How would you analyze the two perspectives on the environment? What is the primary responsibility of managers in conducting external analysis across managerial levels? What are the benefits of conducting an external analysis?

Expert Answers

An illustration of the letter 'A' in a speech bubbles

Internal analysis of a company is about looking at what is going on inside your company. This involves issues such as human resources and internal policies. External analysis is about looking at what is going on outside your company, within the framework of the business environment in which you operate. For example, if you run an advertising agency, then external analysis would involve looking at what is happening in the advertising and marketing industries, what developments have taken place and what your opposition is doing.

A useful framework in which to look at this question is the SWOT analysis. This involves looking at a company's strengths (internal), weaknesses (internal), opportunities (external) and threats (external). The external analysis of a company involves looking at opportunities and threats. So, from the point of view of our fictitious advertising agency, looking at opportunities would involve seeing what companies currently did not have an advertising agency and preparing pitches for them.

Analyzing threats would involve keeping an eye on other agencies to ensure that they were not trying to poach your clients and keeping an close eye on any up-and-coming competition.

The benefit of conducting this external analysis (and the reason why it is essential) is to enable you to stay on top of your game and not lose business to your competitors.

Approved by eNotes Editorial Team
An illustration of the letter 'A' in a speech bubbles

The two environments of an organization are the internal and external environment. The internal environment refers to employees' interactions with other employees and with management, the interaction of management with managers and board members, and the structure of the organization. External analysis includes an analysis of the competition, as well as other external factors such as the industry, the national environment, and the socioeconomic environment. An external analysis will often result in changes within an organization. 

Managers frequently participate in the process of conducting an external analysis as part of an organization's strategic plan. The manager will participate in the external analysis by sharing knowledge about his or her area, and then the manager will consider factors known as Porter's Five Forces. These forces include the suppliers the manager works with; the buyers the manager works with; the competition, including figuring out potential economic, social, or technological threats from the competition; and predicting whether competition will emerge in the future. 

One benefit of conducting an external analysis is that it is an efficient way to respond to the constantly changing, competitive environment in which an organization exists. It is necessary to constantly evaluate the competition so an organization can revise its internal competencies and strategies in response. For example, an external analysis could indicate the price or availability of supplies is changing, prompting a company to revise its strategy in response.  

Approved by eNotes Editorial Team

We’ll help your grades soar

Start your 48-hour free trial and unlock all the summaries, Q&A, and analyses you need to get better grades now.

  • 30,000+ book summaries
  • 20% study tools discount
  • Ad-free content
  • PDF downloads
  • 300,000+ answers
  • 5-star customer support
Start your 48-Hour Free Trial