CHAPTER 2: Analysis of the External Environment: Opportunities and Threats

External analysis addresses the first strategic choice: Where should we compete? External analysis involves: (1) examining the 5 forces that shape industry competition and profitability; and (2) the factors in the general environment (e.g., demographic, global, social forces) that influence demand, technology, and the rules (regulations) that influence competition. The combined results of external analysis with internal analysis are often summarized as a SWOT analysis. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. External analysis is particularly useful for shedding light on opportunities and threats in the environment.