The Factors That Shape Strategy

Organizations do not exist in a vacuum. Many factors enter into the forming of a company's strategy. Each exists within a complex network of environmental forces.

These forces, conditions, situations, events, and relationships over which the organization has little control are referred to collectively as the organization's environment.

In general terms, environment can be broken down into three areas:

1. the macroenvironment, or general environment (remote environment) - that is, economic, social, political and legal systems in the country;
2. operating environment - that is, competitors, markets, customers, regulatory agencies, and stakeholders; and
3. the internal environment - that is, employees, managers, union, and board directors.

In formulating a strategy, the strategic decision makers must analyze conditions internal to the organization as well as conditions in the external environment, which are described in the following sections.

Analysis Of The Macroenvironment

An organizations ignores the macroenvironment at its own great peril. Many studies support the concept that there are needs to be a link between the organization's strategic decisions and its environment.

All organizations are affected by four macroenvironmental forces: political-legal, economic, technological, and social.