The environment external to an organization consists of threats and opportunities. Since, the environment is external therefore an organization has limited control however, strategists develop different type of strategies to overcome threats and capitalize on opportunities.
External opportunities and threats consist of political, legal, economical, social, technological and environmental factors. An organization could take advantage of external opportunities to consolidate its position in the industry and it could become threat for an organization if competitors capitalize on it. External threats such as global warming, inflation, terrorism, government policies, high taxes, rapid change in technology and other external factors could harm the organization in long rum. Since, these factors are external to an organization therefore it has no control over it.
According to strategic management process firms require to formulate the strategies to advantage of external opportunities and to eliminate or reduce the impact of external threats. Due to this reason, identifying, monitoring and evaluating external opportunities and threats are important part of the strategic management process.
Strategic management tools such as external evaluation matrix (EFE) and SWOT analysis are primarily used to identify the external threats and opportunities.