Environmental Analysis

USING KM MODEL TO EXAMINE A FORM’S EXTERNAL ENVIRONMENT IN STRATEGIC ANALYSIS
Diana Kao, Tony Mao Odette School of Business, University of Windsor, Windsor, Ontario, Canada N9B 3P4 Tel: [phone] ext.5065, E-mail: [e-mail], [e-mail]

Abstract: The sustainability of a firm mainly depends on whether the firm has an effective strategy to align its internal operations with changes in the external environment. This paper introduces the KM model, which is a framework that guides a comprehensive and systematic strategic analysis of a firm. This article focused on using the KM model to examine a firm’s external environment systematically. The KM model divides a firm’s external environment into four interdependent and strategically relevant layers. By understanding the changes and trends in each layer as well as the interactive relationships across these layers, companies could identify the emerging needs and trends in the external environment. The model facilitates an orderly and effective way to identify gaps between a firm’s internal operations and changes in its external environment. The KM model provides a platform for incorporating most existing strategic analysis tools to obtain a comprehensive view of a firm’s external environment, and supports companies to set their global strategic positions accordingly.

INTRODUCTION
Comprehensive and systematic analysis of a firm’s external environment provides management better planning and decision-making capabilities. The formulation of effective strategies often depends on whether a firm’s analysis reflects the changing environment. Many tools have been developed to examine environmental factors in the strategic analysis process. PEST model looks at the political, economical, social and technological factors to analyze the macroeconomic situation of the firm (Narayanan and Fahey, 2001). Porter’s five forces model analyzes a firm’s industry by looking at other existing companies, potential new

References: 474 Crossan, M.M., Fry, J. N., and Killing, J.P. (2009) Strategic Analysis and Action, Toronto: Pearson Education Canada. Mao, T. and Kao, D. (2008) Lecture Notes for International Business Management, MBA for Managers and Professionals, Center for Executive Education, University of Windsor. Kim, W.C. and Mauborgne, R. (2005) Blue Ocean Strategy: How to Create Uncontested market Space and Make the Competition Irrelevant, Boston, Mass.: Harvard Business School Press. Narayanan, V.K. and Fahey, L. (2001) Macroenvironmental Analysis: Understanding the Environment outside the Industry, The Portable MBA in Strategy, 2nd edition. New York: Wiley, p.189-214. Porter, M.E. (1979) How Competitive Forces Shape Strategy, Harvard Business Review, Vol.57, March-April, p.137. Porter, M.E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press. 475