External Environment
The formulation of business strategies and policies is based on analytical consideration of the external business environment. This analysis offers an overview of the industry where a firm is operating and prompts the structuring of strategic goals. However, some firms do not understand the significance of the external environment.
Among the reasons that contribute to the misunderstanding is the inadequate forewarning of unprecedented events. Although environmental analysis gives insight into the position of a firm, it does not predict the future (Cancellier et al., 2014). It does not eliminate the future uncertainty of a firm since the analysis is designed to reduce the extent of surprises in the business.
Some firms misunderstand environmental analysis because it does not assure organizational effectiveness. It only acts as a tool for testing and strategy development. In some situations, managers develop uncritical faith in data without considering their accuracy (Cancellier et al., 2014). When such a situation arises, misleading outcomes may be obtained. In most cases, managers over-rely on collected information from environmental scanning. This results in confusion and misunderstanding of results. The success of a firm is embedded in the extent to which it is ready to take risks and, therefore, environmental analysis alone is not sufficient.
Implications for Failure to Firms
Firms that fail to understand their external environment operate blindly. They have no idea of the threats that they face in the industry. Such firms have higher chances of driving their strategic goals into a ditch since they cannot “see” the risks (Justino & Tengeh, 2016). They do not have ideas about the existing opportunities for grabs to optimize their efficiency and competitive positions in the market. In most cases, these firms follow a path with a dead end and ultimately fail.
Conclusion
Although environmental analysis is a critical tool in business, it is misunderstood by some firms because it does not assure organizational effectiveness. The tool does not offer a guarantee on the future of a business. However, firms that do not understand environmental analysis have high chances of failing.
References
Cancellier, L. P. E, Junior, B, J. E & Rossetto, R. C. (2014). Environmental scanning, strategic behavior, and performance in small companies. Journal of Information Systems and Technology Management, 11(3). Retrieved from https://doi.org/10.4301/S1807-17752014000300006
Justino, V. M & Tengeh, K. R. (2016). Role of external environmental factors in the failure of small enterprises in Angola. Journal of Environmental Economics, 7(2): 86-96. DOI:10.21511/ee.07(2).2016.9