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5 keys to analyzing your external environment

Analyzing the external environment is crucial for relevant and effective strategic planning

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Analyzing your company's external environment is a critical step in preparing a strategic plan. This is a complex task because it involves collecting a variety of data to get an accurate picture of the situation. Based on this analysis, the company can then make sound decisions to further its growth.

"The analysis of the external environment is often neglected because many entrepreneurs feel they know everything about their sector, but they generally don't have the data that shows them exactly where they stand in relation to others and how the market is changing," says Lucie Chouinard, Senior Business Advisor and Strategic Planning Solution Lead, BDC Advisory Services.

She outlines five keys to analyzing a company's external environment.

1. Identify the latest trends

To get a good idea of the latest market trends, several approaches can be used. First, information can be searched in online databases, including government, industry, Canadian and U.S. databases.

Let's take the example of a door and window company. "To identify market trends, you have to start by assessing changes in the construction industry," says Chouinard. “Once you have determined its growth and identified the major trends, more research is needed to understand the market developments relating more specifically to the window and door industry.”

In particular, she looks at the following:

  • new technologies used
  • major innovations
  • the arrival of new players
  • key success factors

Researching the latest trends also requires contacting people directly to ask them questions. “We call clients and suppliers, for example, to find new information and sound out their needs, to detect or confirm trends," says Chouinard, who has owned businesses.

2. Assess market shares

While you obviously need to know a company’s market share to complete a strategic planning exercise, finding this information is not that simple. “Sometimes we find precise data, but if the data doesn't exist, we have to use our creativity to make extrapolations that are as accurate as possible," says Chouinard.

Let's take the example of architectural products. “They're grouped with other products to form a broader category, so you'll never find very specific data," she says. “So you have to look at the company's sales, then talk to various experts and extrapolate to assess the market shares held.”

3. Analyze the competitive environment

To be well positioned, a company also needs to know who its major competitors are. It generally does. But have some slipped under its radar?

To conduct an in-depth analysis of the competitive environment, you must first conduct thorough Web and social media searches. You also need to search various databases, such as professional associations.

Ms. Chouinard also does not hesitate to ask questions directly to strategic people in the company’s different departments to bring in new perspectives. She will also interview external experts and clients to understand in what ways they are satisfied and dissatisfied.

Once the competitors have been clearly identified, the expert analyzes how the company sets itself apart. “You have to clearly define these competitive advantages, which may include quality, price, distribution network, customer service, technologies used, etc."

4. Identify threats

A business faces various risks, such as political, economic, or legal changes. They can also be social, environmental or cultural.

"The company has no control over these changes, but you have to examine them to factor them into your strategic planning because they can have a major impact on your business," says Chouinard.

5. Draw up a realistic picture of your situation

The analysis of the company’s external environment is therefore a major research effort to gather a great deal of information from databases, customers and experts.

Based on this analysis, the company can realistically assess the situation and decide, for example, to invest more in a market segment where there is growth but less competition.

“To make these kinds of decisions, it is extremely important to be able to base them on facts," says Chouinard. “Many business people follow their instincts, but at some point you reach your limit and you have to do more sophisticated strategic planning to enable the company to go further.”

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