Prerequisites for a Firm to Respond to the External Environment:

1. Monitoring the Environment:
- One of the key prerequisites for a firm to respond effectively to the external environment is to actively monitor the environment on an ongoing basis. This involves systematically gathering and analyzing information about the external factors that may impact the firm's operations, such as economic conditions, regulatory changes, technological advancements, and competitive dynamics.
- Monitoring the environment allows the firm to stay updated about the changes and trends that may present both opportunities and threats. It helps in identifying emerging issues and shifts in customer preferences, industry trends, and market conditions.

2. Identifying the Factors:
- Another important prerequisite is the ability to identify and understand the key factors in the external environment that are relevant to the firm's operations. This involves assessing the significance and potential impact of various environmental factors on the firm's strategic objectives, performance, and competitiveness.
- Factors that need to be considered may include political, economic, social, technological, environmental, and legal (PESTEL) factors. Additionally, industry-specific factors and competitive forces should also be taken into account.

3. Capacity to Develop Effective Response:
- Once the firm has monitored and identified the relevant external factors, it needs to have the capacity to develop and implement effective responses. This requires the firm to have the necessary resources, capabilities, and strategic agility to adapt and respond to changes in the external environment.
- The firm should be able to formulate and execute appropriate strategies, policies, and actions in response to the identified environmental factors. It may involve making adjustments to the firm's business model, product offerings, marketing strategies, supply chain, organizational structure, or operational processes.

Conclusion:
In conclusion, the prerequisites for a firm to respond to the external environment include actively monitoring the environment, identifying the relevant factors, and having the capacity to develop and implement effective responses. By meeting these prerequisites, a firm can enhance its ability to navigate and exploit the opportunities and challenges presented by the ever-changing external environment.