MGT499 CASE2, SLP2, Thread Discussion2

Module 2 - Home

Environmental Assessment

Modular Learning Outcomes

Upon successful completion of this module, the student will be able to satisfy the following outcomes:

•Case ◦Apply environmental assessment techniques to existing organizations.

•SLP ◦Apply environmental assessment techniques to existing organizations.

◦Evaluate the usefulness of various environmental analysis tools commonly used in the strategic management efforts.

•Discussion ◦Evaluate the usefulness of various environmental analysis tools commonly used in the strategic management efforts.

Module Overview

In this module we’ll be considering the concept and the process of environmental assessment. The idea that organizations exist within an environment is not a new one. Not unlike a 19th century sailing ship which would have been required to navigate waves, storms, ice, headwinds and doldrums posed by the sea in undertaking a particular voyage, organizations too face an external environment that includes economic, political, technological, socio-cultural and competitive forces that can impact the direction and success of the organization.

These macro-level aspects of environmental assessment (Political, Economic, Social, and Technological) are often combined into what is commonly referred to as a PEST analysis. Let’s consider these important environmental forces.

Political - In conducting such an analysis, organizations consider what is happening in the world of politics that could impact their businesses. Consider once again, for example, the changes in healthcare laws and how that impacted the insurance and healthcare industries.

Economic – Another thing to consider is what is going on with respect to national and global economics? For instance, do labor expenses warrant consideration for off-shoring? Re-shoring? Does it make sense to take on debt based on what is going on in the current economy? What is happening in the stock market? What is going on in the economy as a whole? Do consumers have expendable income to purchase our products?

Social-Cultural - With respect to social-cultural forces, society plays a very influential role in relation to what companies are allowed to get away with. Consider what happened to the nuclear power industry after Chernobyl and Three-Mile Island. Consider the role social networking is playing in today’s markets. Consider the fact that some cultures prefer a vegetarian diet and this would impact a restaurant chain’s offerings in certain countries and regions of the world (…if the company expects to be successful in those areas, that is).

Technology - Finally, technology poses a very significant impact on various industries. Consider the fact that Comcast, for instance, is competing with other organizations that provide television-like programming via technologies other than coaxial cable. Indeed, many organizations actually compete with each-other with respect to the advanced technological features they offer on their products. Consider the battle that has been waging for years between Apple and Samsung.

Another useful tool considered by organizations in analyzing the external environment is what has come to be known as Porter’s 5 forces analysis. In conducting such an analysis organizations consider such things as the power of suppliers, the threat of new entrants, buyer power, threat of substitute products and the degree of rivalry within the industry. All of these forces can impact the success of an organization and might cause an organization to reformulate strategies. For instance, if a cable company had to spend an enormous amount of money to buy programming from entertainment production companies (due to the power of these suppliers and the subsequent prices production companies charge for their product), one thing the cable company could do would be to diversify by purchasing movie and television production companies (Hint: you may run into a very similar scenario in your readings).

As you can see from some of the examples mentioned above, understanding what is going on in the greater environment is important for any organization engaged in the strategic management process. This big-picture understanding is an important starting point.

From here the strategic management team then needs to consider how the macro environment impacts the organization. That is to say, how can the organization best respond in the current environment in order to succeed? This, of course, requires the organization to take a look at itself.

In conducting this micro-level assessment the organization must specifically look at where it stands in the environment and the competitive landscape. This is typically done by looking at opportunities that the company could act on and threats in the external environment that need to be considered. After characterizing the external opportunities and threats, companies often consider their strengths and weaknesses in light of all the information that has been gathered in order to determine what kind of strategies the organization might embark on to gain competitive advantage. The acronym associated with considering strengths and weaknesses and evaluating opportunities and threats is SWOT and is a common term used in the strategic management lexicon.