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Henry: Understanding Strategic

Management

Chapter 2: The General

Environment

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The General Environment

The external environment facing the organizationconsists of:

General environmentCompetitive environment

The changes that occur in the general environmenttranscend organizations and industries

The competitive environment consists of the industryand markets in which an organization competes

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The General Environment

The figure shows the

relationship between the

organization and its

external environment

ther things being

e!ual" it is the competitive

environment that has

the greatest impact on

the organization

Figure 2.1

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The General Environment

rganizations must scan their external environment todiscern weak signals

#eak signals refer to barely perceptible changes in theexternal environment whose impact has yet to be felt

nceweak signals are identified they must be monitored tosee if they might coalesce into a trend that can impact theorganization

The uneven rate of change in the external environmentleads to discontinuities

$iscontinuities have the potential to undermine howorganizations compete

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The General Environment

Van Der Heijden (1996)identifies % typesof uncertainty:

1. Risks& where past performance ofsimilar events allows us to estimatethe probabilities of future outcomes

2. Structural uncertainties& where an

event is uni!ue enough not to offerevidence of such probabilities3. Unknowables& where we cannot

even imagine the event

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The General Environment

Scenario planningis an internallyconsistent

view of what the future might turn out to

be't is not a forecast but a tool of analysis to helpthe organization recognise weak signals

(cenario planning helps managers toovercome biases and imperfect reasoning

(cenario planning helps managers torecognise change that may not fit their theoryof business

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The General Environment

Undertakin Scenario !lannin "1#

)* $efine the (cope

2* 'dentify the +a,or (takeholders

%* 'dentify -asic Trends

.* 'dentify /ey 0ncertainties

1* Construct 'nitial (cenario Themes

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The General Environment

Undertakin Scenario !lannin "2#

* Check for Consistency and 3lausibility

4* $evelop 5earning (cenarios

6* 'dentify 7esearch 8eeds

9* $evelop uantitative +odels

);* Evolve Towards $ecision (cenarios

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The General Environment

PEST analysisis useful for scanning the general environment

3E(T ispolitical, economic, social, and technological factors

3E(T analysis can be used to identify weak signals that maypoint to a discontinuity shaping the environment

3E(Tprovides a link between the general and competitiveenvironment

#eak signals in the general environment can become forces forchange in the competitive environment

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The General Environment

3E(T analysis is not a

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The General Environment

SWOT analysisrefers to strengths" weaknesses"opportunities and threats

(trengths and weaknesses refer to the organization=sinternal environment

pportunities and threats refer to the organisation=s external

environment over which it has much less control

(#T may arise in both the general and the competitiveenvironment

The unpredictable nature of events in the generalenvironment make the use of (#T analysis moreproblematic