Step 1: Understand the external environment
The first stage in trying to align your firms with the external environment is to assess the factors external to the company.
The PESTEL framework is a framework that highlights important components of the broad macro-environment external to the company. By systematically considering the political, economic, social, technological, ecological, and legal components of the environment, the company can start to get a sense of the various factors external to the company that may impact its operations.
Porter's Five Forces analysis
Porte’s Five Forces is another important framework when analyzing the external environment. The framework is intended to gain a sense of the impact of five important forces on industry profitability – the power of suppliers, the power of buyers, the threat of new entrants, the threat of substitute products, and inter-industry rivalry. These factors can have a significant impact on firm and industry profitability, and being aware of them can help determine if the firm should in some way consider trying to change the industry structure, such as backward vertically integrating into the supplier area, forward vertically integrating into the downstream market, or looking to consolidate the industry.
Speaking to customers
A final important way of assessing the market external of the company is to speak with customers, including those of your competitors, as well as non-customers who currently do not buy from the industry but potentially could.
Speaking with customers and non-customers is a good way of getting a sense of the reasons that people are attracted to your firm, or the opportunities that you could have to expand your sales. This can be particularly useful with changing customer demands – helping you become aware of adjustments that you may need to make to your operations.
Step 2: Incorporate insight of the external environment into your strategy
Once yo have analyzed your external environment, you can begin to consider necessary adjustments to your strategy that can increase your alignment to the external conditions. For example:
- Changes to social expectations: Do changing customer preferences open the possibility for new product offerings?
- Technology advancements: How can you incorporate new technological advancements into your strategy?
- Customer expectations: What are the new customer demands that are on the horizon, and how can you cater to them?
- Changes to the industry structure: Are there changes occurring in the broader industry environment that may impact your firm, and how should you respond?
Step 3: Continually monitor the alignment of your strategy with the external environment
Another key component in ensuring that your strategy remains aligned with the external environment is to re-assess the alignment over time. The environment is not static, and your strategy may also evolve over time, so it is important to periodically review the strategy and its fit with the environment.