Ch. 3 Learning Review Questions

Question 1

What is an external analysis, and what does it show managers?

Answer 1

It’s the process of scanning and evaluating the external environment. It shows managers the opportunities and threats for their organization.

Question 2

How does the concept of an organization as an open system relate to external analysis?

Answer 2

Organizations as open systems mean that they interact and respond to the environment by mean of taking inputs from the environment, process them into outputs which are distributed in the environment.

• interrelated, interdependent departments that function as a whole
• a change in one results in a change in the other

Question 3

What does each perspective on organizational environments say?

Answer 3

Source of information:

• environments differ in levels of uncertainty
• uncertainty is determined by complexity and rate of change
• reducing uncertainty means obtaining information

Source of resources:

• environments are source of scarce and valued resources
• organizations depend on these resources
• level of difficulty of obtaining and controlling resources determines dependency
• controlling resources = reducing uncertainty

Question 4

What role does environmental uncertainty play in external analysis?

Answer 4

The greater the uncertainty, the more extensive your external analysis must be.

Because greater uncertainty means a more hostile or complex environment.

Question 5

Why do managers need to do more than just scan the environment?

Answer 5

Because if you don’t develop and implement appropriate strategies that match the companies capabilities and resources to the threats and opportunities environment, you are not managing strategically.

Question 6

What does the five forces model look at, and how is it used?

Answer 6

The Five Forces looks at:

1. intensity of rivalry among firms
2. entry barriers
3. bargaining power of buyers
4. bargaining powers of suppliers
5. threat of substitutes

It is used to assess opportunities and threats in the specific (competitive) environment. E.g. to determine attractiveness of an industry, its profit potential.

Question 7

What is examined in each of the five components of the general environment?

Answer 7

1. demographic (gender, age, income, education, birth rate, employment)
2. economic (purchasing power, fx rates, inflation, interest, GDP)
3. socio-cultural (traditions, lifestyles, values, beliefs, tastes, patterns of behaviors)
4. technological
5. political-legal (laws, regulations, judicial decisions, political climate)

Question 8

How is information on the external environment found and evaluated?

Answer 8

It can be obtained by informal methods of observation (exploratory research) or a more formal systemic way.

• magazines, news
• industry digest, trade journals
• talking to suppliers
• data
• statistics
• analyses
• trends
• predictions
• forecasts
• expert statements

Question 9

Describe the different responsibilities for doing an external analysis.

Answer 9

In small-medium companies, everyone should be responsible for providing inputs for an external analysis.

In large companies it usually falls under the managers since a larger company is likely too structurally complex for everyone to be involved.

Question 10

List some benefits of doing an external analysis.

Answer 10

• it enables managerial proactivity and anticipating changes
• provides information for strategic planning, decisions and strategy formulation
• helps in acquiring and controlling scarce resources
• helps to cope with dynamic and turbulent market conditions

Question 11

Discuss the challenges associated with doing an external analysis.

Answer 11

• environment may change at a faster rate than can be effectively monitored
• time-consuming
• information, trends and forecasts isn’t perfect.