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Week 3 Discussion: External Environment, Power & Weakness, and Decision Models
Kelli Ware
School of Business, Liberty University
Introduction
Competitiveness is strongly linked to innovativeness, yet innovation cannot be
accomplished in a vacuum because external environment factors such as market dynamism,
technological advancements, and competitiveness plays a critical role in how an organization
strategizes (Fu et al., 2021). Formulating a business strategy requires an in depth understanding
of the external environment to assess competitive standing and opportunities for innovation
(Gamble, 2023). Equally imperative is acknowledging and overcoming key points of weakness in
the internal environment, such as inertia and entropy, which can have catastrophic impact
(Rumelt, 2011). Decision models serve as a framework for analyzing options and outcomes prior
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to making decisions and are proven to have implications on organizational performance (Novelli
& Spina, 2024). This discussion outlines the process for examining the external environment,
impact of weakness on that process, and how chosen decision models support and hinder the
process.
Process: Evaluating the External Environment
The success of any business is inextricably connected to its proper assessment of its
external environment. When assessing the external environment business strategists must
consider the six elements of the macro-environment, outside competitive forces, industry
dynamism, market standings, factors of competitive success, and the likelihood of profitability
in that industry (Gamble, 2023). The first step in the process of external environment evaluation
is to look at the external environment on a macro level utilizing the PESTEL model that covers
the political, economic, sociocultural, technological, environmental, and legal systems to
pinpoint systemic proclivities and pressures that may impact the organizations long-term
performance (Gamble, 2023). The next step in the process is to ascertain the competitive forces
within the industry to assess the turbulence in the market. Gamble 2023 suggests using the Five
Forces Model of Competition which analyzes pressures stemming from consumer and supplier
bargaining leverage, competitor substitutions, market disruptions from industry entrants, and
rival businesses poaching customer. Fu et al. (2021) assert that organizations that operate with
a solid understanding of the competitive forces are able to innovate more quickly and gain an
edge over their competitors. Third in the process is the understanding of change drivers in the
industry which accomplished by understanding what makes up the forces of change, the impact
of the change individually and collectively, and how to strategically prepare for the changes
(Gamble, 2023). Fourthly, the standing and forecasted moves of competitors in the market must
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be analyzed. To identify competitive positioning, Gamble (2023) asserts the use of strategic
group mapping too categorize companies with similar methodologies and market standings to
see where they can differentiate themselves from the rest by capturing a gap and generating
new demand. Forecasting the next moves of a competitor requires strategists to investigate
their rival’s capabilities, current objectives and strategies, and past performance (Gamble,
2023). Next in the process is to determine profitability potential by scrutinizing the
organization’s strategy components, competitive competence in relation to competitive forces,
and product properties most desired by consumers (Gamble, 2023). Lastly, in examining the
external environment organizational leaders must ascertain the attractiveness of their offering
to consumers within the market, the impact of industry impetuses on expansion in the industry,
and the viability of profitability long-term in an ever-evolving external environment.
Strategic Thinking: Key source of Weakness
Most strategy decisions focus on leveraging sources of power, but it is equally
imperative to consider sources of weakness and strategize how to avoid them. Two key sources
of hindrances in business as outlined by Rumelt (2011) are inertia and entropy which are
described as resistance and disorderliness respectively, both of which are forces that critically
undermine evolution. Inertia can set in sneakily through routine which breeds familiarity that
filters forward thinking, impairs innovation, and grounds growth allowing stagnation and
resistance to set in which are contrary to expansion and evolution (Rumelt, 2011). Inertia can
also cripple company culture which engenders a resistance to change and also sabotaging
growth (Rumelt, 2011). Along those same lines, entropy characterized as dysregulation typically
occurs in fully decentralized firms that lack operational structure and clear strategy which
inevitably begins the breakdown of the organization (Rumelt, 2011). One of the sayings at my
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old agency was, “If you’ve seen one VA [hospital], you’ve seen one VA.” Which means that while
there are hundreds of hospitals and clinics within a network, they do not all operate the same.
This breakdown in order caused extreme variation in patient care quality and experience that
has attracted unwanted attention from lawmakers on Capitol Hill. Inertia and entropy are key
sources of weakness that organizations must be cautious of, so they do not allow it to negatively
impact their progression.
Decision Model
As previously mentioned, the decision models I am currently using are the “gap in the
market” and “theory of unconscious thinking” approaches. The “gap in the market” model is an
absolute aid in evaluating the external environment since it is focus is centered on the position,
proximity, and product pricing of competitors in the same industry (Krogerus & Tschäppeler,
2017). Specifically, the methodology helps to pinpoint niches or areas of opportunity in the
market that my organization can capitalize on and gain a greater market share and increase our
competitive edge (Krogerus & Tschäppeler, 2017). Additionally, understanding our competitor’s
cool factor (Krogerus & Tschäppeler, 2017) directly aligns with stage five in the process for
examining the external environment which requires an assessment of the competition’s
strategies and differentiators (Gamble, 2023).
The “theory of unconscious thinking” is a hindrance to the external environment
assessment because the process is informed by analysis of factual information that produces
rationally strategic decisions (Gamble, 2023) which is antithetical to the foundations of
unconscious thinking which requires turning off thought and allowing fait to decide the next
move (Krogerus & Tschäppeler, 2017). In fact, the results of a study performed by Novelli and
Spina (2024) revealed that firms that use a scientific approach to decision-making that involves
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a question driven abductive methodology outperform those that do not. As such, I am
considering incorporating Krogerus & Tschäppeler’s (2017) morphological box and scamper
decision model that champions innovation by inventing something new or creating a
substitution out of a combination of existing products. The decision model requires
consideration of the external environment to determine how to innovate by seeing what
competitors missed in the market and leveraging it as an advantage (Krogerus & Tschäppeler,
2017).
Conclusion
In conclusion, executing the five stages of external environment evaluation is
fundamental to ensuring the effectiveness of strategies that lead to competitiveness in the
market. By leveraging tools like the PESTEL and Five Forces methodologies, companies can
follow market dynamism more easily, forecast competitor moves, identify market gaps to seize
opportunities for innovation thereby garnering a larger market share and growing their
competitive edge (Gamble, 2023). Simultaneously, organizations must also consider potential
points of weakness such as inertia and entropy, so they protect themselves from exploitation.
Further, decision models must be assessed to determine their whether they support or stifle
strategic decision making. By implementing these tactics organizations can more effectively
navigate the industry and position themselves competitively by capitalizing on the complexities
of the external environment.
References
Fu, Q., Sial, M. S., Arshad, M. Z., Comite, U., Thu, P. A., & Popp, J. (2021). The Inter-
Relationship between Innovation Capability and SME Performance: The Moderating
Role of the External Environment. Sustainability, 13(16), 9132.
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https://doi.org/10.3390/su13169132
Gamble, J. E. (2023). Essentials of strategic Management: The quest for competitive advantage
(8th ed.). McGraw-Hill Higher Education.
https://mbsdirect.vitalsource.com/books/9781266496622
Krogerus, M., & Tschäppeler, R. (2017). The decision book: Fifty models for strategic thinking.
Profile Books.
Novelli, E., & Spina, C. (2024). Making business model decisions like scientists: Strategic
commitment, uncertainty, and economic performance. Strategic Management Journal,
45(13), 2642–2695. https://doi.org/10.1002/smj.3636
Rumelt, R. (2011). Good Strategy/Bad Strategy: The difference and why it matters. Profile
Books.
Annotated Bibliography
Fu, Q., Sial, M. S., Arshad, M. Z., Comite, U., Thu, P. A., & Popp, J. (2021). The Inter-
Relationship between Innovation Capability and SME Performance: The Moderating
Role of the External Environment. Sustainability, 13(16), 9132.
Summary of Key Points
This empirical study performed by Fu et al. (2021) examines the relationship between
innovation and industry performance of small to mid-sized companies with a particular
emphasis on the impact of the external environment as a moderating factor. The authors
hypothesized a positive connection between innovation and performance when the
external environment was assessed and understood. Using a resource-based view, the
researchers analyzed data collected form over three hundred surveys and produced
results that overwhelmingly confirmed their hypothesis noting that the more turbulent
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the external environment (market and technological turbulence) and the higher the
competitive intensity the greater the results.
Evaluation of the Quality of the Publication
The peer reviewed scholarly article published in Sustainability has been cited and shared
over two thousand times, which speaks to its elevated quality and credibility. Moreover,
the studies methodology and detailed analysis prove its academic validity. The article is
well articulated, laid out and easily understood.
Evaluation of the Quality of the Authors
The authorship team includes six researchers with international educational
backgrounds spanning the eastern hemisphere with studies spanning economics,
management, and finance. Collectively the authors have produced scholarly journal
articles that have been cited over twenty thousand times, and their interdisciplinary
depth increases confidence in their scholarly investigation.
Where This Fits into the Discussion
This article contributes to the conversation surrounding the importance of assessing the
external environment due to the positive correlation between organizational
competitiveness and innovation capacity linked to the moderating impact of integrating
the turbulence of the external environment into an effective strategy. Further it supports
the assertion that a comprehensive analysis of competitive forces enables swifter
innovation, garners a competitive advantage, and increases organizational agility.
Further, the study offers intangible insights for business strategists to maximize market
volatility as an opportunity for advancement.
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Novelli, E., & Spina, C. (2024). Making business model decisions like scientists: Strategic
commitment, uncertainty, and economic performance. Strategic Management Journal,
45(13), 2642–2695.
Summary of Key Points
This study investigates the moderating impact of a scientific approach to decision-
making on a firm’s degree of business development and strategy. Using a randomized
controlled trial methodology with 261 business owners in a strategy training program
that segregated a treatment group that was instructed on the integration of cognitive
frameworks and evidence-based tools. Using pre and post intervention surveys to assess
business performance, the results reflected that the treatment group’s strategic
business development exceeded that of the uninstructed group reflecting the positive
impact of using a science-based approach to decision making. Further, the abductive
analysis ruled out the impact of entrepreneur experience as a moderating influence on
the research results.
Evaluation of the Quality of the Publication
This scholarly peer reviewed article was published in the Strategic Management Journal,
a globally trusted journal in the strategic business sector because of its editorial
requirements. The research multi-modal methodology contributes to the credibility and
reliability of the data presented.
Evaluation of the Quality of the Authors
The authors Novelli and Spina bring combined academic qualification from the UK and
UAE respectively. Both authors are affiliated with globally recognized academic business
institutions. Novelli with expertise in strategic management, entrepreneurship, and
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innovation and Spina with expertise in entrepreneurship and family enterprise have
authored only 2 journal articles yet has amassed over two thousand citations which
lends to their academic credibility.
Where This Fits into the Discussion
This article boosts the conversation regarding the use of decision models in business
strategy development demonstrating how a scientific abductive approach to decision
framework formulation outperforms models that are less methodic such as the theory
of unconscious thinking which relies on intuition and fate rather than rational analysis. It
also aligns with and supports the rationality of the morphological box model that uses
abductive reasoning to support analysis of elements of the external environment
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specifically gap identification that reveals opportunities for innovation through
substitution and enhancements to products already available to the market.
