Is your strategy the right strategy for your business? Are you overlooking opportunities? Are you avoiding threats that could risk the long-term viability of your business? Mortgage lenders take note. Do you even know what opportunities and threats your company is facing today? Knowing your external environment is essential in maintaining or enhancing your competitiveness. Business is changing at an alarming rate. Consider former U.S. Secretary of Education Richard Riley's assumption that the top 10 in-demand jobs in 2010 may not have existed in 2004 because much of the technology required for those jobs is still being developed. 2010 is around the corner. Are you prepared to compete?
Understanding your external environment is not just about knowing what your customers need or what your competition is doing. It is that and so much more. You have to know the political environment, the economic environment, fads, trends, mega-trends, etc. It is not just a matter of knowing what opportunities and threats are out there but knowing whether or not you have the time and resources to respond accordingly.
Often times there is a window of opportunity to seize market share before the blue waters become shark infested red waters (Blue Ocean Strategy). If you are keeping your eye on your external environment you'll be able to see these opportunities and threats and determine if you have the internal or external capability to take advantage. Assume you see an opportunity to build a product. If you do not have the internal capability, you need to see if your suppliers or 3rd party alliances can partner with you to collaborate on development to seize the opportunity.
Take P&G as an example of knowing their external environment. Not just what their customers need, but what alliances could they take advantage of to seize opportunities? P&G understands it does not have the internal capability to build and deliver the products its customers want/need. To take advantage of these opportunities they created a "Connect-and-Develop" strategy. They would collaborate with 3rd parties to take a product/technology they possessed and transform it into a new P&G product. Among the most successful connect-and-develop products to hit the market are Olay Regenerist, Swiffer Dusters, the Crest SpinBrush, and the Mr. Clean Magic Eraser.
According to A.G. Lafley, CEO & Chariman of the Board, "External collaboration plays a key role in nearly 50 percent of P&G's products. We've collaborated with outside partners for generations but the importance of these alliances has never been greater. Our vision is simple. We want P&G to be known as the company that collaborates — inside and out — better than any other company in the world."
Knowledge of your external environment is essential to strategy development. You have to know if you have the ability to execute a strategy and transform your assets into customer/shareholder value. To take advantage of an opportunity, do you have the people, finances, and information assets to be successful? I refer to this as "Have it", "Build it", "Buy it". If you have the people, finances, and information to deliver, then pursuing that opportunity is an achievable strategy. If you don't have it, but have time to "Build it" then it is an achievable strategy assuming you know how to build that capability. If time constraints exist, building the capability may not be an option and you are left with "Buy it". If you do not have the financial resources to build or buy the capability it is a strategy you should abandon. Otherwise it will serve as a source of your strategy execution gap and you are not only missing the opportunity but you are throwing money away in your pursuit of it. You are also preventing the company from executing achievable strategies by misaligning your people, financial, and information resources.
Without going into too much detail we have to also discuss political and economic forces as part of the external environment. With the new administration focus on going green and creating incentives for clean sources and uses of energy, there is great opportunity for companies that have the internal and external capability to execute. Healthcare is another huge area of opportunity, but can also serve as a threat to some businesses. Knowledge of your external environment combined with a hedgehog concept (Jim Collins – Good to Great) will help you develop strategies that are not only achievable but serve to maintain or enhance your competitive advantage.
-RH
