Arguably, it is a clich to say that in todays world even the pace of change is changing, but for most organisations the dynamic nature of their external environment is not invalidated by this statement, however hackneyed. For example, the emergence of the Internet is affecting organisations from large to small, and in the public sector as well as those in industry and commerce, with new developments quickly diffusing across the globe leading to changes in market structures and business practices. The Need to Monitor the External Environment Otherwise ably managed organisations are frequently taken by surprise by events what may seem to the observer to have been quite predictable. Managers are prone to describe their failures as due to bad luck and their successes as due to good management. These points illustrate both the importance of trying to undertake environmental analysis, but also suggest that such analysis is not entirely objective. If the process is viewed as a scientific experiment, then the analyst is also part of the experiment. Consequently, the results of the analysis are as much the product of expectations, prejudices, assumptions and typology as they are of objective circumstances. Despite