Importance of External Environmental Analysis in Strategic Management

External Environmental Analysis (EEA) is the analysis of the external environment which helps in analyzing the trends and activities of the industry in the marketplace. The processes of EEA are:
1. Scanning
2. Monitoring
3. Forecasting
4. Accessing

Micro and Macro factors in the Business

Micro factors look at the specificity and macro factors look at the overall economy/business. Micro factors can be influenced because it is an assessment of the specific firm, and Macro factors are less influenced because it is external factors which are difficult to predict and understand. Therefore, micro factors are the factors of the specific firm such as the functional department, policies, procedures, laws, etc which can be influenced and changed when necessary. But, macro factors are external factors/segments such as demographics, political, legal, socio-cultural, technology, environment, legal issues that can be difficult to predict and influence.

The typical External Environmental Analysis

Scanning- The environmental scanning helps to analyze the trends and activities of the industry. It looks at the ability of industry and demand to be fulfilled ability, competence, and capability of a firm.

Monitoring- It is examining the activities happening during the scanning of an environment. It looks at whether an organization is able to achieve the goals, and look at the flow of activities/analysis.

Forecasting- It is the projection of future trends and activities. It is not a prediction and is projected by analyzing current trends and forecast future trends and activities.

Assessing- It is the time management to identify the above all EEA process such as scanning, monitoring, and forecasting. A good product by itself is not sufficient, so it requires proper assessment so as to gain a competitive advantage over competitors.

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