External Environment Analysis if We

External Environment Analysis

If we assume that the business is Southwest Airlines, the NAICS code is 481111 -- Passenger airline services (Websters Online, 2010). This website provides the NAICS code and can be searched by company or by industry.

To conduct a five forces analysis, some of the best clues are to be found in the company's annual report, which contains discussions about the industry's competitive nature. In addition, there is discussion about key inputs as well, which indicates the bargaining power of suppliers. Newspaper articles can discuss the bargaining power of buyers and suppliers, in addition to shedding light on any number of industry practices. Bargaining power of buyers is also something that can found on specific websites dedicated to the issue, such as FareCompare.com, which hosts a series of articles dedicated to explaining airline pricing practices. As well, there are a number of trade publications dedicated to the airline industry including Aircraft Commerce, Airline Business, Airline Fleet and Network Management, the Airline Monitor and others. These sources provide information on a number of different aspects of the airline industry. When combined with annual reports and news articles, a picture of industry competition can be discerned.

For the PEST analysis, a broader sweep of sources is required. The economic analysis will derive not only from newspaper articles and annual reports, but also from government economic indicators. These can typically be found at the website for the Bureau of Economic Analysis: www.bea.gov. Information about industry trends in terms of social and technological trends can be found from academic journals as well, including the Journal of Air Transport Management and the Journal of Air Transportation. Airline executives also conduct conference calls with analysts where they discuss the business and any relevant trends. These can be found on the Investor Relations section of the airline's website. Information about technological trends can be found not only in trade magazines and journals but also in the annual reports of suppliers (such as Boeing) where their initiatives will be discussed.

Thus in summary:

Political -- Annual reports, newspaper articles, trade magazines

Economic -- Bureau of Economic Analysis, Annual reports, newspaper articles

Social -- Academic journals, newspaper articles, trade magazines, analyst conference calls

Technological -- Academic journals, annual reports from suppliers, trade magazines

There is no one best source. Annual reports are strong for the breadth of information discussed, but with respect to depth are better used for internal analysis. They provide an overview of external issues but that overview should be supplemented with other research. Trade magazines and academic journals often have very specific articles that may or may not be of relevance to an external analysis. When they are relevant, they tend to provide excellent detail. Analyst conference calls, as with annual reports, are best used for internal analysis, but in these calls if management feels that external forces were the key factor in firm performance in the past quarter, the discussion will center on that performance. The Bureau of Economic Analysis is valuable for learning about broad economic trends, but those trends are not put into context of the industry. Newspaper articles may be excellent sources, but they can also be useless. Information literacy is required when skimming newspapers for information, to separate pieces full of bias from those that provide useful information. Overall, external analysis requires a lot of inference because the sources are not created in the context of your company. The researcher must observe the information and then critically apply it to the company's situation. Arguably, that is more important than gathering hundreds of sources and not being able to make connections between the external environment as described in those sources and the firm.