CHAPTER 1

UNDERSTANDING STRATEGIC MANAGEMENT The External Environment

 External environment has three layers; physical or natural
Nature of Strategic Management environment, general or societal environment, and the
1. Strategic Management - capstone course of all industry or task environment.
management and business subjects. Gives preferential
attention to planning. Evaluates the forces from both External Environment Analysis Process
internal and external environments.Recognizes universally  An external environment analysis follows a systematic
accepted principles of other management and business process. It involves three major processes as follows:
courses. Defines and directs the achievement of short & a. Environmental Scanning
long term company goals and objectives. b. Environmental Monitoring
2. Top-level management - sets and defines the overall c. Competitive Intelligence
direction of company.
3. Middle and lower level managers - define their plans and 1. Environmental Scanning - is the critical surveillance and
directions according to the overall direction of the top evaluation of events happening in the external environment
level management. that may influence the current position and future plans of a
4. Business Policy - forerunner of strategic management. company. STEEP or PESTEL
Refers to the process of defining the long-term goals of a 2. Environmental Monitoring - process of tracking the
company as determined by the members of the top-level environmental trends or sequence of events determined during
management. Considers the forces comprising the an environmental scanning. Trend analysis
internal environment. 3. Competitive Intelligence - a systematic process of collecting,
 Planning starts and ends at the top level. analyzing, and interpreting information about business
competitors. Intended to monitor the probable moves of
Definition of Strategic Management competitors. Five forces of competition model.

1. Strategic Management - (Wheelen & Hunger) Determines CHAPTER 3

the long-run performance of a company. Includes THE SOCIETAL ENVIRONMENT ANALYSIS
environmental scanning, strategy formulation, strategy
implementation, and evaluation and control. The Societal Environment
 David (2013) the art and science of formulating, 1. The Political or Legal Segment - Political systems, tax laws,
implementing and evaluating cross-functional decisions government programs and priorities under the political or legal
that enable a company to achieve its objectives. segment directly affect a business or the industry where it
 Operationally refers to a management’s continuous operates.
rational process of defining long term direction of a 2. The Economic Segment - Th growth or recession of the
company. economy, which is manifested by key economic indicates such
as interest rates, inflation rates, and unemployment levels,
Stages of Strategic Management affect all types of business.
1. Strategy Formulation - refers to the development of long- 3. The Sociocultural Segment - refers to the customs,
term goals and objectives of a company after conducting a traditions, values, beliefs, and lifestyles in a society for a period
thorough analysis of the various forces comprising its of time.
environment. 4. The Technological Segment - The accelerates pace of
2. Strategy Implementation - wherein different strategic plans changes and advancements in technology and communication
are put into action and are aligned with defines business has tremendously affected almost all types of business across
programs, procedures, and budgets. Covers the structuring of industries. This segment can make product obsolete overnight
organizational programs, assignment of monetary values. and, at the same time, provide opportunities for creating new
3. Strategy evaluation and control - wherein the operating products in a short period of time.
performance of a company is monitored and evaluated, 5. Other Segments - demographic and global segments
remedial action is made. 6. Demographic Segment - refers to the observable
characteristics of a population including age distribution,
Evolutionary Phases of Strategic Management sex,race, ethnicity, religion, and income.
1. Short-term financial planning phase - Top-level managers 7. Global Segment - variables included in this segment are the
simply require different departments and functional areas to global trade liberalization, trade agreements among regional
prepare budgets and targets based on info. generated within blocks.
the company. Simple one year period
2. Medium-term planning phase - the top-level management  Most commonly used strategic management tool to
merely extends the time period of the planning process from conduct a societal environment analysis is the STEEP or
one year to five years. Info and data used are still coming from PESTEL analysis.
within the company.
3. Strategic planning phase - planning process is done by the CHAPTER 4
top-level management who prepare strategic plans with little THE INDUSTRY ENVIRONMENT ANALYSIS
participation and inputs from the lower levels.
4. Strategic management phase - Various inputs and The Industry Environment
participation from different levels of management, units, and 1. Industry environment - the immediate external environment
departments should be considered. Planning has to be of a company. It is the environment where a company
decentralized. operates, which has an immediate effect on its operation, and
where it interacts and faces its direct competitors. Sometimes
Strategic Management Model referred to as the competitive environment of a company. To
1. Strategy Analysis - known as environmental scanning, determine the level of competition and the forces that drive
involves the gathering of relevant and reliable information and competition in the industry for a business to position itself
a thorough evaluation of the different forces comprising the accordingly.
external and internal environments of a company. 2. Customers - are the buyers of goods or services produced or
rendered by a company.
3. Suppliers - refer to persons or companies that provide the
required materials, parts, or services to a business. Play a
CHAPTER 2 crucial role in production of goods and services.
THE PHYSICAL ENVIRONMENT ANALYSIS
4. Creditors - refer to banks, financial institutions, and financial
intermediaries engaged in lending money to a borrower,
usually for a fee in the form of interest.
5. Employees - are the workers of a company who are highly
responsible for the production of goods or delivery of services
to the consumers. Help ensure the quality and quantity of
products. The are the backbone of a business.
6. Government - refers to the system or institution that
handles the affairs of a particular country.
7. Competitors - are forces existing in the industry environment
that produce, sell, or render products or services which are
similar to those of a company.

Conducting an Industry Environment Analysis

 SWOT Model

Define the Industry and the Boundaries of a Company

Five stages in the evolution of an industry.

1. Embryonic or New Industry - slow growth, high prices,
innovative efforts and poor distribution channels.
2. Growth Industry - characterized by growing customer
demand, falling prices because of the economies of scale, new
competitors entering the market, developed infrastructure
facilities, and improved distribution channels.
3. Shakeout Industry - once the demand and growth begin to
slow down, industry moves to shakeout. Where competition is
intense, companies have excess production, and prices are cut
down to attract customers.
4. Mature Industry - characterized by saturated market, slow
growth, and limited demand. Companies at this stage
consolidate to reduce intense rivalry.
5. Decline Industry - mainly negative growth.

Identify Competitors and evaluate the Competitive Forces

1. Rivalry among Competing Companies - This force is the
strongest among competitive forces.
2. Threat of New Entrants - refer to the new competitors
joining an industry. They will bring new products, services to an
industry that can erode profits of established companies.
3. Bargaining Power of Buyers - A buyer has a strong and
magnified bargaining power in an industry.
4. Threats of Substitute Products - a substitute product pose
great threats in an industry environment.
5. Bargaining Power of Suppliers - The intensity of the threat of
the bargaining power of suppliers is strong if the product is
unique, switching cost is very high.

Evaluate the Pattern and Impact of Competition

1. Cutthroat Rivalry - is an unhealthy competition in which the
closest competitors or rivals engage in long price wars.
2. Fierce or Strong Rivalry - competitors are strongly battling
for a higher market share, but they do not adopt destructive
tactics.
3. Moderate or Normal Rivalry - industry members earn
acceptable profit levels while engaging in a healthy and lively
competition.
4. Weak Rivalry - exists when most companies in an industry
are relatively well-satisfied with their sales growth and market
shares.

CHAPTER 5
THE INTERNAL ENVIRONMENT ANALYSIS