Strategic analysis is basically concerned with the structuring of the relationship between a business and its environment. The environment in which business operates has a greater influence on their successes or failures. There is a strong linkage between the changing environment, the strategic response of the business to such changes and the performance. It is therefore important to understand the forces of external environment the way they influence this linkage. The external environment which is dynamic and changing holds both opportunities and threats for the organizations.
The organizations while attempting at strategic realignments, try to capture these opportunities and avoid the emerging threats. At the same time the changes in the environment affect the attractiveness or risk levels of various investments of the organizations or the investors. BROAD DIMENSIONS OF EXTERNAL ENVIRONMENT The macro environment in which all organizations operate broadly consist of the economic environment ,the political and legal environment ,the socio cultural aspects and the environment related issues like pollution, sustainability etc.
These factors often overlap and the developments in one area may influence developments in other. The opening up of economy integrated the markets globally and increased the competition between private and public firms. The social considerations in the
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Changes in these external forces affect the changes in consumer demand for both industrial and consumer products and services. These external farces affect the types of products produced the nature of positioning them and market segmentation strategies, the types of services offered, and choice of business. Therefore, it becomes important for the organizations to identify and evaluate external opportunities and threats so as to develop a clear mission. designing strategies to achieve long-term objectives and develop policies to achieve short-term goals.
While the framework may be used to understand the most important factors at the present time, it should be primarily used to look into the future impact which may be different from their present or past impact. Political: Politics has a serious impact on the economic environment of a country. Political ideology and political stability or instability strongly influence the pace and direction of the economic growth. Also it contributes to the economic environment which is conducive for some businesses to grow or remains indifferent for some businesses and at times is a hurdle.
Economic factors: Throw light on the nature and direction of the economy in which a firm operates. The firms must focus on economic trends in segments that affect their industry. Consumption patterns are the relative affluence of market segments and firms must understand them through the level of disposable income and the tendency of people to spend. interest rates, inflation rates, unemployment rates and trends in the gross national product, government policies and sect oral growth rates are other economic influences it must consider.
Demographic Factors: Demographic characteristics such as population, age distribution, literacy levels, inter-state migration, rural-urban mobility, income distribution etc. are the key indicators for understanding the demographic impact on environment. The shifts in age distribution caused by improved birth control methods have created opportunities for youth centric products ranging from clothes to entertainment to media. The growing number of senior citizens and their livelihood needs have been highlighted and the government is being forced to pay more attention in the form of social security benefits etc.