Evaluating the External Environment

Introduction

Evaluating the external environment is essential, as companies require the element in the production process. The process is also essential in that it reveals that opportunities are threats surrounding the operation of a company (Rumelt, 2012). Therefore, an organization must be in a position to be able to assess its external environment and understand profoundly the assessment process. Moreover, the employees of a company should be able to think strategically so that wise choices can be made in accordance with the needs of the company. Additionally, the employees should be able to utilize the decision-making models to come up with the most suitable approach to making sound decisions in a company. The process of evaluating the external environment, thinking strategically, and using the decision models is essential, as they provide the company with an opportunity to make better decisions concerning production, competitiveness, and profitability.

The Process of Assessing the External Environment

The process of evaluating the external environment involves using the PESTEL tool. PESTEL is an acronym standing for Political, Economic, Social, Technological, Environmental, and Legal factors surrounding a company (Rumelt, 2012). This implies that the external analysis of a company begins with the evaluation of the political environment. The political environment encompasses all the policies and laws that affect the operation of the company. For example, government provision of incentives can create an enabling environment for businesses. The economic factors are related to the impact of the economy on the operation of the business. For instance, high inflation rates are likely to affect the profits of an organization adversely. Social factors are related to the culture and attitude of the customers regarding the products being offered. These elements can affect a company either positively or negatively. The next step is assessing any changes in technology, which might have undesirable impacts on the organization. A company should ensure that it adopts the latest technology; hence it needs to assess the technology around it to keep itself updated (Rumelt, 2012). Assessing environmental factors is the next step in the process of evaluating the external conditions of an organization. Environmental factors include components such as pollution, water, and noise, which can work in favor of a company or against it. Lastly, legal factors such as intellectual property rights, employment, and discrimination laws should be thoroughly scrutinized properly to ensure that the organization is not on the wrong side of the law. Porter’s five forces can also used to determine the profitability of the organization.

Strategic Thinking

Strategic thinking refers to the process of making a series of decisions that are likely to make a company successful. Gamble, Thompson, and Peteraf (2019) state that strategic thinking is not a one-time event by rather a continuous cycle that takes place throughout the year. The process has numerous benefits to an organization, such as making optimal use of the limited resources in a company, anticipating change, paving the way for the growth of the company, improving the decisions of an organization, and matching the strengths of its competitors. However, the key importance of strategic thinking in an organization is identifying major opportunities and anticipating changes in the market. These components are essential, as the market conditions are dynamic. As the market factors change, opportunities are created for organizations that are prepared. The changes also come with new market ventures. Companies that are not wary of the changes are most likely going to lose significant portions of the market shares. Thus, it is essential that a company thinks strategically to take advantage of the new opportunity created by reacting fast. Organizations should also think strategically to mitigate the damages that come with unseen changes in the market.

Decision Making

Six models of decision-making exist. These include rational, intuitional, satisfying, combinations, decision support systems, and recognition-primed decision-making. Rational decision-making encompasses based on logical and sequential thinking, whereas intuitive thinking is based on internal knowledge—knowing the right decision from the inside (Keller, 2012). Satisficing is a form of decision-making that is based on the option that satisfies the need first and sacrificing other potentially better options. The combination decision model merges rationale and intuitive thinking,, especially in the case where the decision made was abrupt. Decision support systems use programs to analyze data and make a conclusion while the recognition-primed decision system follows an established pattern.

Conclusion

Ansoff, H. I., Kipley, D., Lewis, A. O., Helm-Stevens, R., & Ansoff, R. (2018). Implanting Strategic Management. Springer.

Ansoff, Kipley, Lewis, Helm-Stevens, and Ansoff (2018) discuss the context and impact of strategic thinking. In their book, the authors argue that strategic thinking is advantageous to a company, as it will possess the ability to respond to changes instantaneously and effectively. A company responds to situations according to its culture. Therefore, if strategic thinking is not entrenched in the company’s culture, the organization will have difficulties working towards realizing its goal if it meets unexpected changes. The rate of transition of a company is proportionate to the effort put into strategic thinking. Therefore, organizations should ensure that strategic thinking is incorporated into their corporate culture.

Significance of the source

This source is significant in that it demonstrates the significance of strategic thinking in a company. This concept is in unison with the ideas that the other three references communicate about the significance of strategic thinking in a company.

Lasserre, P. (2017). Global Strategic Management. Macmillan International Higher Education.

This book combines the concepts of decision-making and strategic thinking on a global scale. Lasserre (2017) uses the concept of globalization to indicate how the dynamic market can be challenging for existing firms. The companies currently in operation need to think ahead to determine the expected changes that come with globalization hence placing themselves in a position where they can grab significant market share. This strategic thinking is intertwined with the ability to make wise decisions that will benefit the organization in the end.

Significance of the source

The article is significant to the topic of discussion as it combines the importance of decision-making and strategic thinking. The author provides useful hints on what is required for a company to make a strategic decision, which is the center of this paper’s discussion.

References

Ansoff, H. I., Kipley, D., Lewis, A. O., Helm-Stevens, R., & Ansoff, R. (2018). Implanting Strategic Management. Springer.

Gamble, J., Thompson, A., & Peteraf, M. (2019). Essentials of Strategic Management: The Quest for Competitive Advantage (9781259546983): John E Gamble, Arthur A Thompson Jr., Margaret Peteraf Leon E. Williams Professor of Management: Books.

Keller, T. (2012). Every good endeavor. New York: Riverhead Books, Penguin Group.

Lasserre, P. (2017). Global Strategic Management. Macmillan International Higher Education.

Rumelt, R. P. (2012). Good Strategy, Bad Strategy: The Difference and why it Matters. Profile Books.