External Analysis and what does it show managers. Perspectives on Organizational environment.

a. What is external analysis and what does it show managers?

b. How does the concept of an organization as an open system relate to external analysis?

c. What does each of the perspectives on organizational environments say?

d. What role does environmental uncertainty play in external analysis?

e. Why do managers need to do more than just scan the environment?

What is external analysis and what does it show managers?

The process of scanning and evaluating an organization's various external environmental sectors to determine positive and negative trends that could impact organizational performance is simply known as external analysis. The external environment consists of technological, economic, sociocultural, political, legal, and ecological forces. These are the uncontrollable factors which can influence company's strategic decisions. The benefits of conducting an external analysis are that it helps to generate profits, helps to support change, helps to cut costs, and increases knowledge and supports learning. Opportunities and threats are two things that a company is constantly looking for. The opportunities arise from positive external trends and the threats from negative trends. Therefore, external analysis helps to put lights on the following issues to the managers.

• ·        It helps the managers to understand about the opportunities and the associated risk with it.
• ·        It helps the managers to identify various factors such as performance, image, their objectives, strategies, culture, cost structure, strengths, and weakness in order to compete in the market.
• ·     It helps the manager to work on overall size, projected growth, profitability, entry barriers, cost structure, distribution system, and trends in order to analyze the market and develop strategies accordingly.

How does the concept of an organization as an open system relate to external analysis?

A system that regularly exchanges feedback with its external environment is simply known as open system. Here, inputs, processes, outputs, goals, assessment and evaluation, and learning are all important. Aspects that are critically important to open systems also include external environment. It is because Healthy open systems continuously exchange feedback with their environments, analyze that feedback, adjust internal systems as needed to achieve the system's goals, and then transmit necessary information back out to the environment. Healthy organizations regularly try to understand their environments through use of environmental scanning, market research and evaluations as they has direct influence the organizational working procedures in total. Hence, organization as an open system and external analysis are inter-related.

 What does each of the perspectives on organizational environments say?

Organizational environment has two perspectives to put forward. They are;

The environment as information perspective:

Organizations always obtain information from its internal and external environment because there is always fluctuation in environmental factors. This uncertainty is not good for the organization. It can bring complexities in an organization. Therefore, it needs more information while making any decisions or trying to understanding the current scenario. Hence, we can take environment as the important source of information.

The environment as source of resources perspective: 

The environment has always viewed as a source of scarce and necessary resources and there is no doubt on that. All the raw materials that the organization requires come from the environment. It is very easy to obtain materials from renewable sources but, the more scarce resources and the greater will be the chances of uncertainty in getting those materials. Hence, the organizational environments also explain about the resources, demands of monitoring the environment and making adaptive decisions to last the resources for the longer period.

What role does environmental uncertainty play in external analysis?

There is no doubt on the fact that more uncertainty in the environment; frequent external environment scanning is required, because it helps the organizations to be able to cope and respond effectively to environmental uncertainty.

Why do managers need to do more than just scan the environment?

The business environment is constantly changing.  So it is very important that managers need to do more than just scan the environment and have deep understanding about the situation so they can be prepared to face any kinds of uncertainty in the environment and operate their business successful.

Reference

Coulter, M.(2013). Strategic Management in Action; Upper Saddle River, New Jersey): Pearson Education Inc