To achieve competitive advantage, a company needs to have good strategic management which includes analysis of strategic goals as well as the internal and external environment in which the company operates (Dess et al, 2021). External environments can impact the operations personnel and financial health of any business. While the company's leadership can manage strategic goals and internal factors, the external factors are not in the company's control. However, external factors such as political, economic, socio-cultural, technological, legal, environmental and climate related can be followed by the management and they can take steps to prevent or decrease any negative effects on the company.

There are several ways in which the tracking of the external environment can help managers and thus the company itself:

Political Factors: Companies can track changes such as wages which will impact how much they pay their employees as well the buying capacity of consumers. Factors such as changes in oil & gas prices, extreme weather changes, wars and conflicts, major changes in the political stability and environment of the countries that the company operates in can affect various parts of the business such as supply chain including procurement of raw materials and transporting finished goods, production and sales of finished products (Prevedere, 2022).

Competitive Advantage: Tracking the external environment also helps companies keep ahead of the competition by understanding the intensity of competition in their sector of business, identifying potential new entrants, and keeping a tab on substitute goods and services that could affect the sales of the company's own products and services (CFI Team, 2023).

Technological Changes: Additionally, any change in technology and its adoption may impact the company's operations as well as consumer behavior. For example, the adoption of social media by consumers change the way in which they bought goods and services. Any company that can identify such changes can be better prepared for any eventuality (Ray, 2019).

Opportunities: External environments can also provide opportunities for companies. For example, consumers moving towards more green energy and caring for the environment could mean that companies would need to focus on reduction of their carbon footprint but at the same time presented opportunities for companies such as Tesla which saw an increase in sales and profitability (Skripak, 2018).

References

Dess, G., McNamara, G., Eisner, A. & Lee, S. (2021). Strategic Management: Text and Cases, (Tenth Edition). McGraw Hill.

The top 10 external factors that impact forecast accuracy. (2022, December 14). Prevedere. Retrieved on 22^nd April 2023 from https://prevedere.com/the-top-10-external-factors-that-impact-forecast-accuracy/

Corporate Finance Institute. (2023, March 14). External analysis. Retrieved on 22^nd April 2023 from https://corporatefinanceinstitute.com/resources/management/external-analysis/

Ray, L. (2019, March 12). Seven external factors of business. Small Business - Chron.com. Retrieved on 22^nd April 2023 from https://smallbusiness.chron.com/seven-external-factors-business-21960.html

Skripak, S. J. (2018). External forces that influence business activities - NSCC fundamentals of business. NSCC Fundamentals of Business. Retrieved on 22^nd April 2023 from https://pressbooks.nscc.ca/businessfundamentalscdn/chapter/external-forces-that-influence-business-activities/

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