The firms external environment is challenging and complex.

Because of the external environments effect on performance,

the firm must develop the skills required to identify
opportunities and threats existing in that environment.
The external environment has three major parts: (1) the
general environment (elements in the broader society that
affect industries and their firms), (2) the industry environment
(factors that influence a firm, its competitive actions and
responses, and the industrys profit potential), and
(3) the competitor environment (in which the firm analyzes
each major competitors future objectives, current strategies,
assumptions, and capabilities).
The external environmental analysis process has four steps:
scanning, monitoring, forecasting, and assessing. Through environmental
analyses, the firm identifies opportunities and threats
.
The general environment has seven segments: demographic,
economic, political/legal, sociocultural, technological, global,
and physical. For each segment, the firm wants to determine
the strategic relevance of environmental changes and trends.
Compared with the general environment, the industry environment
has a more direct effect on the firms strategic actions.
The five forces model of competition includes the threat of
entry, the power of suppliers, the power of buyers, product
substitutes, and the intensity of rivalry among competitors. By
studying these forces, the firm finds a position in an industry
where it can influence the forces in its favor or where it can
buffer itself from the power of the forces in order to achieve
strategic competitiveness and earn above-average returns.
Industries are populated with different strategic groups. A
strategic group is a collection of firms following similar strategies
along similar dimensions. Competitive rivalry is greater
within a strategic group than between strategic groups.
Competitor analysis informs the firm about the future objectives,
current strategies, assumptions, and capabilities of
the companies with which it competes directly. A thorough
analysis examines complementors that sustain a competitors
strategy and major networks or alliances in which competitors
participate. When analyzing competitors, the firm should
also identify and carefully monitor major actions taken by
firms with performance below the industry norm.
Different techniques are used to create competitor intelligence:
the set of data, information, and knowledge that
allows the firm to better understand its competitors and
thereby predict their likely strategic and tactical actions. Firms
should use only legal and ethical practices to gather intelligence.
The Internet enhances firms capabilities to gather
insights about competitors and their strategic intentions