Abstract

Before managers can begin to formulate an effective strategy, they must make a critical examination of the firm’s environment. Assessing the strategic situation is the first phase in determining the content of the proper strategies for a firm. This process begins with an assessment of the general environment of the firm, in terms of economic, technological, social, and political/legal influences. Analyzing the organization's industry is the second major aspect of assessing the firm's strategic situation.

An industry structure analysis identifies the major forces affecting competition in an industry and determines the strengths and weaknesses of the business relative to the industry. Michael Porter has identified five basic competitive industry forces: the threat of new entrants in the industry, the intensity of rivalry among existing competitors, the pressure from producers of substitute products or services, the bargaining power of buyers of the industry's outputs, and the bargaining power of suppliers to the industry's companies.

Management must find for a firm a position in the industry from which it can best defend itself against these competitive forces or can influence them to its advantages. Another major element of the industry environment is the product/market life cycle which assumes that all products, and, therefore, industries, move through stages of a life cycle. In analyzing an industry, its is also useful to determine if the industry is a global industry, that is, an industry that requires global operations to compete effectively.

The organization's internal environment is the third aspect of assessing the strategic situation, which must be done before strategy alternatives are formulated. Several techniques are available to help management develop a worthwhile environmental analysis. Environmental scanning involves studying and