Republic of the Philippines

NUEVA VIZCAYA STATE UNIVERSITY

Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.:CBM2-1STSEM-2023-2024

College: College of Business Education

Campus : Bayombong Campus

DEGREE PROGRAM BSBA COURSE NO. CBM 2

SPECIALIZATION Financial Management COURSE TITLE Strategic Management
YEAR LEVEL 2nd year TIME FRAME WK NO. 1-4 IM NO. 01

I. UNIT TITLE/CHAPTER TITLE: STRATEGIC ANALYSIS AND DECISION MAKING

II. LESSON TITLE :

Lesson 1: Strategic Management Model
Lesson 2: The External Environment
Lesson 3: The Internal Environment

III. LESSON OVERVIEW

This module introduces the strategic management model commonly employed by

organizations for their strategic analysis. It also emphasizes the significance of both the
external and internal environment in the strategic planning process. Understanding these
environments is essential for organizations to make informed decisions and develop effective
strategies.

IV. DESIRED LEARNING OUTCOMES:

After studying the lesson, the students should be able to:

1. Define strategic management
2. Identify each of the components of strategic management process and its corresponding
outcome
3. Differentiate strategic analysis from strategic decision-making and strategic intelligence
from strategic thinking
4. Formulate sample company vision, mission statement, and company goals and objectives
5. Compare organization climate and organizational culture.
6. Perform Swot Analysis using a company profile.
7. Identify and discuss the areas concerning internal environment.

V. LESSON CONTENT

Lesson 1. Strategic Management Model

According to Young (2015), strategic management is a continuous process of formulating,

implementing, and evaluating strategies by an organization’s top management to achieve its long-term
objectives. It usually involves the following process or steps:

1. Strategy Analysis. Involves the comprehensive analysis of the internal and external
environment. This can help the organization develop strategic intelligence-the capability of an
organization to possess relevant and related knowledge, foresight, abilities, and systems
thinking. Systems thinking enables the organization to assess its own strengths and
weaknesses as well as the opportunities available to the organization.
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2. Strategy Formulation. Based on the analysis, the top management formulate/develop

strategies wherein strategic thinking is employed. Strategic thinking is a cognitive process and
mindset that involves the ability to analyze complex situations, anticipate future trends, and
develop innovative and forward-looking solutions to achieve long-term goals and objectives.

Organizational Competitiveness pertains to the ability of the company to utilize its resources
optimally and sustainably for maximum performance and productivity.

3. Strategy Implementation. Putting in action the formulated strategies. If strategies are

efficiently employed, it can achieve comparative advantage. Comparative advantage is the
ability of the company to produce goods and services with low cost.

4. Strategic Control and Evaluation. Application of the appropriate monitoring in place to

ensure that the company is on track towards its goals. Regular evaluation helps identify
deviations from the plan and provides adjustment period when necessary. Thus, can achieve
strategic performance.

5. Feedback and Learning. Strategic management is an iterative process, and feedback from
various sources helps the organization learn from its experiences and adapt its strategies
accordingly. This continuous learning and improvement ensure that the organization remains
agile and responsive to changes in the business environment.

A summary of the strategic management process is presented below:

Likewise, the strategic management model that presents the relationship between and among the
inputs, process and output is shown below:

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Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.:CBM2-1STSEM-2023-2024

Strategic Planning

Strategic planning is a critical management tool that helps organizations stay focused, aligned, and
responsive to changes in the market or industry. It provides a roadmap for achieving long-term
success and guides decision-making at all levels of the organization.

It generates a blueprint of what the company intends to achieve.

The key elements of strategic planning include:

1. Mission and Vision: The process begins with defining the organization's mission, which
describes its fundamental purpose and reason for existence. The vision outlines the desired
future state the organization aspires to achieve. Both the mission and vision provide a guiding
framework for strategic decision-making.

2. Environmental Analysis: This step involves conducting an in-depth analysis of the

organization's internal environment (resources, capabilities, culture) and the external
environment (market trends, competition, regulatory factors, economic conditions). Techniques
like SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) are often used to assess
these factors.

3. Goal Setting: Based on the analysis, the organization sets specific, measurable, achievable,
relevant, and time-bound (SMART) long-term goals and objectives. These goals are aligned with
the organization's mission and vision and serve as the foundation for developing strategies.

4. Strategy Formulation: Strategies are the broad plans and approaches that the organization will
undertake to achieve its goals. They leverage the organization's strengths to address
weaknesses and capitalize on opportunities while mitigating threats. Different types of strategies
may include growth strategies, market penetration, diversification, innovation, cost leadership,
etc.

5. Resource Allocation: Once the strategies are formulated, the organization allocates its
resources (financial, human, technological, etc.) to support the implementation of these
strategies effectively.

6. Action Plans and Implementation: Action plans are detailed steps and initiatives that outline
how the strategies will be put into action. These plans often include timelines, responsibilities,
and specific tasks that need to be completed to achieve strategic objectives.

7. Monitoring and Evaluation: Throughout the implementation phase, strategic planning involves
continuous monitoring of progress towards the defined goals. Key performance indicators (KPIs)
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NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.:CBM2-1STSEM-2023-2024

are used to measure success and assess whether the strategies are producing the desired
outcomes. Regular evaluation allows the organization to identify any deviations from the plan
and make necessary adjustments.

8. Adaptation and Iteration: Strategic planning recognizes that the business environment is
dynamic and subject to change. Organizations need to be flexible and adaptive, ready to modify
their strategies when new opportunities or threats arise.

Types of Strategic Plans

1. Medium/Long-range plan. Prepared in the context of the coming three to five, ten or more years.
It describes the major factors or forces that affect the organization’s long-term objectives,
strategies, and resources required.
2. Annual/Yearly plan- short term; briefly describes the organization’s present situation, its goal and
objectives, strategies, monitoring mechanisms, and the budget for the year ahead.

Strategic plans are important for an organization to effectively and efficiently implementation of
activities that leads to the success of a company.

Strengths and Limitations of Strategic Plan

Advantage:
 Provides organizations the opportunity to assess the milieu and specify strategies to achieve
goals.
 Helps organization to stay focused
 It makes things happen
 Helps reduce the chance of committing mistakes
 More efficient allocation of resources, better collaboration within the organization’s departments
 Provides leverage and competitive advantage

Limitations:
 Sometimes good only in paper
 If religiously followed, some organizations may not be flexible for adjustments
 Conducting strategic planning sessions may entail costs that can be expensive to the
organization

Vision, Mission, Goals and Objectives

Organizational Vision. The vision binds the company and employees in achieving some point in the
future. It is a powerful tool that sets the course for an organization or individual, providing a sense of
purpose and direction to shape the decisions and actions needed to achieve their desired future state.

Organizational Mission. In the context of an organization or an individual, is a concise and

purposeful statement that defines the fundamental reason for their existence and outlines their primary
objectives. It serves as a guiding principle and provides a clear sense of purpose, highlighting what
the organization or individual aims to accomplish and whom it serves.

Organizational Goals and Objectives

In an organizational context, goals and objectives are both important elements of the planning
process, but they have distinct characteristics and serve different purposes.
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Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.:CBM2-1STSEM-2023-2024

Goals Objectives
Nature: Goals are broad, general statements Nature: Objectives are specific, measurable,
that describe the overall desired outcome an and actionable targets that are derived from
organization aims to achieve. They are high- goals. They are more detailed and concrete,
level and often represent the organization's long- defining the steps or milestones needed to
term aspirations. achieve the broader goals.

Scope: Goals provide a big-picture perspective Scope: Objectives are focused on particular
and are not as specific as objectives. They may areas or functions within the organization. They
cover various areas, such as financial address specific aspects of the organization's
performance, market position, customer operations and strategies.
satisfaction, or social responsibility.
Timeframe: Objectives are often set for the
Timeframe: Goals are typically set for the long short to medium term, usually within a year or
term, usually spanning several years. They less. They are intended to be accomplished in a
guide the overall direction of the organization relatively shorter time frame compared to goals.
over an extended period.
Example: "Increase market share by 10% in the
Example: "Become the industry leader in next six months" is an example of an objective
sustainable and eco-friendly products" is an that supports the broader goal of becoming an
example of a goal. industry leader

In summary, goals provide the overall direction and purpose for an organization, outlining the ultimate
destination. On the other hand, objectives are more tactical and operational, defining the specific steps
and targets that must be achieved to progress towards the set goals. Objectives serve as the building
blocks that, when accomplished, contribute to the fulfillment of the organization's goals. Both goals
and objectives are crucial for effective planning and guiding an organization towards success.

Values and Value System

Values. These are inherent roots of motivation within an individual or organization. Values are
the core beliefs and principles that guide and influence an individual's or an organization's
behavior, decisions, and actions. They are deeply held convictions about what is important and
desirable. Values are essential for shaping the culture and character of a person or an
organization, as they define what is right, ethical, and worthwhile.

Value System. A value system is the collection of individual or organizational values that form a
cohesive and integrated framework. It represents the hierarchy and arrangement of values, with
some considered more important or fundamental than others. A value system provides a
consistent set of guiding principles and ethical standards and encompasses both attitudinal and
behavioral.

Organizational Climate and Culture

Organizational culture represents the shared values, beliefs, norms, and behaviors that define the
character and identity of an organization. It is the collective personality of the organization and is
deeply ingrained in its practices, traditions, and approaches to work. Organizational culture shapes

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INSTRUCTIONAL MODULE
IM No.:CBM2-1STSEM-2023-2024

how employees perceive their roles, how decisions are made, and how the organization interacts with
its stakeholders.

Key aspects of organizational culture:

Shared Values: Culture is built on shared values that guide decision-making and actions across
the organization.

Long-lasting: Organizational culture tends to be stable and enduring, shaping the organization's
identity over time.

Visible and Invisible: Culture is manifested in both visible elements (e.g., symbols, rituals,
dress code) and invisible elements (e.g., underlying assumptions, unwritten rules).

Impact on Behavior: Culture influences employees' behaviors, attitudes, and alignment with the
organization's goals.

Alignment with Strategy: A strong culture often aligns with the organization's strategic
objectives, providing a foundation for achieving them.

Resistant to Change: Organizational culture can be resistant to change, making it challenging

to transform if needed.

Competitive Advantage: A positive and strong culture can be a source of competitive

advantage and contribute to organizational success.

Relationship between Climate and Culture:

Organizational climate and culture are closely related and often interdependent. Organizational culture
sets the foundation for the climate, influencing the overall work environment. The climate, in turn,
reflects how the culture is experienced and perceived by employees. A positive and strong culture
tends to foster a positive climate, where employees feel motivated, engaged, and supported.
Conversely, a negative or dysfunctional culture can lead to a negative climate with low morale,
reduced productivity, and higher turnover.

In summary, organizational climate and culture are critical aspects of an organization's identity and
influence how employees experience and perceive their workplace. While climate is the prevailing
psychological environment shaped by various factors, culture represents the shared values, beliefs,
and practices that define the organization's character and guide its behavior. Both climate and culture
have a significant impact on employee well-being, job satisfaction, and overall organizational
performance.

Lesson 2: The External Environment

Environmental Scanning

The importance of environmental scanning lies in its ability to help organizations anticipate changes
and adapt to the ever-changing business landscape. By being proactive and well-informed about
external factors, organizations can make informed decisions, identify strategic opportunities, and
effectively manage potential risks. It enhances the organization's ability to stay competitive,
responsive, and relevant in its industry or market.
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INSTRUCTIONAL MODULE
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Environmental Scanning is the study and interpretation of the external and internal forces. External
forces include social, economic, political, technological and environmental forces that may influence
an organization or an industry. The competitive environment encompasses competitors, suppliers,
customers, stakeholders, culture, and the government. Thus, stated differently, environmental
scanning is the careful observation and monitoring of the activities affecting directly or indirectly the
operations of an organization. Strategic information must be gathered properly to assist the
organization in strategizing for its operation. Information may either be primary or secondary. Primary
data are gathered through personal experience, observation and experimentation while secondary
data are collected from reports, and other published materials.

Modes of Environmental Scanning

Environmental scanning can be conducted using various modes and methods to gather information
about the external environment. Different organizations may employ different techniques based on
their resources, industry, and specific needs. Some common modes of environmental scanning
include:

1. Research Reports and Publications: Organizations can access research reports, industry
publications, and market studies from reputable sources to gain insights into market trends,
customer preferences, and industry developments.

2. Surveys and Questionnaires: Surveys and questionnaires can be conducted to gather data
from customers, suppliers, employees, and other stakeholders. These tools help in
understanding perceptions, preferences, and feedback about the organization and its
products/services.

3. Competitor Analysis: Organizations monitor their competitors' activities, strategies, strengths,

and weaknesses. This can be done through studying their websites, press releases, financial
reports, and conducting competitor benchmarking.

4. Social Media and Online Monitoring: Social media platforms and online forums are valuable
sources for tracking customer sentiments, industry trends, and public opinions about the
organization and its offerings.

5. Networking and Industry Events: Attending conferences, industry events, and networking with
peers and experts provides opportunities to learn about emerging trends, innovations, and
challenges in the industry.

6. Government and Regulatory Sources: Monitoring government policies, regulations, and

changes in laws can help organizations anticipate potential impacts on their operations and
compliance requirements.

7. Technology Scanning: Keeping abreast of technological advancements and innovations can

help organizations identify opportunities to enhance their products, processes, and services.

8. Economic Data and Market Research: Utilizing economic indicators and market research data
can provide valuable insights into the overall economic health of the region and specific industry
trends.

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9. Scenario Planning: Scenario planning involves developing hypothetical scenarios based on

different future situations, which can help organizations prepare for various outcomes and
uncertainties.

10. Expert Consultations: Seeking advice and insights from industry experts, consultants, or
advisors can provide valuable perspectives on the industry landscape and potential
opportunities.

11. Partnerships and Alliances: Collaborating with strategic partners and industry associations
can facilitate information exchange and provide access to valuable market intelligence.

12. External Consultants and Agencies: Engaging external market research firms or consultants
can provide in-depth analysis and specialized expertise in environmental scanning.

It's important for organizations to use a combination of these modes to conduct a comprehensive
environmental scanning process. This ensures that they have a holistic understanding of the external
environment, enabling them to make informed decisions and stay competitive in their industry or
market.

The SWOT Matrix Analysis

A SWOT analysis is a strategic planning tool that helps organizations assess their internal strengths
and weaknesses along with external opportunities and threats. It is represented in a matrix format,
commonly known as the SWOT matrix or SWOT chart. Below is an example of SWOT matrix:

**Coffee Industry

Here's a brief explanation of each quadrant:

1. Strengths (Internal): This quadrant lists the internal factors that represent the organization's
strengths. These are the positive attributes and resources that the organization possesses,
giving it a competitive advantage over others.

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2. Weaknesses (Internal): In this quadrant, you list the internal factors that represent the
organization's weaknesses. These are the areas where the organization lacks certain skills,
resources, or capabilities compared to its competitors.

4. Opportunities (External): This quadrant lists the external factors that represent potential
opportunities for the organization. These are favorable conditions in the external environment
that the organization can capitalize on to achieve its objectives.

5. Threats (External): In this quadrant, you list the external factors that represent potential
threats to the organization. These are unfavorable conditions or challenges in the external
environment that could hinder the organization's progress or success.

To conduct a SWOT analysis, the organization identifies and evaluates various factors related to each
quadrant. The analysis helps the organization understand its current position, make informed
decisions, and develop strategies that leverage its strengths, address its weaknesses, capitalize on
opportunities, and mitigate threats.

It is important to note that a SWOT analysis is just the starting point of the strategic planning process.
After conducting the analysis, organizations need to use the insights gained to develop action plans
and strategies that align with their goals and objectives.

TOWS Matrix

The TOWS matrix is an extension of the SWOT analysis that helps organizations develop strategic
insights and formulate appropriate strategies. It uses the information from the SWOT analysis to
identify strategic options by combining internal strengths and weaknesses with external opportunities
and threats. The name "TOWS" is derived by flipping the SWOT acronym, emphasizing the strategic
thinking process.

To create a TOWS matrix, you take the four quadrants from the SWOT analysis and use them to
generate strategies. Here's how the TOWS matrix works:

1. SO Strategies (Strengths-Opportunities): In this quadrant, you identify strategies that leverage

the organization's internal strengths to capitalize on external opportunities. These strategies aim
to use the organization's strengths to take advantage of favorable conditions in the external
environment.

2. WO Strategies (Weaknesses-Opportunities): This quadrant focuses on strategies that address

the organization's weaknesses while taking advantage of external opportunities. These
strategies aim to overcome internal weaknesses by capitalizing on favorable external conditions.

3. ST Strategies (Strengths-Threats): In this quadrant, you identify strategies that use the
organization's internal strengths to mitigate or counter external threats. These strategies aim to
defend the organization against potential threats by leveraging its strengths.

4. WT Strategies (Weaknesses-Threats): This quadrant focuses on strategies that address the

organization's weaknesses and mitigate external threats. These strategies aim to minimize the
impact of external threats by addressing internal weaknesses.

Here's a visual representation of the TOWS matrix:

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To create the TOWS matrix, you take the key elements from the SWOT analysis and combine them to
generate potential strategic options. Each quadrant of the TOWS matrix represents a set of strategic
directions that the organization can consider when formulating its overall strategy.

The TOWS matrix helps organizations think more systematically and strategically about how to use
their internal strengths to address weaknesses and external opportunities and threats. It provides a
structured framework for developing actionable strategies that align with the organization's objectives
and improve its competitive position in the market or industry.

The External Environment

External environment of an entity presents varying forces that influence organizational direction and
strategic decision making. These forces are social, political, technological, economic, environmental
and legal in perspective. The confluence of these factors can provide threats and challenges to the
organization or can provide valuable opportunities. The Analysis of the external environment is called
PEST(Political, Economic, Social, and Technological) analysis.

External Forces:
1. Social Forces. Social forces refer to the various factors and influences that shape society
and impact individuals' behaviors, attitudes, and interactions. These forces are constantly at
play and can have a significant impact on various aspects of society, including culture,
norms, values, beliefs, and social structures. Understanding social forces is essential for
businesses, policymakers, and individuals to make informed decisions and adapt to the
changing social landscape.
2. Political Forces. Political forces refer to the factors and influences arising from the political
environment that can impact organizations, industries, and societies. The political
environment includes the actions, decisions, and policies of governments, political
institutions, and political leaders at local, national, and international levels. Political forces
have a significant impact on businesses, economies, and the overall social and legal
framework within which organizations operate.
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Political forces are highly dynamic and subject to change due to elections, shifts in public
opinion, geopolitical events, and other factors. Organizations must be vigilant about monitoring
and understanding political developments to adapt their strategies and operations accordingly.
Engaging in responsible citizenship and constructive dialogue with governments can help
organizations navigate the complex political environment and contribute positively to society.

Some key aspects of political forces include:

a. Government Policies and Regulations: Governments create and implement policies and
regulations that can affect various industries and sectors. These policies can relate to
taxation, trade, environmental standards, labor laws, intellectual property rights, and
more.

b. Political Stability and Instability: The stability or instability of a country's political system
can influence investor confidence, economic growth, and business operations. Political
instability, such as changes in leadership or civil unrest, can lead to uncertainty and
disruptions.

c. Political Ideologies: Different political ideologies, such as conservatism, liberalism,

socialism, or nationalism, can influence government priorities and decisions, impacting
businesses and industries differently.

d. Trade Agreements and Tariffs: International political forces, such as trade agreements
or tariffs imposed by governments, can affect global trade and supply chains.

e. Government Spending and Budgets: Government spending priorities can influence

demand for specific goods and services, particularly in sectors heavily dependent on
government contracts and funding.

f. Political Lobbying and Advocacy: Organizations often engage in political lobbying and
advocacy to influence government policies and decisions that are favorable to their
interests.

g. Political Risk: Political forces introduce political risk, which is the likelihood of
government actions, events, or political conditions affecting an organization's
operations and profitability.

h. Foreign Relations: The political relationships between countries can impact trade,
investments, and diplomatic ties.

i. Regulatory Compliance: Organizations need to comply with the laws and regulations
set forth by the government, failure to do so may lead to penalties or legal actions.

3. Economic Force. Economic forces refer to the factors and conditions related to the economy
that influence business operations, financial markets, and overall economic activities. These
forces have a significant impact on organizations, industries, consumers, and governments.
Understanding economic forces is crucial for making informed business decisions, predicting
market trends, and formulating effective economic policies.

Some key economic forces include:

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a. Economic Growth and Recession: The overall economic growth or contraction of a

country's economy affects consumer spending, business investments, and employment
levels.

b. Interest Rates: Central banks set interest rates, which impact borrowing costs,
consumer spending, and investment decisions.

c. Inflation and Deflation: The rate of inflation (rising prices) and deflation (falling prices)
influences purchasing power, consumer behavior, and business profitability.

d. Unemployment Rates: The level of unemployment in an economy affects consumer

confidence, demand for goods and services, and social stability.

e. Exchange Rates: Fluctuations in exchange rates impact international trade, exports,

imports, and the competitiveness of businesses in global markets.

f. Fiscal Policy: Government decisions on taxes and government spending impact the
overall demand and supply in the economy.

g. Monetary Policy: Central banks' actions, such as money supply adjustments and open
market operations, influence interest rates and liquidity in the financial system.

h. Consumer Confidence: The level of consumer confidence in the economy affects

consumer spending, which is a major driver of economic growth.

i. Business Investment: Business investment decisions influence economic growth, job

creation, and overall productivity.

j. Global Economic Conditions: Economic forces in other countries can have spillover
effects on global trade, investments, and financial markets.

k. Technological Advancements: Technological innovations can disrupt industries, create

new opportunities, and impact productivity and economic growth.

l. Government Budgets: Government spending and taxation policies affect economic

activities and the allocation of resources.

Political forces are highly dynamic and subject to change due to elections, shifts in public
opinion, geopolitical events, and other factors. Organizations must be vigilant about monitoring
and understanding political developments to adapt their strategies and operations accordingly.
Engaging in responsible citizenship and constructive dialogue with governments can help
organizations navigate the complex political environment and contribute positively to society.

4. Technological Force. Technological forces refer to the factors and advancements related to
technology that impact industries, businesses, and societies. Technological forces play a
pivotal role in shaping the way we live, work, communicate, and conduct business. The rapid
pace of technological innovation and adoption has significant implications for organizations'
competitiveness, productivity, and overall success.

Key aspects of technological forces include:

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a. Technological Advancements: Breakthroughs in technology, such as artificial intelligence,

automation, biotechnology, and renewable energy, can revolutionize industries and
create new business opportunities.

b. Digital Transformation: The widespread adoption of digital technologies, cloud

computing, data analytics, and the Internet of Things (IoT) is transforming business
processes, customer experiences, and organizational structures.

c. Disruptive Innovation: Disruptive technologies can overturn traditional business models

and reshape entire industries, leading to the rise of new market leaders.

d. Research and Development: Investment in research and development (R&D) leads to the
creation of new products, services, and technologies, driving economic growth and
competitiveness.

e. E-commerce and Online Markets: The growth of e-commerce platforms and online
marketplaces has revolutionized retail, enabling businesses to reach global markets and
consumers.

f. Connectivity and Communication: Advancements in telecommunications and networking

have facilitated real-time communication and collaboration across borders.

g. Automation and Artificial Intelligence: Automation and AI technologies are reshaping

workflows, increasing efficiency, and influencing the nature of work.

h. Data Privacy and Cybersecurity: The rise of technology also brings concerns about data
privacy, cybersecurity threats, and the need for robust security measures.

i. Mobile Technology: Mobile devices and applications have transformed how consumers
interact with businesses, opening new channels for marketing and customer
engagement.

j. Sustainability and Green Technologies: The development of green technologies

addresses environmental concerns and provides sustainable solutions for businesses
and societies.

Organizations need to keep pace with technological forces to remain competitive and relevant
in their industries. Embracing digital transformation, investing in R&D, and staying informed
about emerging technologies are critical for success. Technological forces also influence
government policies, regulations, and international trade, making technology an integral aspect
of the global economic landscape.

Lesson 3. The Internal Environment

Internal Environment is the setting in which an organization exists locally. It also refers to the
elements and factors that exist within the organization itself and have a direct impact on its operations,
performance, and culture. It comprises the organization's resources, capabilities, structure, and
culture, all of which play a crucial role in shaping the organization's overall effectiveness and
competitiveness.

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Understanding the internal environment is essential for organizations to identify their strengths,
weaknesses, opportunities, and challenges. Conducting an internal analysis helps organizations
leverage their strengths, address weaknesses, and align their strategies with their capabilities and
resources. It also enables them to foster a positive and productive organizational culture that supports
the achievement of business objectives.

Key components of the internal environment include:

a. Organizational Structure: The organizational structure defines the hierarchy, roles, and
relationships within the organization. It determines how authority, responsibility, and decision-
making are distributed.

b. Organizational Culture: Organizational culture represents the shared values, beliefs, norms,
and behaviors that shape the organization's character and identity. It influences how
employees think, behave, and interact with each other and with external stakeholders.

c. Resources: Internal resources encompass the tangible and intangible assets that the
organization possesses, such as financial capital, human capital (employees' skills and
knowledge), physical assets, and intellectual property.

d. Capabilities: Capabilities refer to the organization's capacity to perform specific activities and
achieve desired outcomes. They include the skills, competencies, and processes that give the
organization a competitive advantage.

e. Leadership: Effective leadership at all levels of the organization is essential for setting
direction, motivating employees, and ensuring the successful implementation of strategies.

f. Employees: The workforce, their skills, and their level of engagement significantly impact the
organization's performance and success.

g. Policies and Procedures: The internal policies and procedures set by the organization govern
how various activities are conducted, ensuring consistency and compliance.

h. Corporate Governance: The framework of governance and decision-making mechanisms

within the organization determines how it is managed and overseen.

i. Company Values and Vision: The organization's core values and vision guide its decision-
making, actions, and long-term direction.

j. Financial Performance: The organization's financial health and performance, including

revenues, expenses, profitability, and liquidity, are critical indicators of its internal environment.

k. Innovation and R&D: The organization's commitment to innovation and research and
development impacts its ability to adapt, create new products/services, and stay competitive.

There are also areas that affect the company externally in its business activities. These are the
following:

1. The Government-oversees and regulate all business activities of entities in a country. It

provides the needed infrastructure, formulate policies applicable to all business players and
creates an atmosphere of fair and robust competition.
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2. Stakeholders/Business Investors- willing to take the risk, invest their capital in an entity in
exchange for profit. These actors boost the economic activity, provide employment to the
community and help government by paying taxes.
3. Competitors (Business Threats)- continuously strive for a larger market share. They usually
fall in different categories:
 Same Products. These are companies that sell exactly the same product or services.
Ex. Uniliver and Procter and Gamble
 Similar Products. Companies that sell similar products. Tea and coffee are similar
products.
 Substitute Product.
 Different Products

Competitors also differ with respect to the strategies they adopt.

1. Complementary Competition. Produce same products, use different brand names and target
different market.
2. Collaborative Competition. Companies that are strategic and cooperative. Ex. Oil companies
3. Corrupted Competition. Producing fake products to compete with legitimate companies by
selling the product at low cost.

How do companies know their competitors?

1. Determining Similarity in Characteristics. Identify similarity in the products and service

including the technologies applied and strategies employed.
2. Studying Consumer. Studying consumer in terms of demographic profile.
3. Researching company data. Can be identified through company data in terms of
capitalization, number of customers, distribution outlet, employees, financial strength, number
of years in operation and company growth.
4. Considering company success. The degree of success of other companies.

4. Customers. Customers are at the heart of any business, and understanding their needs,
preferences, and behavior is crucial for an organization's success. By understanding the role of
customers in the external environment, organizations can align their strategies, products, and
services with customer needs and market demands.

Consumer behavior is a marketing reality that is difficult to discern, understand and study with
definiteness. The figure below presents the facts on customer approval, customer patronage
and customer loyalty that can help in improving the company’s operations.

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5. Suppliers. Individuals and companies engaged in the delivery of raw materials, machinery,
technology, labor, expertise, skills and other forms of service. They are important because of
the following reasons:
a. Responsible for the quality of the product produced and the service rendered.
b. It affects continuity in operational process.

6. Community. Intermixture of people coming from all walks of life with different values,
aspirations, traditional beliefs, and standard of living.

Recognizing the importance of the community in the external environment, organizations often
engage in community outreach, conduct impact assessments, and collaborate with local
stakeholders to ensure sustainable and responsible business practices. By being attuned to
the needs and interests of the community, organizations can build stronger relationships,
promote a positive brand image, and contribute to the overall well-being of the society they
serve.

Porter’s Five Forces Model

When crafting a strategy, it is an advantage if you scan the entity’s competitive environment. The
competitive environment is described/ illustrated by Michael Porter’s five forces model of industry. The
five forces that determine the intensity, profitability and attractiveness of an industry is demonstrated
below:

1. Bargaining Power of Customers is high when:

a. Customers by in large volumes
b. The entity’s products are not unique, such that they can be replaced or customers can
produced those products themselves.
c. Other suppliers to whom the customer can purchase products exist
d. Product switching is easy.

2. Bargaining power of Supplier is high when:

a. Few large suppliers dominate the market where they form a powerful oligopolistic bloc.
b. There are no substitute for the specified input
c. Switching costs from one supplier to another is high.
d. Suppliers’ customers are not united but fragmented.

3. Factors that heighten barriers to threats of new entrants are:

a. Financial in nature: high initial investments, fixed costs
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b. Marketing advantages that include brand loyalty of customers-controlled distribution channels,

protected intellectual property on products and services, and good supplier-customer
relationships.
c. Limited access to raw materials and scarcity and costs of qualified labor.

 When an entity wants to reduce the threats of new entrants and acquire a market share in the
industry, the entity can produce a better product, increase their efficiency, create and promote
brand image, enhance relationships with suppliers and distributors and pursue aggressive
marketing strategy.

4. Threats of substitute products are present when complementary, alternative and similar product are
in existence and sold at lower prices. Therefore, to lessen this threat, enhance brand loyalty of
customers and increase switching costs.

5. Competitive rivalry among players is high when:

a. There are many players with similar strategies;
b. Rivalry is not differentiated;
c. The barriers for exit are high
d. The growth of the company is at the expense of the other.

 To deal with this situation, products and services can be differentiated and price competition
can be avoided. Collaboration among competitors can be promoted while different segments
can be focused.

Further, Porter enumerated three fundamental generic strategies:

1. Cost leadership, which can be achieved by exploiting economies of scale;
2. optimizing the learning curve
3. stressing on the operational excellence.

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VI. LEARNING ACTIVITIES

VII. ASSIGNMENT

VIII. EVALUATION

IX. REFERENCES

e-RESOURCES

Chappelow, Jim. “Pareto Efficiency”, Investopedia, 25 September 2019,

www.investopedia.com/terms/p/pareto-efficiency.asp

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