Republic of the Philippines

NORTHERN ILOILO POLYTECHNIC STATE COLLEGE

Estancia, Iloilo

STRATEGIC MANAGEMENT

MODULE 2

CHALLENGES IN THE EXTERNAL ENVIRONMENT

INTRODUCTION

An organization exists to survive. Given their vision and mission statements and set
goals and objectives, it is for organization to conduct themselves clearly, deliberately, and
strategically. To achieve this, organization should develop organizational intelligence which
serves as a valuable guide to its journey to becoming competitive. Thus organizations need
to possess this capability to be able to accurately audit the environment and come up with
creative and cutting edge strategies.

Learning Outcomes:

At the end of this module, the students should be able to:

1. Perform environmental scanning

2. Employ SWOT analysis using a company
3. Analyze and evaluate the social, political, economic, technological and
environmental forces affecting the country.
4. Identify external forces that may prove beneficial or detrimental to an organization

DISCUSSION:

Scanning the Environment

Environmental scanning – is the study and interpretation of the forces existing in the
internal and external environment. External environment includes social, economic,
political, technological and environment forces that may influence an organization, an
industry, or any entity. The competitive environment covers competitors, suppliers,
customers, stakeholders, culture and the government. Environmental scanning is carefully
monitoring the surroundings with the end goals of ascertaining early indications of
prospects and challenges that nay influence the organization’s present and future plans.
 Conducting environmental scanning maybe dependent on:
1. The speed of the organization
2. The presence and availability of complete information
3. The physical and financial capability to do so.

SOURCES OF STRATEGIC INFORMATION

Strategic information consists of the facts and data used by organizations to assist
them in achieving their vision, mission and goals. It can be drawn from both external and
competitive environments. Both external and internal environments symbiotically interplay
and directly or indirectly affect organizations. Information is either primary or secondary.
Primary data are gathered through personal experience, observation and experimentation
while Secondary information are data collected from reports, internet sources and other
published materials.

MODES OF ENVIRONMENTAL SCANNING

Two process of scanning the environment:

1. Looking at or simply viewing information
2. Looking for or searching for information

Four Ways of Environmental Scanning:

1. Indirect viewing – the individual is exposed to information with no specific information

with no specific informational need in mind
2. Conditional Viewing – the individual directs viewing of information to specified facts and
data to be able to assess their general impact on the organization
3. Informal Search – the individual actively looks for information to increase knowledge of a
particular issue. It essentially involves a relatively unstructured effort where the
objective in to gather information to expound on the issue, thus determining
whether a strategic move is needed by the organization.
4. Formal Search – The effort exerted by the individual is deliberate and planned. The
search is both focused and planned. The search is both focused and structured and
the research methodology is clearly enumerated and followed.

In summary, entities possess organizational intelligence, this mode of thinking direct

them to scan the environment. The importance of conducting environmental scanning
cannot be over emphasized as knowledge of the business landscape is needed to implement
one’s strategies. There are different modes of scanning the environment and there are
likewise different approaches to benefit from it. These searches will depend on the needs of
the organization.
 The SWOT Matrix Analysis

The SWOT matrix is a structured assessment tool used to evaluate an organization,

industry, a place or even a person in terms of set parameters like strengths, weaknesses,
opportunities and threats.
The SWOT matrix classifies strengths and weaknesses as internal dynamics
characterizing an organization and threats and opportunities as external influences to the
organization. Specifically:

 Strengths are features that organizations possess, thus giving it significant advantage
over others.
 Weaknesses are characteristics that place organizations at a disadvantage relative to
others and may just be limitations or vulnerabilities of organizations
 Opportunities are possibilities in the external environment that organizations can
exploit to their advantage
 Threats are challenges in the external environment that can cause problems to
organizations.

THE EXTERNAL ENVIRONMENT

This fundamental paradigm conspicuously characterizes the global scenario. Nations
possess different levels of growth and development. Specifically, the external environment
presents varying forces that influence organizational direction and strategic decision
making. These forces are social, political, technological, economics, environmental and legal
in perspective. The confluence of these forces can present themselves as threats and
challenges to organizations. On the other hand, they could provide valuable opportunities.
The analysis of the external environment is referred as PEST (political, economic, social and
technological) analysis.

 SOCIAL FORCES: * Changing social structures

* Aging population / Demand for health services
* Sophisticated lifestyles of the people
* Cross – cultural Diversity

Social forces refer to important issues that are characteristics of global and local
societies. It consists of individuals, families and communities, including their beliefs,
aspirations, traditions and practices. Significant societal factors on the environment create
varying impacts on organizations. Most critical social concerns today are changing social
structures, the world’s aging population, the great demand for health services, the evolving
sophistication in the lifestyles of people, and the cross-cultural implications of mobility of
people including migration.
  CHANGING SOCIAL STRUCTURES
The social environment can be better understood and analyzed in terms of broad
social structures.
Social structures refer to the network of social institutions that includes the family
and the community. The family is one of the basic institutions of a social organization. It
performs various functions that include human reproduction, raising-up children and
sending them to schools to ensure a better life in the future. When bound together,
families form communities.

 AGING POPULATION / DEMAND FOR HEALTH SERVICE

Those are more maturing and aging individuals today. Like an inverted triangle, the
baby boomers are greater in number. Baby Boomers are individuals born in the 1940’s.
Today, they are precisely the people who need more medicine and health services.
This reality has fundamental social implications like the need to provide elderly people with
adequate medical care and community service.

 SOPHISTICATED LIFESTYLE OF PEOPLE

The lifestyles of people today have dramatically changed compared before. Their
way of looking at themselves, the people around them, their lives and careers, their values,
attitudes, philosophies and expectations have taken a deeper and wider perspective. They
are more demanding, complicated, varied and unique, priorities as well as their wants are
continuously changing. Whereas earlier generations were content with having a simple
abode to stay safe, today the new generation of people wants to own houses and live
extravagantly.

 CROSS-CULTURE DIVERSITY
Similarly, the global community is getting figuratively smaller. Workplaces are
shifting and people in the global community are either working or migrating to every part of
the world. As a result, cross-cultural diversity has become an important organizational
issue; culture being a basic component of the global environment.

 POLITICAL FORCES: * Political Independence / changing government

* Terrorism / Suicide Bombings
* Chemical and Nuclear Threats
* Global Alliances

 Political Independence / Changing governments

Nations today are undergoing changes in government, from communism to socialism
to capitalism and from dictatorship to democracy.
Some colonized territories in the world are waging their own wars to attain
independence, people are killed, families are displaced and properties are destroyed, these
affect the very core of humanity.
  Terrorism / Suicide Bombings
The bloody and painful transition toward equality of basic human rights and the right
to a better life have brought about critical security problems like terrorism, kidnappings,
suicide bombings and hijackings.

 Chemical and Nuclear Threats

Some countries go on developing and producing weapons with the intention of black
mailing and/or intimidating other countries. The spread of deadly chemicals, viruses, and
other forms of microorganism pose dangerous effect.

 Global Alliance
Politically, nations are aligning themselves for self-preservations and more so far
global stability and strength. Today, no nation attempts to stand alone because global
relationships are essential to national survival.

 ECONOMIC FORCES * Globalization

* Competitors and Suppliers
* Fall of financially stable Organizations
* Increasing oil prices
* Economic Trade Agreements
* Emerging Markets
* Rise of China

Economic issues greatly affect the growth and development of a nation that are
strategizing to maintain a continuum of financial stability. Trade and investments are often
transacted to ensure monetary security.

 Globalization
One major determinant of competition. It can be viewed from four perspectives:
Products, People, Ideas, and Money.
Multifaceted, multilayered and multidimensional products and services in the
market are challenging firms to devise ways to meet these developments. Products like
computers, appliances, clothes, bags, shoes and medicines are manufactured in one country
and sold in other countries.

 Competitors and Suppliers

Aggressive competitors and creative suppliers compete to get a larger slice of the
market, both energizing the industry and business environments, pricing, quality
differentiation and innovation are the usual criteria for business success with consumers
more likely patronizing less expensive nut quality products.
  Fall of Financially Stable Organizations
The downfall of the number of financially successful organizations managed by
respectable and competent presidents and chief executive officers.

 Increase Oil Prices

The never ending increases in oil prices have been creating economic instability in
global communities.

 Economic Trade Agreements

Economic trade agreements among nations have likewise become a vital bargaining
power in a country’s economy. Bilateral and multilateral economic treaties between and
among economic global partners provide trade priorities and privileges, allowing local
products to reach other markets.

 Emerging Markets
Closely interrelated to the political, social and economic growth and development of
a country is the emergence of different markets.

 Rise of China
One of the most potent economic markets in the world today, both a supplier as
seen as well as a bog market. It is a market for other countries’ products and services.

 Technological Forces * Communication Technologies

* Computer-integrated Business
* E-Banking
* E-Learning
* Digital Medicine
* E-Security

 Communication Technology
Saw the proliferation of mobile phones, messages, usefulness of CCTV cameras for
surveillance and simple monitoring, and benefits of video conferencing, among others. The
Impact of these changes in the area of communication technology cannot be
overemphasized.

 Computer Integrated Business

Today, enterprise resource planning (ERP) integrates business operations in
marketing, accounting, production, operations and management. Computer-aided
manufacturing makes production more efficient, computer-aided design results in concise
outputs while telecommunication technology makes physical distance immaterial.
  E – BANKING
Banking transactions like deposits, withdrawals and payments can be done online
nowadays. Intra banking operations are more efficient while international banking
transactions are operated with accuracy and expediency.

 E – LEARNING
One of the most recent developments in education is distance or online learning. It
is learning from home, the office, while on vacation, or from any place outside the four walls
of a classroom. E-learning has become a convenient way of pursuing formal education; high
school, vocational, tertiary, graduate, and doctoral levels.

 Digital Medicine
Another surprising and most welcome development in the field of medicine is the
use of technology. Scientist conduct stem cell researches from leftover human embryos
with the hope of curing illnesses like diabetes, Parkinson’s disease and spinal cord injuries.

 E – Security
Security is another vital global issue. The use of information technology is inevitable
in manufacturing missiles and other forms of ammunitions, coding military secrets,
safeguarding fortified installations, monitoring enemies, securing soldiers, and planning
counter attacks.

 ENVIRONMENTAL FORCES * Climate change / use of biodegradable materials

* Environmental Waste Management
* Preservation of Rainforest and Marine life

 Climate change / Use of biodegradable materials

The effect of environmental degradation, malpractices, neglect, and indifference are
critical and serious. The use of non-biodegradable materials emitting chlorofluorocarbon
continuously causes the widening and deepening of the hole in the ozone layer. As a result,
global warming has cause countries to experience extreme weather changes, that are from
heat strokes on one end to extreme rainstorms on the other end like extreme global climate
changes, storm surges, tsunamis, below zero degree climate weathers, earthquakes,
volcanic eruptions, droughts and forest fires.

 Environmental Waste Management

In many underdeveloped countries, noise, air, and water pollution levels are high.
Smog, fumes and contaminants, continue to cause increasing incidents of diseases, more
specifically those related to the lungs. Mismanaged disposal of toxic wastes results in the
occurrence of serious and infectious illnesses.

 Preservation of Rainforest and Marine Life

Rainforest are no exception. Continuous depletion and denudation of forests explain
why torrential rains are more destructive and intense nowadays and resulted in damage to
properties and danger to human lives.
Summary:

Organization exist to survive, in order to achieve its goals, vision and mission, there is
a need to develop an organizational intelligence, that serves as a guide in order to become
competitive and the study of environmental scanning is important as well that interprets on
the forces existing in the internal and external environment. External environment includes
social, economic, political, technological and other environmental forces that may influence
an organization.
The SWOT matrix is a structured assessment tool used to evaluate an organization
industry. It is a set of parameters like strengths, weaknesses, opportunities and threats that
determines how the organization stands, internally and externally in the environment.
The external environment presents varying forces that influence organizational
direction and strategic decision making, these forces are social, political, technological and
economic environmental that can present as threats and challenges to organization.

Assessments:
Discuss and explain the following questions:

1. What is the external environment? What are the forces inter-playing in the external
environment?

2. How do technological advances observed in the fields of communication, business,

banking, education, medicine and security contribute to the decision making of the
organization?

3. What is SWOT Matrix Analysis? Explain its relevance to the organization?

4. Why should organizations possess “organizational Intelligence”? Explain in your own

words

THE END

Prepared By:

PROF. JANET P. RAVENA