This article focused on using the KM model to examine a firm’s external environment systematically. The KM model divides a firm’s external environment into four interdependent and strategically relevant layers. By understanding the changes and trends in each layer as well as the interactive relationships across these layers, companies could identify the emerging needs and trends in the external environment. The model facilitates an orderly and effective way to identify gaps between a firm’s internal operations and changes in its external environment.The KM model provides a platform for incorporating most existing strategic analysis tools to obtain a unimpressive view of a firm’s external environment, and supports companies to set their global strategic positions accordingly.
Comprehensive and systematic analysis of a firm’s external environment provides management better planning and decision-making capabilities.
The formulation of effective strategies often depends on whether a firm’s analysis reflects the changing environment.Many tools have been developed to examine environmental factors in the strategic analysis process. PEST model looks at the political, economical, social and technological factors to analyze he macroeconomic situation of the firm (Maryanne and Fay, 2001 Porters five forces model analyzes a firm’s industry by looking at other existing companies, potential new companies, substitutes for products, suppliers and customers (Porter, 1979). Porter’s value chain identifies a firm’s primary and support activities.The fundamental principle of the model is that primary and support activities contribute to both firm’s costs as well as the ability for a firm to deliver value to its customers (Porter, 1985). SOOT framework identifies a firm’s strengths, weaknesses, opportunities and threats.
Blue ocean strategy argues that firms employing a blue ocean strategy are deliberately redefining existing industry boundaries and creating uncontested market spaces as a source of competitive advantage.It suggests that firms engaging in blue ocean strategy see the barriers to competition are not only surmountable, but also present opportunities for untapped reeve (Kim and Membrane, 2005). The Diamond-E framework emphasizes that a firm’s successful performance depends on having high consistency among the firm’s internal environment, its strategy and the external environment (Fry and Killing, 1989). Coronas et. Al. (2009) introduced a five-step framework to conduct environmental analysis.Mao and Aka (2008) proposed the KM model as a framework to guide systematic and comprehensive strategic analysis. However, increasing global competition, advancement of technology, incomplete information, economical crises and a wide range of uncertainties has made the analysis of the environment more challenging and difficult.
Not only it is difficult to identify relevant environmental impacts, practitioners also find it difficult to relate the overall macroeconomic factors directly to the rim’s internal operations.We believe that practitioners would benefit from a framework that will support them to observe and analyze the continuous external changes and trends by 1) defining the relevant macro-environment from the global level to strategically relevant segments in the environment such as the firm’s focused countries, industries and supply chains, 2) relating the impacts of macro-environmental factors to the firm’s internal operations by following a prescriptive and systematic approach, and 3) identify the gaps between the external environment and internal operations.The KM model revised a structure to facilitate this process. In the following sections, the description, structure and applications of KM model for environmental analysis will be discussed.
DESCRIPTION OF KM MODEL
The KM model is a framework that guides a comprehensive and systematic strategic analysis for a firm.
It provides a detailed structure for environmental analysis. It is constructed based on four premises about the environment of a company. First, a firm’s 467 survival depends on how well it adapts to changes in the environment.The environment is dynamic and always changing.
Only companies that can mutinously provide products and services needed by the changing external environment will achieve sustainability. Second, a firm’s external environment has multiple layers. These layers are interdependent and interactive with each Value Chain S E S E other. The firm’s sustainability is greatly affected by the changes and interactions among these layers.
Third, each layer of the external T P environment is being shaped by both current Andean past macroeconomic forces.Firms have to understand these forces in order to S Supply Chain understand the environment. Forth, the external environment is affected by cultural differences.
E S P T The KM model divides a firm’s external environmentally Industries into four interdependent and strategically relevant layers. By understanding the changes and trends in each layer as well as the interactive relationships across these layers, companies could identify the emerging P needs and opportunities in its external environment.The KM model provides at platform for incorporating most existing strategic analysis tools to obtain a comprehensive view of fecundation’s environment. The model facilitates an orderly and effective way to firm’s Countries identify gaps between a firm’s internal operations and changes in its external environment. P T In additional to the multiple layers in the external environment, the KM model also incorporates time as another dimension in the Global Market model.
By studying the changes occurred in the past and present, the model facilitates managers to accumulate knowledge about the external environment. This incremental learning process often allows better prediction of future trends in the external environment, Figure 1 The KM future strategic which may give the firm a competitive edge in formulation’s Structure positions in the global market. The structure of the KM model is described blow (see Figure 1).
- A firm exists in a multi-layered environment.With the firm’s value chain sitting on top, the external environment is represented in four layers: the supply chain, related industries, focused countries and the global Market. The structure illustrates that all layers of the external environment form the building blocks that support the firm’s existence.
- Each layer is being shaped and driven by its own political, economical, social and technological macroeconomic forces, as noted as P, E, S, T in the corners of each layer.
- Layers in the firm’s external environment are interactive and interdependent. Any change caused by the PEST forces in one layer will trigger ripple effects in all other layers.
- The structure is dynamic and robust. Figure 1 only represents a snapshot of a continuous interactive process of a firm’s external environment overtime.
Understanding the past and current States Of each layer will help predict future changes and trends. Hence, historical changes and trends in any layer are implied in the KM model.
This structure provides a birds-eye view of the firm and its environment. It guides practitioners to hectically observe and understand changes and trends in the external environment. Using this structure, practitioners will be able to comprehensively analyze relationships between the firm and its environment. In the next section, how to apply the KM Model to analyze a firm’s external environment and to identify the gaps between a firm’s external environment and its current operations will be presented.
APPLICATION OF KM MODEL FOR ENVIRONMENTAL ANALYSIS
The objectives of using the KM model for environmental analysis are the following: Objective 1 TO define the external environment Of a firm from the lobar level to strategically relevant segments in the environment such as the firm’s focused countries, related industries and supply chains Objective 2 To relate the impacts of macroeconomic factors to the firm’s internal operations by following a systematic approach Objective 3 To identity the gaps between the external environment and internal operations Described below is a six- step process to help practitioners to achieve these objectives.For objective 1 Step 1 Divide the firm’s environment into different layers based on the structure in KM model.
Step 2 468 Identify the components of each layer in the environment. For objective 2 Step 3 Observe the external environment from the bottom layer of global market to the firm’s supply chain. Identify major forces, changes, trends and opportunities in each layer by applying appropriate strategic analysis tools. Step 4 Based on the observation, identify impacts of major changes and emerging needs of the external environment on the firm’s operation and sustainability.For objective 3 Step 5 Identify gaps between firm’s value chain and the needs and changes in the external environment that may affect the firm’s sustainability. Step 6 Analyze the firm’s value chain to identify resources ND core competencies.
Evaluate whether the firm has the ability to bridge these major gaps in the existing environment. Step 7 Decide to stay in the existing environment if gaps can be bridged effectively. Consider move to a new environment if gaps cannot be bridged effectively. Step 8 Conduct steps 1 to 7 on a routine basis.The KM model has been used to conduct strategic analysis and provide strategic recommendations for firms in the service and manufacturing sectors, inch duding automobile industry, food, technology, medical as well as non-profit organizations for consulting and managing reposes.
It was also adopted as a teaching tool in executive MBA classes to help students analyze their companies. Given that the focus of this paper is on environmental analysis, included in the appendix of this paper is an example how the KM model was applied in analyzing Fiat SPA’s external environment.
The environmental analysis component of the KM model presented in this paper provides a framework to systematically analyze the external environment of a firm. The model examines external environments by analyzing the political, economical, social and technological impacts in the intent of a firm’s supply chain, related industries, focused countries and the global market. It also incorporates historical trends and cultural influences in the analysis process.By following the proposed steps, practitioners can examine the external environment Of a firm using currently existing strategic analysis tools such as Porters value chain, PEST, Diamond E, Porters five forces, SOOT, etc.
In addition, the KM model will help companies identify the gaps between the external environment and internal operations. Once the gaps are identified, companies can set their strategic directions accordingly. The KM strategic analysis model is in the process of being further developed and refined. Modifications and improvements will be presented in future studies.
APPENDIX FIAT SPA
Environmental Analysis, 2009 After a successful turnaround from 2004, Fiat, an Italian automobile manufacturer became profitable again in 2007. However, heading into 2009, the environment for auto industry has changed dramatically. Factors such as decreasing European sales, stronger competition from Japanese and German automakers, the emergence of new low cost Asian manufacturers, changing government policies, and global economical crisis have brought Fiat to a cross road again.
This example demonstrates how the KM model is used to analyze the external environmental of Fiat SPA.Environmental Analysis In this section, the internal and external environments will be analyzed. The objectives of the environmental analysis are to 1 )identify external environment changes and internal environment of the firm, and 2)articulate the implications to see if there is a need to change 469 as well as the direction and timing of the changes. This analysis will also help identify the core competence and key success factors of FIAT.
The analyses re grouped into three parts. First, the KM model and PEST is used to analyze the internal and external environment of FIAT.