The external business or firm environment is often dynamic, characterized by changes that can either be predicted based on current and past data; some can be projected but fail to materialize. In contrast, others may be unpredictable (Capsim, 2019). Understanding the external environment is so vital since the factors can either lead to the company’s success or failure in the long-run. However, some firms fail to understand the external environment due to the inability to conceptualize their impact on its operations and existence as a whole. They focus on the internal environment but take for granted the external factors. The trend is caused by the business getting comfortable with how things are at present with management and leadership.
Nokia is an example of a company that failed to learn and adapt to its external technological environment. The company conquered the mobile phone market for about twenty years but was unable to take advantage of the importance of the smartphone revolution and opportunities presented by millions of user applications developed by technology innovators (Capsim 2019). It is more accurate to argue that Nokia was at its best, a hardware company than a software firm. Nokia engineers were more experts in developing a physical device. They mastered the art of turning the mobile phone into more fashion accessories, but not software programs that operate the devices. In the end, Nokia deeply underestimated the significance of software, including applications that run smartphones alongside the phones’ experience. Nokia’s failure to understand the technological environment opened an avenue of competition from Apple and Samsung, which so far have “displaced” Nokia phones from the market (Cronin, 2014). Today Nokia is struggling for relevance with Apple and Samsung dominating smartphone manufacturing.
Understanding the environment was vital for Nokia to operationally execute its strategic position in the market as the first pioneer of the smartphone. However, the company failed to take note of the smartphone revolution and opportunities offered by apps developers. Companies that identify the best strategic position in the market but fail to execute it operationally are doomed to fall in the long-run. A company’s success in any competitive environment requires a company to provide value to their customers in an “operationally effective and strategically unique” to achieve and sustain a competitive edge over competitors (Capsim 2019). Hence the need to understand external market environments, which Nokia failed to do.
Understanding the external environment is also crucial because it provides essential resources that a business requires to survive. A company may not survive in the long-run without the support of economic and social environments. Sears, for instance, was a thriving retailer and nearly essential in the U.S. market. The company’s catalog made it possible for people even from remote settings to access Sears’ products that helped them build businesses, farm their land, and raise families. However, Sear reached a brim of total collapse in 2019, and may find it difficult to regain its market position. It is hard to believe that once thriving company, that became nearly an essential business in the U.S. can collapse. The cited reason for Sears’ collapse is the company’s failure to understand, adapt, and keep pace with its social environment (Capsim 2019). The e-commerce business model transformed retailing economics, disadvantaging companies such as Sears operating lots of bricks-and-motor stores.
External environmental changes can either translate into opportunities or threats depending on how the business positions itself in the environment and its nature. Failure to understand the environment like in the case of Nokia and Sears opens an avenue to collapse in market share.
Capsim (2019). Comprehensive Business Review. Capsim Management Simulations, Inc.
Cronin, M. J. (2014). Nokia drops the torch. In Top-Down Innovation (pp. 37-47). Springer, Cham.