What are some benefits of conducting an external analysis? 

A benefit of conducting an external analysis is that external analysis ensures that the company is appraised of the opportunities and threats that affect its business. This is essential for strategic planning. External analysis also ensures that the company does not become inward-looking, but focuses on customers and competitors as well as the business environment.

Expert Answers

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

Regular external analysis is not just beneficial but essential in business. However efficient the company's internal operations, they cannot take place in a vacuum, since the company supplies its goods and services, as well as making its profits, externally.

An external analysis concentrates on the "Opportunities" and "Threats" sections of...

Unlock
This Answer Now

Start your 48-hour free trial to unlock this answer and thousands more. Enjoy eNotes ad-free and cancel anytime.

Start your 48-Hour Free Trial

Regular external analysis is not just beneficial but essential in business. However efficient the company's internal operations, they cannot take place in a vacuum, since the company supplies its goods and services, as well as making its profits, externally.

An external analysis concentrates on the "Opportunities" and "Threats" sections of the standard SWOT analysis. The first benefit of external analysis is to identify precisely what these are. Then, it is important to work out what new opportunities and threats have emerged and are likely to emerge in the near future. This information is clearly essential in developing the company's strategic plan. It is also vital to look at how existing opportunities and threats are changing.

An external analysis ensures that the company remains outward-looking and focused on customers, potential customers and competitors, as well as on the economic and political circumstances in which the business must operate. To ensure that these analyses do not become a mere matter of form, it is a good idea to consider an analysis which is not only focused externally, but also conducted at least partly by outsiders. This does not necessarily mean a team of expensive management consultants. It might be made the principal function of one or more non-executive directors with the appropriate contacts to organize such external appraisal.

Last Reviewed by eNotes Editorial on
An illustration of the letter 'A' in a speech bubbles

There are many benefits to performing an external analysis. Typically, the external analysis deals with opportunities and threats to the organization—factors that are outside the company's control but can either improve or threaten the company's positioning.

Performing an external analysis helps to keep an eye on the pulse of the market. You can understand what competitors are doing, how politics and the overall economy will shape your industry, and what new avenues may be opening up for your company to explore. Essentially, the external analysis acts as an opportunity to figure out what external factors will do to your business and allow you to either take advantage of opportunities or fortify yourself against threats. It is very strategic and can help market positioning and leverage.

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

An external analysis is essential for not operating your business inside an echo chamber. The world is constantly changing, and a business that does not remain aware of the environment it operates within will miss major opportunities for growth and is at risk of unknown threats to its operation. It is not simply the goal of marketing departments to keep products and services relevant to the market; a company must adapt its business models and be prepared to respond to changes in, for instance, trade deals that might interfere with supply chains, with legal factors that might affect the viability of a product or service, or with technological factors that could improve the company's internal functioning or provide new business opportunities.

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

External analysis falls in the Opportunity and Threats (OT) part of the SWOT analysis. Strengths and Weaknesses are internal to the business while Opportunities and Threats are external to it. It is important for businesses to perform an external analysis because the information gathered would show if there exist opportunities for growth and expansion which they could exploit and reap the benefits. However, the same information may also show looming threats to the business, enabling the firm to make necessary adjustments to prevent or reduce negative impacts to the business.

The (SWOT) analysis leads us to an evaluation of the specific external factors that are likely to present opportunities and/or threats by conducting a PESTEL analysis. PESTEL refers to Political, Economic, Social, Technological, Environmental and Legal factors which are external and are likely to affect the business in one way or another. For instance, developments in technology may improve the efficiency of a business’ operations, leading to increased profits, or eliminate the business altogether leading to the firm’s collapse.

External analysis helps the business to forecast and predict changes in the market. It also helps the business to exploit opportunities and guard against threats.

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

An external analysis provides detailed information about opportunities and threats to a business and is a part of the SWOT analysis. Business managers need to understand the external factors and their likely impacts on their own business. Some of the external factors that may impact a business include, customer behavior; competitor's strengths, weaknesses and strategies; market factors (entry barriers, projections, trends, etc.) and environmental factors (such as technological and political changes, etc.). An external analysis provides the managers and decision-makers with the information about consumer preferences and purchasing power and thus, an opportunity to make more profits. Analysis of competitor's strengths and weakness will enable the firm to decide on its own strategies in order to become more competitive. Technological changes help in cutting costs, while political changes may pose either a threat or provide an opportunity for further expansion. Other benefits of external analysis include, increased knowledge and learning.

Hope this helps. 

Posted on