Strategy relates the organization to its environment. Therefore, we must understand the relevant environment in order to determine which strategies have potential for success. Chapter Two of Hill and Jones' book provides you with concepts for this assessment.
The process of developing an external assessment consists of at least three stages:
o stage one-the analysis that includes systematic identification and consideration of the key aspects of the firm's environment;
o stage two-the synthesis of the key aspects into an understanding of the strategic opportunities and threats facing the firm;
o stage three-the determination of the necessary key success factors for any firm to successfully address those unfolding opportunities and threats
It is the results of stages two and three that are detailed and discussed in this section of the paper. More specifically, you will focus on the three key opportunities/threats and related key success factors for the future. Key success factors are the resources and capabilities that will be required for any organization to take advantage of the opportunity or neutralize the threat in the future. They will provide a link to the internal analysis, where you would look for the required resources and capabilities in the specific firm you are studying. Keep in mind that the external assessment is more general so as to avoid tunnel vision.
Please note, strategic opportunities and threats result from changes and discontinuities in one or more aspects of the firm's external environment, and not from the firm's internal strengths or weaknesses. An opportunity is more than a general option - it is an actual change in the environment that signals the possibility of success if the firm can develop a strategy to take advantage of that change. Examples include an emerging market segment, an imminent change in government regulation, and a new technological development. Similarly, a threat is a change in the external environment that signals possible trouble for the firm. Examples include imminent entry of a new, powerful competitor; changes in government regulations; and decreasing consumer preferences for a product because of its effect on the environment. Sometimes changes in the environment can be both opportunity and threat, depending on how the firm chooses to act.
Some opportunities and threats may emerge from continuing conditions in the environment rather than changes because of market imperfections. Also, opportunities and threats may not have been perceived earlier because of existing mental models and blind spots. New events may trigger new thinking, which may help actors connect the dots and perceive new opportunities and threats.
The critical part of an external assessment is synthesis rather than identification. Thus, it is not enough to simply list elements of the environment, for example, what comprises each of the five forces in an industry. Rather it is important to draw out the strategic implications of each key part of the external environment. Moreover, the assessment needs to be future-oriented because that is the only way it can provide a strong foundation for the subsequent sections of the paper (e.g., for building alternatives and recommendations).
In your examination of the environment, you may use all models and concepts that are given in Chapter 2 of the textbook such as five forces model, strategic group analysis, etc. However, the synthesis is in the form of top three opportunities and threats.
How to Write This Section?
In the first paragraph, define the industry succinctly. Be sure to keep the analysis at the industry level, and do not mention the name of the company in the external assessment section.
Then, write one paragraph on each opportunity or threat. Within each paragraph:
a. Name the opportunity and identify whether it is an opportunity or threat. Frame it accordingly so it reads like an opportunity (which is positive) or a threat (which is negative). Keep in mind, they should both come from the external environment so if you have written something that is not coming from the external environment, think again; it may not belong in this section.
b. Give positive evidence of the existence of an opportunity or threat. Absence of threat is not sufficient to be listed as an opportunity!
c. Specify for which strategic group is this opportunity or threat particularly relevant.
d. Finally, write at least two relevant key success factors for each opportunity/threat discussed. It is possible that some key success factors relevant for various opportunities and threats may be the same. For example, a product development capability may help address a threat of intense competition at home as well as facilitate expansion to the Asian market (an opportunity). You should pay particular attention to the new key success factors that may be emerging that could lead to competitive advantage in the future.
If you want to propose the same point as an opportunity and a threat, use two different paragraphs so as not to confuse the reader.
Write three paragraphs for the external assessment, one on each opportunity or threat. You may add an exhibit to further strengthen your external assessment. The point of the exhibit is NOT to compress as much text as possible but to clarify and support your external assessment given in the text. Remember to refer to your exhibit in your external analysis write-up.