Explain How External Environment Influence an Organisation's Strategy Formulation

2285 Words Nov 24th, 2011 10 Pages
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
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In order to retain customers, companies must formulate appropriate strategies to compete with the substitutes. For example, milk producers compete with soy milk producers.

However, strategy formulation is also influenced by the degree of turbulence of the external environment. A high degree of turbulence exists if changeability is high and predictability is low. Companies need to formulate strategies based on the planned prescriptive approach if turbulence is low, whereas based on the unplanned emergent approach if turbulence is high.

How organization's overcome environmental changes?

Organisations need to deal with environmental changes with appropriate strategies. First, organisations may choose to wait and see. Such strategy has its advantages and disadvantages. For example, facing a significant technological change, some companies may choose to integrate the new technology into their products. If they are successful, the rest companies’ ‘wait and see’ strategy is obviously unwise. However, if they failed, the rest companies’ ‘wait and see’ strategy appears wise. As a result, strategic decision making is impacted on and opportunities may either be lost or capitalised on.

Second, organisations may choose to change in response to environmental changes through either proactive or reactive. Proactive change involves actively attempting to make alterations to the work place and its practices. Companies that take a proactive approach to change are often trying to