Explain How External Environment Influence an Organisation's Strategy Formulation
External environment aims to help an organisation to obtain opportunities and threats that will affect the organisation’s competitive situation. External opportunities are characteristics of the external environment that have the potential to help the organization achieve or exceed its strategic goals. External threats are characteristics of the external environment that may prevent the organization from achieving its strategic goals. Therefore, organisations must formulate appropriate strategies to take advantage of the opportunities while overcome the threats in order to achieve their strategic goals.
The external environment consists of variables that are outside the organization and not typically within the short-run control of top management. They may be general forces within the macro or remote environment, which consists of political-legal, economic, socio-cultural, technological forces – usually called PEST. Political-legal force influences strategy formulation through government and law intervention. For example, the environment law requires the world’s automobile manufacturers to reduce emission of green house gasses, and therefore these manufacturers have to reformulate their product strategy. Economic force influences strategy formulation through economic growth, interest rates, exchange rates and the inflation rate. For example, exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy, and thus influence strategy formulation of exporters. Socio-cultural force is about the cultural aspects, health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social-cultural factors affect the demand for a company's products and how that company operates. For example, increasing health consciousness can influence strategy formulation of fast-food companies that may have to adopt product innovation strategy. Technological factors include technological aspects
The external environment consists of variables that are outside the organization and not typically within the short-run control of top management. They may be general forces within the macro or remote environment, which consists of political-legal, economic, socio-cultural, technological forces – usually called PEST. Political-legal force influences strategy formulation through government and law intervention. For example, the environment law requires the world’s automobile manufacturers to reduce emission of green house gasses, and therefore these manufacturers have to reformulate their product strategy. Economic force influences strategy formulation through economic growth, interest rates, exchange rates and the inflation rate. For example, exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy, and thus influence strategy formulation of exporters. Socio-cultural force is about the cultural aspects, health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social-cultural factors affect the demand for a company's products and how that company operates. For example, increasing health consciousness can influence strategy formulation of fast-food companies that may have to adopt product innovation strategy. Technological factors include technological aspects