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STRATEGIC MANAGEMENT
Lesson 4
Strategic Analysis: External Environment

Hello and welcome to lesson 4 of your strategic management module. In this lesson, we will
be looking at strategic analysis and specifically the external environment.
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Lesson 4 Contents

SECTION 1 Analysing the External Environment

This lesson discusses analysing the external environment, determining competitive position,
the portfolio analysis and the SWOT analysis.
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Analysing the External Environment (1)

PESTLE analysis – Macro Environment

So, analysing the external environment… There are several tools which managers can use to
assist them with this. Now, which tools and which parts of the tools are likely to be more
beneficial depends on the type of organisation. For example, whether it is a private sector,
public sector or not-for-profit company. The key tools which strategic managers tend to look
at, however, are the PESTLE analysis and Porter’s Five Forces analysis.
The PESTLE analysis considers political, economic, social and cultural, technological, legal
and environment factors. Each of these factors are considered and the likely changes to that
part of the environment are identified and assessed, along with the potential impact to the
organisation’s operations and the products and services that it sells.
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Analysing the External Environment (2)

Porter’s 5-Forces and Industry Structure

Porter’s Five Forces on the other hand considers the industry structure.
What is the threat from new entry? Ie new organisations entering the marketplace. What
levels of competitive rivalry exist? How much power do buyers have over prices, volumes,
and distribution routes? How much power do suppliers have and how many suppliers there
are, what quality do they produce and how stable are they? And what is the threat of
substitution for the organisation’s products and services?
If in the charity sector, an organisation may need to adapt these factors slightly and when
they think about supplier power they will need to think about funders. When they think
about competition, they need to think about other organisations that may not necessarily be
offering similar services but are within the same charity sector and who are also competing
for charitable contributions. Suppliers, here, are the people who fund these charities. Buyers
or consumers may not necessarily have a great deal of power although in some charitable
areas there can be a choice of service provision from different charities with similar service
provision, but the power of suppliers and the threat of substitution with regards to
nominated funding from individuals and organisations are certainly very real.
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Competitive Position

Further insight can be gained by analysing competitors and rivals and

• Competitor Analysis
• Identify competitors,
• assess objectives, strengths and weaknesses
• Select which companies to attach
• Strategic Position Analysis (SPAN)
• Consider organisations competitive position in relation to others in same strategic
space
• Analyse on basis of geographical coverage, market offering, quality, customer
service, price etc
• Consider attractiveness of alternative market segments
• Financial Analysis (FAN)
• Aids investment decisions for which market segments to operate within
• Customer Appeals Analysis
• Top customer priorities and consider organisational appeal against each. Gives
company perception within the market place and enables comparison to
competitors

Further insight can be gained from analysing competitors and rivals within the industry and
consideration of the most-attractive markets and market segments. So competitor analysis is
where the organisation will identify their competitors, assess their objectives, their strengths
and weaknesses, and select which companies perhaps to attach to, to compare themselves
against. The strategic position analysis (SPAN) considers the organisation’s competitive
position in relation to others in the same strategic space. This analysis can be on the basis of
geographical coverage, market offerings with offering quality, customer service, price etc.
The organisation would also consider the attractiveness of alternative market segments
here. The public sector would consider this element as frequently for services which they
provide, there are private sector organisations offering similar if not the same.
The financial analysis (FAN) can aid investment decisions for which market segments the
company should operate within, whilst the customer appeals analysis considers top
customer priorities and the organisation’s appeal against each one. For example, if
customers advise that product quality and customer service are more important than price,
then the customer appeals analysis will consider the organisations position in comparison
with their competitors against these and to ensure that customer perception of their quality
and service is higher than their perception of price. This gives the company perception
within the marketplace and enables comparison to competitors and from that an
organisation perspective can decide which customer priorities they are going to seek to
meet.
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Portfolio Analysis

Considers scope of organisations activities and level of investment within

BCG Matrix GE Business Screen

A portfolio analysis considers the organisation, its activities and level of investment within
each quadrant within the charts shown. There are two models: the BCG matrix and the GE
business screen. The BCG matrix is possibly the most popular one used and, here, the
organisation considers the amount of investment and the amount of profit they receive from
different products and services. The idea is that an organisation will seek to have products
and services within all categories so that, as some products and services are dying out and
becoming ‘dogs’, new ventures are in the pipeline, some of which it is hoped will become
‘stars’.
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SWOT Analysis

Considers both external and internal factors:

The SWOT analysis considers both external and internal factors. Some organisations might
decide not to undertake a full PESTLE analysis, Porter’s Five Forces analysis and the
competitor analysis, and just rely on a SWOT analysis. The opportunities and threats within a
SWOT factor come from your external analysis. A SWOT analysis can also be used to bring
together analysis findings from both the external and internal environment analysis and the
use of alternative tools to do that. For example. New start up companies who haven’t got a
history of strengths and weaknesses in comparison to competitors might not undertake any
further internal analysis. An organisation operating within a relatively stable environment
with few competitors might not undertake a full PESTLE and 5-forces analysis and solely rely
upon their SWOT instead.
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THANK YOU

So, thank you for listening. Do read the further notes and links to further reading on the
learning platform in the next lesson, we will be looking at the internal analysis.