Many models of strategic planning mistakenly ignore key elements of the external environment in the external situation analysis. Of those that do not, the most commonly cited is Porter’s Five Forces model (Porter, Competitive Strategy, 1998), which slices the external competitive environment into the following five areas:
- Supplier power
- Barriers to entry
- Buyer power
- Degree of rivalry
This is a good starting point for evaluating competitive situations, but is designed specifically for that purpose, rather than a comprehensive analysis of strategically important environmental factors. Specifically, changes in technology, government regulation and the economy can render unworkable strategies that might seem useful under the five forces model.
In Simplified Strategic Planning (Bradford and Duncan, Simplified Strategic Planning, 1999), the external environment is broken into 6 key areas:
- Supplier Markets
- The Economy
While Bradford and Duncan make it clear that supplier markets include raw materials, merchandise, and labor, it has become pretty clear through practice that many industries require a separate treatment of labor and key skills, so the following list of external factors might be considered more useful:
- Markets (customers)
- Supplier markets
- Labor markets
- The economy
- The regulatory environment
Seldom does a strategy require close examination of all seven of these factors, however, markets and competition are almost always key factors, even in non-profit organizations. Of the remaining factors, technology tends to be the most common.
Robert Bradford is CEO of the Center for Simplified Strategic Planning, a firm specializing in strategic management training and consulting since 1981. Robert is also the co-author of the Simplified Strategic Planning Manual, Alignment for Implementation, Innovation in Action and the best-selling Simplified Strategic Planning: a No-Nonsense Guide for Busy People Who Want Results Fast!, from Chandler House Press.
Robert Bradford was a manager and consultant in information technology and banking for eight years when he left Wall Street to build a one-person training business into the Center for Simplified Strategic Planning. He has done strategic planning work with well over 200 companies since 1987.