Reflection Paper: Chapter 2

REFLECTION PAPER: CHAPTER 2
Instructress: Cherry D. Nadella, CPA, CTT
Members: Jamaica Abunda
Redgie Mark Ursal
Romena Aton
Course: BSA-III
Subject: Strategic Management
Chapter 2 External Environment of the Firm
I- Introduction: Analyzing the external environment is a critical step in recognizing and

understanding the opportunities and threats that organizations face. Successful managers
must recognize opportunities and threats in their firm’s external environment. They must be
aware of what’s going on outside their company. If they focus exclusively on the efficiency
of internal operations, the firm may degenerate into the world’s most efficient producer of
buggy whips, typewriters, or carbon paper. But if they miscalculate the market, opportunities
will be lost-hardly an enviable position for their firm. A firm’s strategy may be good at one
point in time, but it may go astray when management’s frame of reference gets out of touch
with the realities of the actual business situation. This results when management’s
assumptions, premises, or beliefs are incorrect or when internal inconsistencies among them
render the overall theory of the business invalid. The purpose of this chapter is to familiarize
us with techniques for evaluating a firm’s external environment. It focuses on the value
managers add when they have a sense of events outside the company. By focusing on
external events, managers are able to stay a step ahead of competitors by accurately
anticipating and promptly responding to actions that can impact the organization.
II- Summary: Business forecasting consists of tools and techniques used to predict changes in
business, such as sales, expenditures, profits and losses. The goal of business forecasting is to
develop better strategies based on these informed predictions; helping to eliminate potential
failure or losses before they happen. Forecasting is valuable to businesses because it gives the
ability to make informed business decisions and develop data-driven strategies. So how do
managers become environmentally aware? By doing scanning, monitoring, and gathering
competitive intelligence, and using these inputs to develop forecasts. Then scenario planning
and SWOT analysis can be used to help anticipate major future changes in the external
environment, preparing the firm to do more extensive analysis of the forces in the general
environment and the industry or competitive environment. SWOT analysis is a basic
technique for analyzing firm and industry conditions. Firm or internal conditions equals
Strengths & Weaknesses, where the firm excels or where it may be lacking. Environmental or
external conditions equals Opportunities & Threat, developments that exist in the general
environment. Activities among firms competing for the same customers Scenario analysis
involves detailed assessments of the ways trends may affect an issue & development of
alternative futures based on these assessments. Once environmental scanning, monitoring,
intelligence gathering, and forecasting have been done, the firm must do a more in-depth
analysis to see how all this affects its strategy. SWOT analysis is a framework for analyzing a
company’s internal and external environment and that stands for strengths, weaknesses,
opportunities, and threats. The firm’s strengths come from within, and are where your firm
excels; while the weaknesses are where your firm is lacking relative to competitors. The
opportunities and threats can come from the general environment and/or from the specific
industry’s competitive environment. The General Environment. The general environment is
composed of factors that are both hard to predict and difficult to control: Demographic,
Sociocultural, Political/Legal, Technological, Economic, Global. They are factors external to
an industry, and usually beyond a firm’s control, that affect a firm’s strategy. Although the
effects of these factors can vary across industries, every industry has to anticipate the effect
of each factor on its firm’s long-term strategies. The Competitive Environment. The
competitive environment consists of factors in the task or industry environment that are
particularly relevant to a firm’s strategy: Competitors (existing or potential) including those
considering entry into an entirely new industry, Customers (or buyers) and Suppliers,
including those considering forward integration. Competitive environment are factors that
pertain to an industry and affect a firm’s strategies. Porter’s five-forces model of industry
competition is a tool for examining the industry-level competitive environment, especially the
ability of firms in that industry to set prices and minimize costs. Includes the threat of new
entrants; the bargaining power of buyers; the bargaining power of suppliers; the threat of
substitute products and services; the intensity of rivalry among competitors in an industry.
Each of these forces affects a firm’s ability to compete in a given market. Together they
determine the profit potential for a particular industry.
III Recommendation: Thus, for the company to be able to succeed and dominate the market
they shall have a strategy that is hard to imitate, especially if you are in a business which is in
the same industry. They shall know the cycle and the game in the business world including
taking risks. In an organization, analyzing the external environment is a critical step in
recognizing and understanding the opportunities and threats that organizations face. And here
is where some companies fail to do a good job. Through SWOT Analysis, the managers
should always determine the strengths and weaknesses of a certain company. They should
also recognize opportunities and threats in their firm’s external environment. They must be
aware of what’s going on outside their company. If they focus exclusively on the efficiency
of internal operations, then the factors influencing the performance of the company which are
caused by the external factors may be neglected, hence, may cause failure to the company.
Further, in business it is not only you who play in the market, there are many players who
take risks. As a result, we need to be competitively advantaged over the other, thus, must
embrace the concept of porter's model for us to be aware of what are some factors or
strategies that a certain company must possess in order to be profitable and improve its
competitive position.

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REFLECTION PAPER: CHAPTER 2

Instructress: Cherry D. Nadella, CPA, CTT

Members: Jamaica Abunda

Redgie Mark Ursal

Subject: Strategic Management

Chapter 2 External Environment of the Firm

I- Introduction: Analyzing the external environment is a critical step in recognizing and

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