Environmental Audit

Internal and External Analysis

Business Strategy Lecture Task 2a

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 Strategic Planning Defined

The process by which an organization makes

decisions and takes actions that affect its long-
run performance.

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 Strategic Environmnetal Analysis
Slide 1 of 5

The purpose of strategic analysis is to evaluate

the present situation of the organization. This
requires three primary activities:

Assessing the Mission Internal Environmental External Environmental

of the Organization Analysis Analysis

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 Strategic Environmental Analysis

• Assessing the Mission of an Organization

– The mission of an organization reflects its
fundamental reasons for existence.
– Although mission statements vary greatly
among firms, every mission statement should
describe three primary aspects of the
organization:
• Its primary products or services.
• Its primary target markets.
• Its overall strategy for ensuring long-term success.

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 Strategic Analysis

• Conducting an Internal Analysis

– Purpose is to identify assets, resources, skills,
and processes that represent either strengths or
weaknesses for the organization.
• Evaluating the External Environment
– Purpose is to identify those aspects of the
environment that represent either an
opportunity or a threat for the organization.

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 Strategic Analysis
Slide 4 of 5

• Identified by Internal Analysis

– Strengths
• Aspects of the organization’s operations that
represent potential competitive advantages or
distinctive competencies.
– Weaknesses
• Areas that are in need of improvement.

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 Strategic Analysis
Slide 5 of 5

• Identified by External Analysis

– Opportunities
• Those environmental trends on which the
organization can capitalize and improve its
competitive position.
– Threats
• Conditions that jeopardize the organization’s
ability to prosper in the long term.

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Areas That Should Be Evaluated in an Internal Analysis
Source Lewis et al (2001)

Management Information
Capabilities Technology

Marketing Finance

Research & Human

Development Resources

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 Areas That Should Be Evaluated in
an External Analysis

• General Environment
– Includes environmental forces that are beyond
the influence of the organization and over
which it has no (or little) control.
• Task Environment
– Includes environmental forces that are within
the organization’s operating environment and
may be influenced to some degree.

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 Areas That Should Be Evaluated in
an External Analysis

General Environment

Economic Technological
Factors Factors

Sociocultural Political-Legal
Factors Factors

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Political
The current and potential influences from political
pressures.
Economic
The local, national and world economy impact.
Sociological
The ways in which changes in society affect us.
Technological
How new and emerging technology affects our
business.
Legal
How local, national and world legislation affects us.
Environmental
The local, national and world environmental
issues.
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 Areas That Should Be Evaluated in
an External Analysis
Slide 3 of 3

Task Environment

Competition Customers

Resource
Availability
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 Five Forces Analysis: Key
Questions and Implications
• What are the key forces at work in the competitive
environment?
• Are there underlying forces driving competitive
forces?
• Will competitive forces change?
• What are the strengths and weaknesses of
competitors in relation to the competitive forces?
• Can competitive strategy influence competitive forces
(eg by building barriers to entry or reducing
competitive rivalry)?

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 Five forces analysis
Potential
entrants

Threat of
entrants

Suppliers COMPETITIVE Buyers

RIVALRY
Bargaining Bargaining
power power

Threat of
substitutes

Substitutes
Source: Adapted from M. E. Porter,
Competitive Strategy, Free Press,
1980, p. 4.

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 Strategy Formulation
Slide 1 of 8

• Strategy Formulation
– Once the strategic analysis is completed and the
current position of the organization has been
assessed, corporate and business strategy can be
formulated.
– The steps in strategy formulation include:
• Casting the vision for the organization.
• Setting strategic goals.
• Identifying strategic alternatives.
• Evaluating and choosing strategy.

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 Strategy Formulation
Slide 2 of 8

• Casting the Vision for the Organization

– Central to any strategic plan is the development
of a vision for the organization.
– While a mission statement describes the
products, services, and target markets for an
organization, a vision statement describes what
the organization aspires to be in the long run.

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 Strategy Formulation
Slide 3 of 8

• Setting Strategic Goals

– Very broad statements of the results that an
organization wishes to achieve in the long run.
– Relate to the mission and vision of the
organization and specify the level of
performance that the organization wants to
achieve.

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 Strategy Formulation
Slide 7 of 8

• International Strategy
– Organizations choose to engage in international
business activity for a variety of reasons.
– An organization that pursues an international
strategy must make decisions about both its
mode of entry into international markets and
the focus of it strategy.

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 Strategy Formulation
Slide 8 of 8

• International Strategy Issues

– Mode of Entry
• Ways of entering an international market.
• Potential modes of entry include exporting, contractual
relationships, joint ventures, strategic alliances, and
direct investment.
– Multidomestic vs. Global Strategic Focus
• Multidomestic - development of an independent
strategy for each market.
• Global - development of a common strategy across
foreign markets.
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 Strategy Implementation
Slide 1 of 4

The importance of strategy implementation

should never be underestimated, for the best-
formulated strategy is worthless if it cannot
be implemented effectively.

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 References

Lewis et al (2001) Management Challenges in

21st Century, 3rd edition, South Western
Publishing.

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