Evaluating a Company’s External Environment

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Chapter 3 Evaluating a Company’s External Environment Chapter Three explores the concepts and analytical tools for assessing strategically important factors in a company’s external environment. Attention centers on tools for determining the level of competition, mapping market positions of key rivals, and evaluating the long term outlook for growth and profitability. I. Introduction 1. Chapter 2 identified that the strategy-formulation strategy-execution process begins with an appraisal of the company’s present situation. The company’s situation includes two facets: (1) the competitive conditions in the industry in which the company operates—its external environment; and (2) its resources and organizational capabilities—its internal environment. 2. This chapter presents the concepts and analytical tools for zeroing in on a single-business company’s external environment. II. Evaluating the Strategically Relevant Components of a Company’s Macro-Environment 1. Strictly speaking, a company’s macro-environment includes all relevant factors and influences outside the company’s boundaries; by relevant, we mean these factors are important enough that they should shape management’s decisions regarding the company’s long-term direction, objectives and business model. CORE CONCEPT The macro-environment encompasses the broad environmental context in which a company is situated and is comprised of six principal components: political factors, economic conditions, sociocultural forces, technological factors, environmental factors, and legal/regulatory conditions. PESTEL analysis can be used to assess the strategic relevance of the six principal components of the macro-environment: political, economic, social, technological, environmental, and legal forces. 2. Figure 3.1 The Components of a Company’s External Environment, presents a depiction of
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