External environment analysis is a primary study and analysis of macro-environmental forces, industry analysis and competitor analysis in purview of an organization’s growth. Macro-environmental forces are dimensions in the broader society which influence the firms within it. It focuses on the future probability of events. Industry environment includes set of contingencies which have a direct influence on the firm’s action and response. It focuses on the factors influencing the profitability of a firm within an industry while competitor analysis focuses on predicting/ anticipating the competitor’s dynamism in action, responses etc.
Eg: A company ABC has to take a strategic call to diversify its portfolio. Hence, it will go for external environment analysis. By this, it will SCAN (for any signal of change in trends in general environment), MONITOR (the changes to see if these occur from the predicted scanned ones), FORECAST (the consequences based on the monitoring of the changes and trends), ASSESS (the significances of the timing of the changes etc).