Describe the Benefits and Limitations of the Models Used to Analyse the Internal and External Environment of the Firm. Essay Example
For a business to function it needs to have a competitive advantage, that is it needs to be more attractive than its competitors in some way to sway consumers. Porter (1985 pp2) succinctly suggests that
"If your product is not cheaper than anyone else's or doesn't serve me better or more conveniently than anyone else's, why on earth should I use them?"
A business entity needs to develop strategies to enable them to keen this competitive edge down to its sharpest point. This can be summarised as an entities strategic intent, the way in which it will apply its internal assets, both tangible and intangible, to its external environment. The first stage, and indeed an ongoing process for successful business entities in developing these strategies, is the careful evaluation of both the internal and external environment. This strategic audit' is carried out in such a way as to distil a large amount of complex data and variables into a theoretical framework which allows managers to apply certain normative statements or conditions to them. The Theoretical Framework is broken down into Internal and External models, (and SWOT which examines both.) There are many different models, but some have become generic to strategy formation and are widely applied. For the internal environment there are; the BCG Matrix, Value Chain and the Strengths and Weaknesses section of SWOT analysis. For the External Environment there is PEST, Porter's 5 Forces and the Opportunities and Threats section of SWOT analysis. Whilst these provide a useful and readily comparable framework, each of the models makes assumptions about the nature of the environment and the nature of the interdependency of the factors (Kotler 1980), and for any strategic choice to be made from this framework requires the manager to fully understand the weaknesses in the models. Narayana (1986) suggests that the validity of strategic models is always questionable as the relationships between all the factors are
A business entity needs to develop strategies to enable them to keen this competitive edge down to its sharpest point. This can be summarised as an entities strategic intent, the way in which it will apply its internal assets, both tangible and intangible, to its external environment. The first stage, and indeed an ongoing process for successful business entities in developing these strategies, is the careful evaluation of both the internal and external environment. This strategic audit' is carried out in such a way as to distil a large amount of complex data and variables into a theoretical framework which allows managers to apply certain normative statements or conditions to them. The Theoretical Framework is broken down into Internal and External models, (and SWOT which examines both.) There are many different models, but some have become generic to strategy formation and are widely applied. For the internal environment there are; the BCG Matrix, Value Chain and the Strengths and Weaknesses section of SWOT analysis. For the External Environment there is PEST, Porter's 5 Forces and the Opportunities and Threats section of SWOT analysis. Whilst these provide a useful and readily comparable framework, each of the models makes assumptions about the nature of the environment and the nature of the interdependency of the factors (Kotler 1980), and for any strategic choice to be made from this framework requires the manager to fully understand the weaknesses in the models. Narayana (1986) suggests that the validity of strategic models is always questionable as the relationships between all the factors are