External Environment Report on Huntington Ingalls

MGMT 670: Week 5 Lecture

Week 5: External Environment of a Business: The students will study, in detail, the external environment of companies. They will analyze the threats and the opportunities facing a business, using a SWOT analysis. Then they will analyze the competition, using the Five Forces Model and a Strategic Group Map.

Learning Objectives:

1. Identify factors in a company’s macro environment that may have strategic significance.
2. Define and apply the PESTEL framework.
3. Use a SWOT analysis to examine external factors of an organization.
4. Apply the Five Forces Model to an organization.
5. Create a Strategic Group Map to analyze the business and its competition.

Introduction

We’ve looked at internal factors; now it’s time to look at the external factors that affect strategy. Anand (2006) contends that there are two times at which a company should perform an external analysis: (1) when entering a new market, and (2) when trying to position the company to successfully compete in the market in which it currently is. 

The external environment is more complex than the internal environment, and we use the PESTEL framework, the SWOT analysis, the Five Forces model, and the Strategic Group Map to analyze the external factors of a business (“The impact of external and internal factors on strategy.” 2016). “The environment consists of the set of external conditions and forces that have the potential to influence the organization” (“The relationship between an organization and its environment,” 2012).  Environment is much broader than simply the industry in which a company competes (Anand, 2006).

It is useful to break the concept of the environment down into two components. The general environment (or macroenvironment) includes overall trends and events in society such as social trends, technological trends, demographics, and economic conditions. The industry (or competitive environment) consists of multiple organizations that collectively compete with one another by providing similar goods, services, or both. (“The relationship between an organization and its environment,” 2012)

Although internal factors are many and varied depending on the organization, management has some control over how these various internal conditions interact (“The impact of external and internal factors on strategy.” 2016). External factors are things that management has no control over. The key to managing external factors is to take advantage of external opportunities and avoid external threats.

PESTEL Framework

We will begin this week with a discussion of the PESTEL Framework (or PESTLE).  The framework looks at the“six most common macro-environmental factors (political, economic, social, technological, environmental, and legal)” (“The PESTEL and SCP Frameworks,” 2016; “Evaluating the general environment,” 2012). “The basic premise behind this framework, from a strategy perspective, is to identify opportunities and threats in the market” (“The PESTEL and SCP Frameworks,” 2016). Although PESTEL and SWOT are often used together, PESTEL identifies specific significant relevant factors and SWOT then classifies them as either Opportunities or Threats (Mullerbeck, 2015). Therefore, it is to your advantage to use the PESTEL Framework before conducting a SWOT analysis.