■ Introduction
An analysis of the external environment is undertaken in order to dis-
cover the opportunities and threats that are evolving and that need to be
addressed by the organisation. A study by Diffenbach (1983) identified a
number of positive consequences that stem from carrying out organised
environmental analysis (see Figure 2.1).
The external analysis is the first stage of the auditing process. It creates the information and
analysis necessary for an organisation to begin to identify the key issues it will need to address
in order to develop a successful strategy. The chapter explores the process of PEST analysis,
industry analysis, competitor analysis and market analysis. The use of various approaches to
facilitate this process, in particular the ‘five forces’ model and strategic groups, are covered.About this chapter
Awareness of environmental changes Industry and market analysis
by management- Enhanced ability to anticipate problems • Quality of market and product forecasts improved.
arising in the longer term. • Identification of changes in buyer behaviour as a - Senior management awareness of a range of result of changes in social trends.
possible futures and their effect on the organisation. • Ability to identify future needs and anticipate - Greater inclination to act in advance of changes. new products.
Strategic planning and decision making Diversification and resource allocation - More flexibility and adaptability in plans as they • Ability to focus resources in business areas that have
reflect greater awareness of political events and long-term attractiveness.
economic cycles. • Guides the acquisitions process. - Scope of perspectives broadened. • Move away from products exposed to greater social
- Organisation has greater ability to allocate and political pressure (environmental issues, etc.)
resources to opportunities arising due to towards other areas of the product portfolio.
environmental change.
Relationship with government Overseas businesses - Improved understanding and relationship with • Improved ability to anticipate changes in overseas
government. markets. - Ability to be proactive on government legislation. • Ability to anticipate changes in the way of
undertaking business in overseas markets.
Figure 2.1
A selection of benefits derived from organised environmental analysis (Source: Adapted
from Diffenbach, 1983)