Effective leaders look at the external environment in the strategic context, recognizing that developments in the external environment can create both opportunities and challenges. As the example above illustrates, what may be good news for the economy can create challenges for organizations competing for the same resources. Understanding these relationships and their potential consequences is an important part of strategic thinking.

Strategic Thinking: Anticipating What Comes Next

When I think of strategic thinking and monitoring the external environment, I’m reminded of a scene from the movie Margin Call. Released in 2011, the movie is a Hollywood dramatization exploring some of the factors that contributed to the 2008 financial collapse. After being presented with the bad news, John Tuld, played by Jeremy Irons, says to the room, “Do you want to know why I earn the Big Bucks?” He goes on to say, “I’m here to guess what the music might do a week, a month, a year from now.” If you haven’t watched this scene before, it’s worth watching. The dramatization of the choices that brought them to this point, the options they had to get themselves out of this situation, and their game plan for the next day illustrate strategic thinking and planning translated into tactical execution.

Thankfully, most of us won’t find ourselves in a situation like the one depicted in the movie, or like what the US military faced in the mid-2000s. But on the other hand, from time to time, we all feel the pressure from factors outside our control. In that sense, and in a very personal way, we can all feel like we’re in a high-pressure, high-stakes situation.

That’s why understanding the external environment matters. Whether you’re leading an organization, managing a project, or making a personal decision, overlooking developments beyond your immediate control can turn an otherwise reasonable plan into a significant challenge.

Consider a national labor shortage versus a disruption affecting a particular supply chain. Both are external developments, but their impact varies by organization. A labor shortage might create significant challenges for a business dependent on skilled workers, while having less effect on one that relies heavily on automation. Likewise, a supply chain disruption might have little effect on most organizations but threaten the operations of those dependent on a particular material or supplier.

In the strategic context, the external environment encompasses developments beyond the organization’s direct control, such as economic conditions, regulations, competition, and technological change. Understanding these conditions helps leaders identify which assumptions, opportunities, and risks merit attention.

Understanding the External Environment

Often, we start with our goals and plan backward. This is a great first step, but we should also keep in mind alignment with the organizational vision, mission, goals, and objectives, as well as the risks and opportunities in our external environment and our available resources. An effective leader monitors and responds to challenges and opportunities that could derail or advance ongoing plans and operations toward their goals.

One could argue that almost everything has the potential to create strategic impact. But as the saying goes, “If everything is important, then nothing is important.” The challenge for leaders is recognizing which external developments pose the greatest risks or opportunities to their organization.

Several tools can help leaders think through strategic planning and external environmental risks. Each of the tools mentioned below examines different aspects of the environment. Some focus on external conditions, others on organizational capabilities, competition, or possible futures. As with everything else, each of these tools and methodologies has its own pros and cons. In my experience with strategic planning sessions, we most often used Scenario Planning in combination with one or more of the methodologies listed below. This approach allowed us to explore and prioritize the potential impact of a strategic risk factor.

Tools for Analyzing the External Environment

Artificial Intelligence (AI). AI can be a useful tool for exploring the external environment, identifying emerging developments, and examining how different factors might be connected. However, AI-generated information can be incomplete or inaccurate, so important findings should be verified. Before entering sensitive personal, professional, or organizational information into an AI system, ensure its use is authorized and that appropriate privacy and security protections are in place. AI can help broaden our understanding, but it cannot replace human judgment.

DIME (Diplomatic, Information, Military, Economic). A framework commonly used in national security and military strategic planning to examine four instruments of national power. It helps planners understand how these instruments can work independently or together to influence strategic outcomes.

PESTLE (Political, Economic, Social, Technological, Legal, Environmental). A framework for examining external factors that could influence an organization’s operations, decisions, and long-term direction. It helps leaders recognize emerging risks and opportunities beyond their direct control.

Porter’s Five Forces. A framework for understanding the competitive pressures within an industry: competition among existing businesses, the threat of new competitors, the threat of substitute products or services, and the bargaining power of customers and suppliers. It helps organizations understand what influences industry competition and profitability.

Scenario Planning. A method for exploring several plausible future situations and considering how each might affect an organization. Rather than attempting to predict one specific outcome, it helps leaders recognize uncertainty, challenge assumptions, and prepare for different possibilities.

SWOT (Strengths, Weaknesses, Opportunities, Threats). A method for evaluating an organization’s internal strengths and weaknesses alongside external opportunities and threats. It helps leaders understand their current position and identify factors that could influence future decisions.

Consider the Tactical Implications

Asking “So what does this mean for our organization?” helps link strategic awareness to decisions. Sometimes the answer requires a tactical adjustment, such as changing a process or reallocating resources. Other times, it may require reconsidering the organization’s broader strategy or priorities. Understanding the external environment is important, but it becomes valuable when we recognize what it means for our decisions and actions.

I’m reminded of a joke: “If a trip around the world cost $.25, I couldn’t afford to get out of sight.” In the context of tactical considerations, an organization or person should have an appreciation for the resources available to address the risk or opportunity. To turn that silly joke into a learning opportunity, a person might reprioritize their budget to take advantage of a trip around the world.

As a supply chain manager, I would often say, too often, that decisions come down to needing two trucks, but you only have one, and you have to decide where to send it.

The key takeaway is to be mindful of the balance among strategic risks, opportunities, and available resources.

Developing Strategic Awareness at Every Level

The factors leaders at different levels consider when making their strategic plans will differ, but many of the underlying processes are the same. Here is the most important point: you can’t think and plan strategically if you’ve never practiced it.

The nice thing about learning to think strategically is that anyone can do it, regardless of their role or responsibilities. In your personal life, you can assess your goals and aspirations against what might put them at risk. For example, rising mortgage interest rates could put your plans for homeownership in jeopardy. At work, you can look beyond your immediate position and ask what is outside your control and how that might affect how things are working now. At the organizational level, you might ask what the biggest external challenges are. These examples are oversimplifications, but hopefully they inspire some ideas of your own.

Developing strategic awareness can start with something simple. In your personal life, you can follow the news to monitor your external environment. Professionally, you can follow industry publications, track economic and regulatory developments, and ask how those changes might affect your work or organizational goals. Over time, the habit of looking beyond your immediate responsibilities can help you recognize patterns and anticipate challenges before they become problems.

Strategic thinking and planning span two dimensions: the big picture and the time horizon, both of which are relative to your level of responsibility. An entry-level leader might focus on their team and the year ahead. A senior executive might focus on the entire organization, its competitors, and where it needs to be several years from now. Both can think strategically. They’re simply doing it at different levels.

RuReady Framework Connection

This article supports LK13 Strategic Context and External Environment, a Mastery-level Knowledge element within the Leadership Domain of the RuReady Adult Readiness Framework. LK13 focuses on understanding the external environment and its potential organizational impact. LS14 Strategic Thinking and Planning builds on that knowledge by helping leaders evaluate strategic choices, establish priorities, and develop plans.

If you enjoyed this article, explore the broader RuReady Adult Readiness Framework:

Preface: A Field Manual for Adult Life
Chapter 1: Why Do We Do What We Do?
Chapter 2: An Exploration of the RuReady Framework
Chapter 3: Life Skills for the Personal Domain
Chapter 4: Career Skills for the Professional Domain
Chapter 5: Leadership Skills for Every Level

Before moving on, feel free to use the checklist below to assess your readiness level.

Useful Resources:

Pop Culture Reference:

Margin Call 2011. Senior Partners Emergency Meeting Scene. The movie Margin Call follows employees at a major investment bank at the start of the 2008 financial crisis. The film explores the high-stakes decision-making, ethical compromises, and the human side of the 2008 financial collapse.

Article References:

Strategic Thinking: Can It Be Taught? Foundational research on the five elements of strategic thinking.

Harvard Business School Online: Four Ways to Develop Strategic Thinking Skills. Practical development guidance.

Open University: Explore Your Organization’s External Factors. Approachable PESTLE education.

Open University: What Is Strategy? Strategy as an evolving practice, not simply an annual plan.

Open University: Strategic Planning and SWOT. Internal and external environmental analysis.