Why should we decipher the external environment ? Part II

Author : Ami Fitri Utami, SE., MSM

Moreover, as the changes of external environment are inevitable, Hitt et al (2015) contended that to be able to understand the external conditions, scanning, monitoring, forecasting and assessing are the four parts of the analysis process which can be done. In this vein, effectively using this process helps the firm in its effort to identify opportunities and threats. In order to do the scanning process on a firm’s external environment, various tools created by scholars in strategic management fields from the game theoretic models to the framework approaches includes the prominent framework of Porter’s Five Competitive Forces (Furrer & Thomas, 2000).

The Five Competitive Forces of Porter claimed that there are five aspects which may affect company’s performance in the market include rivalry condition, customers, suppliers, new entrants and substitute products. However, while that framework appeared to be extensive and widely used among strategic management fields, Thomas and Pollock in 1999 postulated the weakness of this framework which claimed to possessed a less guidance for a more dynamic and complex conditions of an industry. By this premises, Furrer & Thomas in 2000 then composed a new framework named as the rivalry matrix. This rivalry matrix aimed to help businesses facing feasible options to capture issues in a competitive rivalry conditions.  All in all, the importance to understand firm’s external environment are inevitable. Frameworks, and tools been created to help businesses done this activities but since the general environment keeps on changing, the analysis also need to be adjusted.

Refferences :

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2015). Strategic management: competitiveness and globalization. Cengage Learning.

Furrer, O., & Thomas, H. (2000). The rivalry matrix:: Understanding rivalry and competitive dynamics. European Management Journal, 18(6), 619-637