Understanding the Strategic Management Link: External Environment

Understanding the Strategic Management Link: External Environment

Introduction

The purpose of this literature review is to broaden the knowledge and thought processes in relation to the link between the external environment and an organisation’s business strategies. It is argued that strategic management success is based on how the key strengths are leveraged to exploit the best opportunities, while at the same time, minimise exposure of the critical weaknesses to the serious threats in the external environment (Mbachu & Frei, 2011). This academic writing will touch basis with the operating and macro factors of the external business environment and their relevance to strategic management. The final link between the external environment and an organisation’s strategy will be explained through the example of the process of a Swot analysis.

Operating/Task environment

Consisting of suppliers, customers, competitors and labour force in which an organisation has little or no control over, is the operating environment. Suppliers provide the raw materials and resources the organisation requires to produce outputs. Examples of a steel mill include iron ore, energy, machines and financial resources. The question lies on how suppliers are related to strategies. Organisations use strategies to try form and maintain the best relationship possible with their suppliers so that they can get a higher amount of raw materials for a lower price, which overall helps achieve organisational objectives.

The people who buy an organisation’s goods or services are customers. Being the main source of income, it is essential that management devises strategies to attract customers to the organisation. However, there are many different strategies relating to customers in that they are not all the same and a company should know the right practices and how to deal with troublesome and unprofitable customers. A strategy of most companies is to focus their resources and strengthen the relationships with customers that matter most (Gordon, 2006).

Competitors are other organisations in the same industry in which provide the same goods or services to the same target market. There are many strategies regarding competitors to achieve organisational goals, they require in depth research to be successful. It is necessary to anticipate what your competitors will do next or how they will react to your company’s movements. “Executives believe that if they invest in upgrading services, competitors would follow and eventually customers would no longer see differentiation or value, while the firm is left with higher costs” (Gopalani & Shick p.4, 2011). The most research needs to be put into your company’s competitors, as they usually have similar objectives and whatever sales they make are sales