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The correlation between external analysis and strategy.

What are the major components of an external analysis and why is each important in developing and implementing strategy. What approaches, tools or models are used to develop an external analysis, and what are their major components?

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When utilizing an external analysis, one's key objective is to measure what external factors have an impact on a business within its broad environment and competitive environment. The broad environment can be defined as indirect economic conditions influenced by social, political and technological factors that in turn can affect a business. The competitive environment is more directly related to a business and concerns "stockholders, suppliers, competitors, labor unions, customers, and potential new entrants" (Ghillyer, 2009, p. 129). Thus, the last two components of a SWOT analysis (Strengths, Weaknesses-Internal Analysis; ...

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Understanding the correlation between external analysis and strategy is imperative for a company in evaluating its external and environment. The external environment can contain opportunities and threats as outlined by the 'five forces model of competition.' After the external environment is evaluated, a business strategy can be put forth in motion to strengthen the position of the company and provide it with a stronger competitive advantage.