Module 1 Strama A Strategic Mngt Model PDF

6A STRATEGIC MANAGEMENT MODEL LEARNING OBJECTIVES After completing this module, you are expected to: i. define strategic management; ii. identify each of the components of the strategic management process and its corresponding outcome; iii. identify the strategic management model; iv. differentiate strategic analysis from strategic decision-making, and strategic intelligence from strategic thinking; v. explain the meaning of strategic planning; vi. formulate a sample company vision, mission statement, and company goals and objectives; and vii. compare organization climate and organizational culture. Module 1 A Strategic Management Model LEARNING ACTIVITIES Individual Activity ASSESSMENT/EVALUATION I. Synchronous Test with time limit. Long test link will be provided through our group chat. This is a synchronous test with a time limit. II. Asynchronous Learning See: Individual Activity Below ASSIGNMENT Individual Assignments: 1. Define organizational vision using an example. 2. Why is the mission statement important to an organization? 3. Are organizational goals and objectives similar? In what way/s are they different? 4. What values/value system do you want an organization to demonstrate? Explain your answer. Strategic Guides: 1. Study the biography of Howard Schultz, CEO of Starbucks. Include his childhood, if there is something significant, his interests, his educational attainment, professional and career orientation, and other facts that might have contributed o the success he is enjoying now. 2. Study the beginnings of Starbucks, the challenges it encountered through the years, and its journey toward success. 3. From the management, result-driven, practical, and inspirational strategies implemented by Schultz at Starbucks, which struck you as something worth imitating? Explain your answer. Strategic Management Defined Strategic management is a continuous process of strategy creation. It involves strategic processes like strategic analysis and decision-making, strategy formulation and implementation, and strategy control with the primary objectives of achieving and maintaining better alignment of corporate policies, priorities, and success. Strategic analysis consists of a systematic evaluation of variables currently existing in the external and internal environments while strategic decision-making is deliberately bringing together the right resources for the right markets at the right time. Strategy formulation is designing strategies on the business and corporate levels. Strategy implementation is employing these crafted strategies to achieve organizational set goals and objectives while strategic control is the application of an appropriate monitoring and feedback system. Defined as the science of creating, executing, and evaluating cross-functional decisions to enable an organization to achieve its goals and objectives, the components of the strategic management process have to be effective. As shown in Figure 1.1, output may materialize when each of the components of the strategic management process is appropriately executed. Strategic Analysis Strategic Intelligence Strategic Decision- Strategic Thinking Making Strategy Formulation Organizational Competitiveness Strategy Comparative Implementation Advantage Strategic Control Strategic Performance Figure 1.1 The Strategic Management Process If strategic analysis is accurately conducted, organizations can develop strategic intelligence. Like an antenna, strategic intelligence is the capability of an organization to possess relevant and related knowledge, abilities, foresight, and systems thinking, such that it is able to assess its own strengths and vulnerabilities, the pressing challenges confronting the organization, as well as the trends and opportunities existing in the environment. If strategic decision-making is correctly effected, organizations can acquire the capability of thinking strategically. Strategic thinking is the cognitive process of competently and analytically weighing factors and arriving at critical decisions in the context of the current milieu of which an organization is part. If strategy formulation is uniquely designed and effectively communicated, organizations have greater possibilities of attaining organizational competitiveness. Organizational competitiveness pertains to the ability of any business/company to utilize its resources optimally and sustainable for maximum performance and productivity. If strategy implementation is efficiently employed, organizations can achieve comparative advantage. Comparative advantage refers to the ability of an organization to produce a particular good or service at lower marginal and opportunity costs than its competitors. If strategic control is productively monitored, organizations can realize strategic performance. Strategic performance is the accomplishment of a high level of productivity that is characterized by efficiency in the context of lean and quantifiable management. Thus, the strategic management model is illustrated as follows: Strategic Management Organizational Success Organizational Input Process Strategic Management/Empl Strategic Analysis Intelligence oyee Strategic Strategic Thinking Financial Resources Decision-Making Organizational Facilities/Equipmen t Strategy Competitiveness Infrastructures Formulation Comparative Processes Strategy Advantage Implementation Strategic Strategic Control Performance Figure 1.2 A Strategic Management Model The strategic management model (Figure 1.2) shows the relationships between and among the input, process, and output. The input in this model includes organizational variables like management and employees, financial resources, facilities and equipment, infrastructures, and processes. The strategic management process consists strategic analysis, strategic decision-making, strategy formulation, strategy implementation, and strategic control. When these specific processes are executed and managed creatively, distinctly, and strategically, the organization can ultimately achieve organizational success. In particular, the output is exhibited in the strategic intelligence acquired, strategic thinking mode developed, organizational competitiveness, comparative advantage, and strategic performance attained by the organization. Strategic Planning Oftentimes, the word strategic planning is more popular than strategic management. Essentially, these two words are the same. In terms of purpose, both strategic management and strategic planning have the same goals and objectives, that is, to devise a strategic mode of preparing, addressing, and steering organizations to where they want to go. Particularly, both undertakings endeavor to understand the strategic position of organizations-their set goals, preferred choices, and deliberate and calculated strategies. Furthermore, both strategic management and strategic planning use the same processes to attain their goals. On the other hand, strategic management differs from strategic planning, in that the former is tackled in the context of an academic environment where it is approached and treated theoretically while the latter is the buzzword in the business world. Practitioners and organizations conduct strategic planning yearly or as often as they feel the need to do so. Secondly, strategic management generally presents all the possible strategic approaches and techniques that organizations can avail of. It is conducted with a view of the individuality and distinctiveness of the organization, its current condition, specific needs, and desired outcomes. In this way, we can say that strategic management is the springboard of strategic planning. Strategic management is a generic approach while strategic planning is a distinct and focused approach that is unique to the specific organization. Strategic planning is defined as a continuous, repetitive, and competitive process of setting the goals and objectives that an organization aims to attain, defining the means to achieve them, and assessing the best way to realize them in the context of the prevailing environment while measuring performance through set standards, and periodically but continuously conducting reassessments. Strategic planning exhibits the following properties: 1. It generates the blueprint of what the organization intends to accomplish. 2. The strategic plan presents the grand scheme of the organization and outlines all the set activities, ranging from the organizational to the departmental level. It formalizes all plans with respect to type and extent. 3. It is the process of developing a strategic fit between the organization's goals and capabilities in the context of changing opportunities. 4. It is a process that involves carefully defined steps. As stated in the definition, strategic planning is structured, in that it begins with reviewing the environment, setting goals, adopting and monitoring strategies, and continuously redesigning them as the needs arise. 5. It is proactive, in that it is written in the context of anticipated future realities. Strategic planning does not make future decisions. Instead, plans are made in anticipation of future changes and developments. 6. It is a philosophy because it evolves a dynamic way of conducting and managing an organization. Strategic planning involves a unique a way of thinking and doing things. It is an intellectual exercise that embraces a belief that convinces organizations of their worth and importance. In other words, values are integrated within the philosophy of an evolving organizational culture. 7. It links the organizational plan with functional and operational plans. Strategic planning speaks of two types of planning: (a) the organizational grand plan; and (b) the departmental tactical plans. 8. It is intricately interwoven within the defined managerial functions of organizing, directing, staffing, and controlling. Although strategic planning is a strictly formal and separate function of management, it is subtly intertwined in all the other functions and responsibilities of a manager. In other words, no manager can fully accomplish his/her responsibilities effectively if strategic planning is disregarded or overlooked. 9. It necessitates the leadership and support of top management and, at the same time, employee participation and commitment. Successful implementation of strategic planning is largely dependent on responsibility, support, and sustained leadership coupled with acceptance and involvement of employees. There should be synergistic interrelationships between departments and intra-relationships within departments. Types of Strategic Plans There are two principal types of 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 goals and objectives, strategies, monitoring mechanisms, and the budget for the year ahead. Whether the plan is long-range or annual, it can be strategic when the organization formulates its action plans and takes advantage of opportunities in the constantly changing environment while maintaining a tactical alignment between the organization's goals, capabilities, and opportunities. The steps involved in strategic planning are iterative, cyclic, and integrative. They include: 1. making a situation audit to ascertain where the organization is today; 2. stating the respective goals and objectives of the organization, the values and value systems it espouses, its business definition, and its corresponding strategy statements to determine where it wants to go; 3. describing appropriate strategies to be carried out in order to help direct the organization to where it wants to be; 4. identifying and then choosing the soundest strategy to determine the best way for the organization to be where it wants to be and to achieve its goals; 5. monitoring the implementation of strategies to measure performances; and 6. conducting periodic and continuous reassessments in order to implement improvements and suggested changes. The steps in strategic planning will be tackled in detail in the next chapters. Initially, an organization conducts an environmental scanning to determine where it is today. Then, with respect to the organization's vision, mission, goals, and objectives, as well as its value system, appropriate strategies are identified to help direct the organization to where it wants to go. There can be more than one strategy of choice. Once the studied strategies are enumerated, the best strategy that will significantly bring about the achievement of desired outcomes is specified for implementation. Associated to the process of implementing the strategy/strategies, the monitoring system has to be set in place. Periodic assessments then follow to determine whether the chosen strategies were worthwhile and effective. Need for Strategic Planning Why is there a need for strategic planning? The reality of dynamism, complexity, and hypercompetition characterizes today's environment. To survive, organizations need to plan carefully their strategic approaches. Therefore, strategic plans have to be prepared purposefully for effective and efficient implementation, thus, leading to the attainment of their set objectives. The benefits of designing and putting into effect a strategic plan cannot be overemphasized. Strengths and Limitations of Strategic Planning Strategic planning defines an organization's vision, mission, and set objectives. It provides organizations the opportunity to assess the environment and specify strategies to achieve their goals. Strategic planning helps organizations to stay focused. It makes things happen. Furthermore, strategic planning helps reduce the chances of committing mistakes, thus, increasing the organization's efficiency. Strategic planning helps in the more efficient allocation of organizational resources, better collaboration among cross-departmental employees and functional units, and communication between managers/supervisors of all levels. Lastly, when cautiously, clearly, and proactively undertaken, strategic planning provides leverage and competitive advantage to the organization. While strategic planning has its advantages, it also has its limitations. Although conducted yearly or even more often, the strategic plans prepared in some instances are good only "in paper." Some organizations fail to follow faithfully their prepared strategic plans. If in cases these strategic plans are followed religiously, some organizations may not be flexible enough to make the needed adjustments and realignments due to inevitable or forthcoming external or internal challenges. Similarly, conducting strategic planning sessions may entail costs that can be expensive to organizations. Organizational Vision To help organizations achieve strategic direction, they need to articulate and have a commonality in vision, mission, and goals. The interrelationships between and among these three variables are essential in the organizations' thrust of achieving competitiveness. The organizational vision is an inspirational statement of what the organization hopes to achieve at some point in the future. It is the image of what an organization desires to achieve. It is short and succinct, but it carries an extraordinary force that will stir, motivate, and inspire employees to work and refocus toward its desired optimal future state. Having a strong sense of vision can move the organization to be what it wants to be. Like an unseen force, the organizational vision binds the company and its employees together. An example of a vision statement is: "An educational institution ablaze with the Spirit of Excellence." This is the vision statement of the educational institution, College of the Holy Spirit Manila. The statement energizes the administrators, faculty, students, and staff. It brings singleness in their desire and coherence in their efforts. Although difficult and in fact, not measurable, the organizational vision is an effective mode of binding everyone to a company’s ultimate goal. Mission Statement The mission statement differs from the organizational vision. The mission statement defines the current purpose of an organization; it answers what the organization does, for whom it is done, and how it does what it does. The mission statement of the College of the Holy Spirit Manila is as follows: "We build, through Christian and holistic formation, new generations of responsible citizens who are agents of transformation." Here, what the organization does is "to build"; it does this "for new generations of responsible citizens"; and how it does what it does is "through Christian and holistic formation." Mission statements are likewise short and easy to remember. It gives employees a better perspective on how their tasks contribute to the attainment of organizational goals. Oftentimes, vision statements are more enduring compared to mission statements. Mission statements are expected to change in the context of shifting economic realities or unexpected circumstances like challenges, threats, and even opportunities. Vision-Mission of the College of the Holy Spirit Manila Vision: An educational institution ablaze with the Spirit of Excellence Mission: We build, through Christian and holistic formation, new generations of responsible citizens who are agents of transformation. Strategic Goals In living out the ideals of St. Arnold Janssen, CHSM aims at the total formation of authentically Christian Filipinos who are: humane and committed to the care of creation; professionally competent and dedicated to service; socially and critically conscious of the realities of life; motivated to proactively respond to the call of the times; and just and other-centered leaders. @ 2011 College of the Holy Spirit Manila Organizational Goals and Objectives To operationalize the mission statement, organizational goals and objectives are defined. All organizations have set goals. These are referred to as organizational goals. Organizational goals are pursued to make the specified strategies succeed. They vary and are essentially dependent on their respective purpose and direction. One of the implied basic goals of any organization is to use economic resources efficiently and effectively such that survival, if not profit, is at least secured, thus, ensuring the continuity of the organization. Goals are macro, encompassing in perspective, and prospective in nature. In fact goals represent the overall vision of an organization. By their very nature, goals have the following properties: 1. Goals provide organizations focus and direction. They neatly converge toward the purpose of any firm, thus streamlining all unnecessary and redundant considerations. 2. Goals move to organizations action. Because goals have to be attained, organizations are motivated to function and perform toward their vision. 3. Goals develop in organizations the trait of persistence. Thus, organizations continue to persevere until they achieve their desired success. Nevertheless, for goals to be attained, they have to be supported by objectives. Objectives are different from goals; in that they are micro and specific in perspective. They should possess the following characteristics: 1. Objectives need to be clearly defined and formulated, carefully chosen, specific, and definite. 2. Objectives may be immediate or short-term. 3. They need to need be prioritized into a hierarchy of objectives. 4. Objectives need to be realistic and attainable. They need to be flexible, consistent, and strategic. 5. Objectives need to be measurable over time. The relationship between goals and objectives can be concretely illustrated as follows: Organizations have overall goals referred to as the organizational goal. To support and achieve this grand goal, objectives are enumerated. These mentioned objectives are actually the goals of the respective departments or business units that will likewise have their own objectives. Because of these interrelationships, objectives need to be consistently aligned and be within the framework of the given goal. Strategic objectives are, in general externally focused. According to Peter Drucker (2008), objectives fall into eight major classifications: 1. Market standing (e.g., desired share of the current and new markets); 2. Innovation (e.g., development of new goods, services, and of skills and methods required to supply them); 3. Human resources (e.g., selection and development of employees); 4. Financial resources (e.g., identification of sources of capital and their uses); 5. Physical resources (e.g., equipment and facilities and their uses); 6. Productivity (e.g., efficient use of the resources relative to output); 7. Social responsibility (e.g., awareness and responsiveness to the effects on the community of the stakeholders); and 8. Profit requirements (e.g., achievement of measurable financial well-being and growth). Values and Value System Organizations are guided by values, which vary from one organization to another. Values are inherent roots of motivation within an individual, an organization, a community, or a nation. They are by nature, ingrained and thus, are more stable and enduring. They are both intellectual and behavioral, serving as bases for the organization's actions and way of thinking. Values are generally exhibited in two different ways, namely, beliefs and attitudes. More particularly, beliefs are cognitive manifestations while attitudes are characteristically behavioral. They are fundamental and intricately integrated in the particular organization's value system. Take note that the values projected by organizations are largely dependent on any or all of the following: the stockholders, the Board of Directors, and the top management. Strictly speaking, the values of an organization are not synonymous to its value system. The value system is characteristically broader in scope; aside from values, it includes other variables such as the organization's dreams, aspirations, interests, expectations, philosophies, as well as leadership and management styles and ethical practices. Moreover, the value system indicates the hierarchy of values ranked by organizations. Because values are distinct, they differ from one organization to another. This explains why one organization may be perceived as socially and community-active, while another is business- oriented. Hence, the importance of these value qualities and value systems for organizations cannot be underestimated. Organizational Climate and Culture The concepts of organizational climate and culture are interrelated, interdependent, and sequential. They are interrelated, in that organizational climate is often defined as the regular and repetitive patterns of attitudes and behavior exhibited by employees of an organization. It is a measure of the health of an organization. It manifests whether its employees are happy, hardworking, and motivated, or otherwise; whether good interpersonal relationships exist between and among different levels of management; and whether the work environment is acceptable and conducive to productivity. Organizational climate is easier to assess and change. It lends to flexibility. It precedes and somehow contributes to the solidification of the culture of an organization. On the other hand, organizational culture has been variously defined (Hofstede 1980a; Schein 1990). Organizational culture denotes a wide range of social phenomena, including an organization's customary dress, language, behavior, beliefs, values, symbols of status and authority, myths, ceremonies and rituals, and modes of deference and subversion; all of which help to define an organization's character and norms (Scott et al. 2003). Culture, in the sense that it is used here, can be understood as an idealized system (Schein 1999) because a system focuses on types of meanings represented by values, formal rules, knowledge, beliefs, and expressive forms (Pettigrew 1990; Parker 1992; Patrick 2010). The conceptual aspect perceives organizational culture as a system of knowledge and common values which can be exhibited and evaluated similarly by people even with different backgrounds and at different levels within the organization. Thus, organizational culture is more solid, stable, and long-term because it presents the organization's culture from its inception to where it is, showing how the culture of an organization evolved through the years. Unique, the organizational culture is largely and generally influenced by the leadership of the top management. In summary, vision projects the image that an organization wants to attain. It is reinforced by the mission statement that specifies how the organization intends to actualize this vision. Thus, goals and objectives are clearly enumerated. Furthermore, any organization has its own value system that inevitably becomes part of its organizational culture. END OF MODULE 1 A Strategic Management Model MODULE 2 CHALLENGES IN THE EXTERNAL ENVIRONMENT LEARNING OBJECTIVES After completing this module, you are expected to: i. perform environmental scanning; ii. employ SWOT analysis using a company; iii. analyze and evaluate the social, political, economic, technological, and environmental forces affecting the country; and iv. identify external forces that may prove beneficial or detrimental to an organization. Module 2 Challenges in the External Environment LEARNING ACTIVITIES Individual Activity ASSESSMENT/EVALUATION I. Synchronous Test with time limit. Long test link will be provided through our group chat. This is a synchronous test with a time limit. II. Asynchronous Learning See: Individual Activity Below ASSIGNMENT Individual Assignments: 1. What is the external environment? What are the forces interplaying in the external environment? 2. In relation to critical social concerns today in the external environment, how do changing social structures, the world’s aging population and great demand for health services, the evolving sophistication in the lifestyle of peoples, and cross-cultural diversity impact organizations? 3. How do technological advances observed in the fields of communication, business, banking, education, medicine, and security, contribute to the decision-making of organizations? Scanning the Environment Organizations exist to survive. Given their vision and mission statements and set goals and objectives, it is for organizations to conduct themselves clearly, deliberately, and strategically. To achieve this, organizations should develop "organizational intelligence." Organizational intelligence refers to the expertise, insight, and wisdom possessed by an entity. It 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. Environmental scanning is the study and interpretation of the forces existing in the external and internal environments. The external environment includes social, economic, political, technological, and environmental 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 goal of ascertaining early indications of prospects and challenges that may influence the organization's present and future plans. Conducting environmental scanning is both easy and difficult. For informal scanning, experience and expertise will help make the process effortless and straightforward. The competencies, skills, and intelligence of the individual will allow for easy scanning of the environment. On the other hand, environmental scanning can be demanding, in that there is a need for comprehensive, as well as accurate information. It will be mostly dependent on the following: (1) the speed of the organization to conduct scanning; (2) the presence and availability of complete information; and (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. Strategic information 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 Scanning the environment involves two processes. The first one is looking at or simply viewing information, and the second one is looking for or searching for information. According to Aguilar (1967), there are four ways of environmental scanning. They are undirected viewing, conditioned viewing, informal search, and formal search. Undirected Viewing. The individual is exposed to information with no specific informational need in mind. The sources of information are wide-ranging and large chunks of information are quickly dropped from the individual's attention. Thus, the individual ends up with general information that may be helpful for him in spotting early signals of change. It is a significant mode of feeling the environment as this increases awareness in the organization to undertake needed proactive strategic moves. Accordingly, organizations should continuously undertake undirected viewing of the environment. Many times, this process of environmental scanning can save an organization from losing out in the survival game or may be the reason for organizational success. Conditioned Viewing. The individual directs viewing of information to specified facts and data to be able to assess their general impact on the organization. It is not an active search but a mere viewing of information. It provides a cue or hint that more purposive scanning should be instituted if the effect is assessed to be sufficiently significant. 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 is to gather information to expound on the issue, thus, determining whether a strategic move is needed by the organization. If a need for a decision or action has been established, more time and resources on a formal search will be spent by the organization. Formal Search. The effort exerted by the individual is deliberate and planned. The search is both focused and structured and the research methodology is clearly enumerated and followed. Specific information is presented and organizations conduct environmental scanning through varied approaches. These search approaches can include industry analysis, market studies, and competitor and customer analyses, among others. Appreciably, results of the formal search normally provide organizations bases for decision-making and courses of action. In summary, entities possess organizational intelligence. This mode of thinking directs them to scan the environment. The importance of conducting environmental scanning cannot be overemphasized 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. Credited to Albert Humphrey in 1960, 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. Humphrey's 2x2 matrix model (2005) suggests actions for issues arising from the SWOT analysis according to four different categories. The recommended practical and direct actions are presented in Table 2.1 Table 2.1 SWOT Analysis Matrix Strengths (Internal) Weaknesses (Internal) Strengths/Opportunities Weaknesses/Opportunities Obvious natural priorities Opportunities Likely to produce greatest ROI Potentially attractive options (Return on Investment) Likely to produce good returns if capability and implementation (External) are viable Likely to be quickest and easiest to implement Potentially more exciting, stimulating, and rewarding than S/O due to change, challenge, surprise tactics and benefits from Probably justifying immediate action planning, addressing and achieving improvements feasibility study, or business plan Primary Question: "If we are not yet Primary Question: "What is actually stopping us looking at these areas and prioritizing from doing these things, provided they truly fit them, then why are we not?" strategically and are realistic and substantial?" Strengths/Threats Weaknesses/Threats Easy to defend and counter Potentially high risk Only basic awareness, planning, and Assessment of risks is crucial. implementation are required to meet these challenges. When risk is low, ignore these issues and do not be distracted by them. Threats Investment in these issues is (External) generally safe and necessary. When risk is high, assess capability gaps and plan to defend or avert in specific controlled ways. Primary Question: "Are we properly informed and organized to deal with Primary Question: "Have we accurately assessed these issues and are we certain there the risks of these issues and when risks are high, are no hidden surprises?" and "Since do we have specific controlled reliable plans to we are strong here, can any of these avoid/ avert/defend?" threats be turned into opportunities?" Although the SWOT matrix has been considered an old process for evaluating the strengths, weaknesses, opportunities, and threats of an organization, it has constantly proven its worth and functionality when it comes to assessment. Divided into internal and external environments, it clearly focuses on the status of an organization. As a result, logical inferences can be drawn and corresponding strategies can be recommended. The External Environment The external environment today is highly complex. This fundamental paradigm conspicuously characterizes the global scenario. Nations possess different levels of growth and development. For example, power relationships have become dynamic, volatile, uncertain, complex, and threatening. Multifaceted concerns, although distinct, have become primordial issues among countries, causing differences in policies and global interrelationships. Oftentimes, an atmosphere of strategic negotiation, compromise, and survival permeates. Consequently, knowledge of the broad environment is considered an advantage for organizations when managers constantly develop an audit "intelligence" of the environment. Specifically, the external environment presents varying forces that influence organizational direction and strategic decision-making. These forces are social, political, technological, economic, environmental, and legal in perspective. The merging 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 to as PEST (Political, Economic, Social, and Technological) Analysis. Social Forces Social forces refer to important issues that are characteristic of global and local societies. Society consists of individuals, families, and communities, including their beliefs, aspirations, traditions, and practices. Significant societal factors in the environment create varying impacts on organizations. Some of the more 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 peoples including migration, among others. Changing Social Structures. The social environment can be better understood and analyzed in terms of broad social structures. Social structure refers 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. Today, social structures are significantly changing. Family sizes are decreasing in developed countries like Europe and America. In China, the one-child policy has been strictly implemented and monitored for the last decades, although this law has now been relaxed. On the other hand, a greater number of underdeveloped countries allow larger family sizes that bring about accompanying social implications. As a result, there is a pressing need to provide for a well-balanced family like good education, decent housing system, acceptable monthly incomes, safety and security in communities, and more opportunities for livelihood. The interrelationships of these social constructs describe today's changing communal and shared structures, including marked differences in universal and collective values, beliefs, morals, and religions. Aging Population/Demand for Health Services. There 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 1940s. 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. Because of their deteriorating physical and physiological condition, senior citizens need more doctors, nurses, and caregivers to attend to their curative and health requirements, and nutritionists to guide them in eating healthful food. They need psychologists to tend to their emotional needs, adequate medicines to address their therapeutic and remedial concerns, modern health equipment, and facilities like homes for the aged to provide them with comfortable welfare dwellings and warm neighborhood centers to help them get smoothly through the aging process. Sophisticated Lifestyles of People. Compared to the past, the lifestyles of people today have dramatically changed, too. 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. Their 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 want to own houses and live extravagantly. Once content with simple things, they expect more from life and living. Cross-cultural 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. When we speak of multicultures, we consider the culture of the individual and the host country. While foreigners bring with them their deep-rooted cultures, beliefs, aspirations, values, traditions, perspectives, religion, and sense of nationalism, there is a need for them to also respect the culture of their host country and adjust to its cultural traditions and idiosyncrasies. Therefore, to promote good multicultural working interrelationships, flexibility, mutual acceptance, and deference to intra-cultures are necessary. Political Forces There are crucial concerns confronting nations today. Geopolitical issues have become the focus of major political powers. Some of these issues are political independence, changing governments, balance of power, terrorism, suicide bombings, global alliances, and chemical and nuclear warfare. These critical problems are affecting the global political balance. Political Independence/Changing Governments. Political sustainability has become the focus and concentration of developed and power-driven countries. They fight wars to attain and maintain political supremacy. The call for global political equilibrium has challenged nations to involve themselves in the attainment of global peace and security. Global ideologies are the main determinants of global support while global power is the main ingredient of global leadership. Consequently, nations today are undergoing changes in government: from communism to socialism to capitalism, and from dictatorship to democracy. More particularly, some colonized territories in the world are waging their own wars to attain independence. Fighting, dissention, and mayhem characterize civil wars. The hostilities between and among the protagonists are bloody and costly. 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. News about wounded and dead children, elderly citizens, and innocent people have become normal occurrences heard over radio and seen on television. Kidnappings for ransom have become sure sources of finances. The fearless and bold attacks by suicide bombers are a brazen testimony of disregard for law and order. Chemical and Nuclear Threats. Some countries go on developing and producing weapons with the intention of blackmailing and/or intimidating other countries. True enough, the spread of deadly chemicals, viruses, and other forms of microorganisms pose dangerous effects. This is likewise true with nuclear military hardware. Nuclear threat is imminent where countries continue to beef up their nuclear arsenals. Although nuclear plants are essentially useful in harnessing nuclear energy, their misuse and abuse are threats to peaceful coexistence. Danger looms and when used indiscriminately, these long-range and short-range missiles can literally erase the whole of humanity. In essence, political survival and power are the great determinants of political decision-making and peaceful coexistence. Global Alliances. Politically, nations are aligning themselves for self-preservation and more so, for global stability and strength. Today, no nation attempts to stand alone because global relationships are essential to national survival. European nations have bonded themselves as the European Union. The same is true with ASEAN countries. Economic Forces Economic realities have simultaneously come to the forefront. Economic issues greatly affect the growth and development of a nation. Nations are strategizing to maintain a continuum of financial stability. Most often, trade and investments are transacted to ensure monetary security. Economic realities include globalization of products and services, the presence of aggressive competitors and suppliers, the fall of large and “supposedly” financially stable organizations, increasing oil prices, economic trade agreements, the emergence of new markets, and the rise of China as a major economic player in the world. Globalization. This is one major determinant of competition. Globalization can be viewed from four perspectives: products, people, ideas, and money. Before, simple and traditional goods were generally accepted but today's consumers demand flexibility and versatility in the products they use. Multifaceted, multilayered, and multidimensional products and services in the market are challenging firms to devise ways to meet these recent developments. Products like computers, appliances, clothes, bags, shoes, and medicines are manufactured in one country and sold in other countries. Chinese products "go" as far as Europe while Filipino baby dresses are sold in Africa. Indonesian tables and chairs are fixtures in Philippine offices while European-branded cell phones are everywhere, even in North Korea. This is a millennium-manufacturing phenomenon. Globalization likewise implies mobility of people. People migrate to countries of their desire. Although the number of global citizens is increasing, a great majority of peoples leave their own countries to work abroad. The Philippines, as a country, has created its comparative advantage in the area of human resources, the country being competitive when it comes to its nurses, caregivers, teachers, seafarers, and programmers. Similarly, monetary dealings are conveniently transacted electronically through banks and other financial institutions as far as Cayman Islands. Lastly, inventions and expertise are no longer limited to a particular nation. Indonesia has developed a cure for bird flu, while the science of robotics is being experimented and actualized in Japan. Everywhere, we see individuals with brilliant ideas and discoveries. Thus, we speak of "globalized" people, money, products and services, and ideas. 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 but quality products. Since quality is given, it is necessary for survival. Thus, aside from satisfying minimum quality requirements, organizations should offer differentiated and innovative products and services to satisfy customers with discriminating expectations. Doing this creates bargaining power and increases competitiveness and profitability. Fall of Financially Stable Organizations. The last few years saw the downfall of a number of financially successful organizations that were managed by respectable and competent presidents and chief executive officers. The corporate fiascos of Enron, World.Com, and the Lehman brothers are but a few examples of the more widely talked about financial catastrophes. Increasing Oil Prices. The never-ending increases in oil prices have been creating economic instability in global communities. Characterized by unpredictability in price and production, organizations using oil and any of its "derivative" products find difficulty in projecting costs and profit figures. Planned strategies have become difficult to actualize. A versatile commodity, oil is a multi- purpose raw ingredient found in many products. Changes in oil prices are detrimental to the survival and success of many organizations. 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. Examples of these products are clothes, furniture, bananas, handicrafts, dried mangoes, fashion jewelry, and human resources. The World Trade Organization (WTO), Asian Free Trade Organization (AFTA), North American Trade Agreement (NAFTA), and Asia-Pacific Economic Cooperation (APEC) are examples of these economic alliances. The implementation of zero or near zero tariffs on all traded products is now effective. Emerging Markets. Closely interrelated to the political, social, and economic growth and development of a country is the emergence of different markets. Developed, developing, and underdeveloped countries are economic markets with unique needs, wants, demands, distinct traits, and peculiarities. Rise of China. One of the most potent economic markets in the world today is China. It is seen both as a supplier and a big market. Constituting one-third of the world's population, China is a market for other countries' products and services. As a supplier, the country is capable of providing goods and services to the world market. Although not apparent, the economic status of nations indirectly affects political alliances. Technological Forces We live in a digital world. Another important catalyst of competition is technology. In the 1980's, information technology began its journey toward radical communication and technology growth. Significant changes happening in the world today have been the result of rapid developments in information technology. These technological advances are observed in the fields of communication, business, banking, education, medicine, security, and in all facets of everyday living. Communication Technology. Communication technology saw the proliferation of mobile phones, popularity of text messaging, convenience of sending fax 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 distances immaterial. Product innovation is easier to create, product development is relatively shorter, less cumbersome but more challenging, and fewer employees perform tasks due to technology. In addition, enterprise resource planning is popularly applied in supply chain activities like purchasing, inventory management, scheduling and dispatching deliveries, distribution logistics, documentation and management of accounts receivables and payables, and preparation of income statements and balance sheets. Thus, it can be said that ERP has revolutionized operational activities, making processes more precise and efficient. In production, processes are computer-aided, computer-integrated, and computer- manufactured, thereby producing quality, more efficient, and cost-effective goods and services. 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. Confidentiality of transactions can be largely maintained while anomalies can easily be tracked as long as procedures for. check and balance are in place. 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. Popular among busy people, e-learning has become convenient way of pursuing formal education: high school, vocational, tertiary, graduate, and doctoral levels. Furthermore, e-learning within the classrooms can be conducted since schools today have access to the internet. Digital Medicine. Another surprising and most welcome development in the field of medicine is the use of technology. Scientists conduct stem cell researches from leftover human embryos with the hope of curing illnesses like diabetes, Parkinson's disease, and spinal cord injuries. These days, computer-guided robots perform surgical procedures. Using androids, surgical operations are more precise, cheaper, and less time-consuming. 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 counterattacks. More particularly, robots can detonate bombs and operate helicopters for reconnaissance missions. True, the age of digital living has arrived and more changes are expected. Environmental Forces Environmental responsibility is the urgent call of the global neighborhood. Ecological damage is happening everywhere. There seems to be an utter disregard or seeming indifference about the environment. Environmentally, no country can claim complete isolation. The safety and survival of one should be the concern of others. After all, nations share water boundaries. Climate Change/Use of Biodegradable Materials. The effects of environmental degradation, malpractices, neglect, and indifference are critical and serious. The use of non-biodegradable materials emitting chlorofluorocarbons continuously causes the widening and deepening of the hole in the ozone layer. As a result, global warming has caused countries to experience extreme weather changes, that is, 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; lack of clean water contributes to unhealthy living; unhygienic surroundings are eyesores while lack of cleanliness produces grubby citizens who are health hazards to others. Furthermore, the use of dynamites is destroying marine life, disturbing the seabed, and killing aquatic plants and corals. Oil and gas spills contaminate bodies of water and cause marine imbalance. Preservation of Rainforests and Marine Life. Rainforests are no exception. Continuous depletion and denudation of forests explain why torrential rains are more destructive and intense nowadays. They result in damage to properties and danger to human lives. Irresponsible mining is slowly destroying and running down natural barriers that otherwise provide safety of abode to people. These forms of man-made abuses and destructions are alarming. One realizes that care of the environment is a serious concern and responsibility for everyone: the individual, the organization, the community, and the government. In short, environmental preservation is a global priority for everyone. While some of the external environment forces do not directly affect us, they are significantly vital to an organization. The global landscape, as earlier mentioned, cannot allow an organization to run away from these realities. Somehow, these social, cross-cultural, geopolitical, economic determinants will affect the way organizations manage themselves in the near future. In some instances, these forces may be the reason for their bankruptcy or eventual closure. END OF MODULE 1 A Strategic Management Model MODULE 3 CHALLENGES IN THE INTERNAL ENVIRONMENT LEARNING OBJECTIVES After completing this module, you are expected to: i. assess the internal environment; ii. identify the role of the government as the business caretaker; iii. appreciate the role of culture as a venue of communal convergence; iv. classify and compare the types of competitors; v. relate consumer behavior to specific consumer outcomes; vi. appreciate the importance of suppliers in any business transaction; and vii. explain Porter’s Five Forces Model. Module 3 Challenges in the Internal Environment LEARNING ACTIVITIES Individual Activity ASSESSMENT/EVALUATION I. Synchronous Test with time limit. Long test link will be provided through our group chat. This is a synchronous test with a time limit. II. Asynchronous Learning See: Individual Activity Below While the external environment plays an essential role in the survival and competitiveness of an organization, the internal environment presents a more direct impact on how organizations should conduct themselves toward success. There are different challenges within the internal environment of an organization. Thus, this module discusses the constructs within the internal environment itself and the relevance and application of Porter’s Five Forces Model. The Internal Environment Aside from understanding the developments and changes occurring in the global environment, organizations need to understand the internal environment, or better referred to as the local milieu. The internal environment is the setting in which an organization locally exists. As one studies the local environment, there are existing unique and interrelated variables that directly affect any organization or business. Understanding these variables is essential if one has to conduct his organization successfully these areas are government, culture, the stakeholders, competitors, suppliers, customers, and the community. Government: The Business Caretaker The government is the sole legitimate institution tasked with overseeing organizational operations in the country. In implementing these administrative functions and responsibilities, the government undertakes the following: 1. Provides the needed infrastructure— a. Physically in the form of roads, bridges, electricity, and water services; b. technologically through information technology infrastructure and communication facilities; c. economically by providing availability of loans, banking services, low interest rates, and tax incentives; d. socially through housing, welfare, waste management policies, community services, and societal responsibilities; and e. politically in terms of peace, security, stability, and governance. 2. Creates an atmosphere of fair and robust competition among industry and company players, monitors and regulates monopolies and oligopolies, and eliminates unfair and illegitimate practices. 3. Formulates business policies, implements business operating guidelines, and regulates the conduct of business activities such as payment of taxes, health and safety practices in food, manufacturing, construction, and other service industries, ensures quality of products and services, and mandates minimum wages of employees, and their fair and just treatment. Culture: A Communal Convergence As mentioned previously, a nation's culture is the communal aggregation and convergence of the country's philosophy, beliefs, traditions, values, attitudes, aspirations, and practices that have historically evolved since a nation's inception. The Philippines has its own culture-a culture that was greatly influenced by diverse cultures: Chinese, Japanese, Spanish, and American. Through many years of national growth and development, this culture has been shaped by environmental variables happening within and outside the country and until today, continues to change, mature, and transform. Such evolution has nurtured in the Filipino certain distinct beliefs, traditions, and practices, which are either a pride to the country or otherwise. Worth mentioning are the following: 1. The trait of hospitality. Filipinos are generally warm people. They are cordial, friendly, and accommodating. Their doors are open to relatives and friends, most especially during town celebrations called "fiestas." 2. The practice of bayanihan. Filipinos, most especially those in the provinces, are generally helpful. This practice creates an atmosphere of unity and concern among the townspeople. 3. Filipinos generally take care of their parents, old relatives, and siblings. They work hard to send their brothers and sisters to school. Because of this priority, some set aside their own personal lives. In addition to this, most Filipinos take care of their aging grandparents and parents. They do not send them to homes for the aged, which is the usual practice in developed countries. 3. Pakikisama and utang na loob. Many Filipinos prioritize friendship to the point of sometimes sacrificing principles. Some develop bad habits like smoking, drinking, taking drugs, and breaking laws due to pakikisama. Furthermore, they tend to remember the good things done to them by people in the past, wishing that someday they can repay them. These nagging feelings of indebtedness can be abused. 4. The habits of ningas kugon, manana, and 'Filipino time. Some Filipinos excitedly begin something without finishing what they have started. This explains why a celebrated and urgent political, social, or economic issue dies a natural death. Filipinos sometimes tend to procrastinate tasks and responsibilities. They seem to work better when they cram. They are generally late when it comes to meetings and appointments, something of an "easy life" attitude. 5. The attitudes of crab mentality and bahala na. Some Filipinos are not happy with the good fortunes of others. They have a subconscious tendency to bring down their own fellow citizens. This is prevalent here and among Filipinos overseas. Moreover, some Filipinos leave their life to the natural course of events. There seems to be no sense of urgency. 6. The virtue of resiliency. The Filipinos are a flexible people. Despite the difficulties in their personal and social lives, they can easily adjust and bounce back. They are born survivors. 7. The idea of kanya-kanya. Filipinos, on the other hand, tend to be individualistic. At times, they are selfish and are indifferent to the plight of others. 8. The consciousness of being politically involved. As often noted, Filipinos are highly politicized. They are up-to-date with the latest political issues. The ordinary Filipino in barbershops, the vendors along the walkways, and the drivers on the streets generally talk about politics. The ordinary Filipino housewife is not exempted. Somehow, everyone has his own political views, leanings, and biases. One can see that culture plays an important role in the growth of any country. In a sense, the positive values that are characteristic of Filipinos have helped the nation to move forward toward development. On the other hand, the negative values of the Filipinos have, to a certain extent, retarded the progress of the Philippines. It is hoped that positive Filipino values be further reinforced and enhanced while negative Filipino values be restrained, if not eliminated. Stakeholders: The Business Investors Organizations exist because there are individuals who are willing to take risks, invest their capital, and engage in business activities in exchange for a return. This return on their investment is profit. Stakeholders are business investors. Some are actively involved in the conduct of their business while others prefer to be silent investors. Stakeholders are assets to the country. They provide opportunities for exchange of products and services. They initiate business operations and compete among themselves. They boost and energize economic activity, provide employment to the community, and help the government by paying business taxes. Without them, a country is paralyzed. While owners of businesses are the direct stakeholders, others are indirect stakeholders. These are individuals or entities that stand to benefit from the investments of the owners. They are the employees, the government, and the community. Competitors: The Business Threats There are various forms of competition as well as several types of competitors. Competition is an economic scenario where nations, communities, organizations, companies and individuals offer and sell their products and services. Competitors continuously strive to outplay and outsmart each other, hoping to get a larger share of the target market. They fall in different categories. 1. Same Products. They are companies who sell exactly the same products or offer the same services. They are direct competitors. Examples are Unilever and Procter & Gamble. Both are engaged in the same line of business and they sell the same products. 2. Similar Products. They are companies who sell similar products. Tea and coffee are similar products. 3. Substitute Products. Some companies sell substitute products. For example, the competitors of marketplaces are fast-food centers who sell primarily cooked food, and secondly, convenience. Instead of going to the market to buy meat, fish, and vegetables, they now go to fast-food centers for their meals. 4. Different Products. Still, there are companies who sell different products but market to the same market segments. Competitors also differ with respect to the strategies they adopt. 1. Complementary Competition. Some companies appear to compete with themselves. For capturing a larger market, they produce the same products, use different brand names, and target different market segments. An example is a real estate company that sells low-cost housing to target markets, classes C and D; and average-cost housing to middle-income class families. 2. Collaborative Competition. Similarly, there are companies whose relationships among each other are strategic and cooperative. Examples are the oil companies in the country. They are in "friendly" competition. 3. Corrupted Competition. Lastly, some companies produce "fake" products. They compete with legitimate businesses by boldly and unethically transgressing the intellectual property rights of other companies through plagiarism, duplication, and false branding. They produce and sell these products at low prices. How can a company then know who its competitors are? There are different ways of identifying them and they are the following: 1. Determining similarity in characteristics. One way of identifying competitors is by determining similarity in the products and services offered, the specific technologies applied, and the strategies employed, whether marketing, financial, and managerial. 2. Studying consumers. Observing and studying consumers in terms of demographic variables can also help identify competitors: sex, civil status, age, educational attainment, monthly income, employment, and psychographic variables like needs, wants, attitudes, perceptions, purchase patterns, and buying behavior. 3. Researching company data. Competitors can also be identified through hard company data: capitalization outlay, number of customers, distribution outlets, employees, financial strength, number of years in operation, and company growth. 4. Considering corporate success. Lastly, some competitors look at the degree of success of other companies by studying their sales volume and number of sales, market leadership, and goodwill. The lifeblood of any organization consists of the stakeholders or business investors who have financially invested in the company. In addition, the employees are likewise considered stakeholders. Together, they collaborate to make the organization succeed. Moreover, with competitions existing everywhere, the challenge of organizations is to handle them effectively. Customers: The Business Challenge Competitors continuously compete to capture a bigger share of the market. Customers make the market. They are the very reason why companies pursue new product developments and differentiate their existing products and services. Customers are the focus of companies' business plans and programs and the thrust of their strategies. Without consumers, companies have no reason to exist. Because of the changing needs, wants, demands, and sophisticated lifestyles of consumers, there is an exigent need to employ various approaches to ensure their patronage and loyalty. Consumer behavior is a marketing reality that is difficult to discern, understand, and study with definiteness. The following facts on customer approval, customer patronage and customer loyalty can help address this "uncertainty." gives Customer elicits Good Product/Service Satisfaction Customer Approval Quality provides assures Customer Customer Patronage Product/Service Delight creates strengthens Quality Relationship Customer Customer Loyalty Intimacy Figure 3.1 Changes in Consumer Behavior At the very least, any product or service should provide customer satisfaction. In other words, any product must fulfill its intended use, and that is to attract customers and gain customer approval. For example, a shampoo should be able to clean the hair. It should satisfy the minimum requirement of cleanliness. However, customer satisfaction is not enough. More than this, emphasis is now on customer delight, a condition where customers become excited over the products or the services offered. Customer delight may come from experiencing quality service, product excellence, product versatility, or any attribute that will greatly gratify and create a distinct impact on them. Attaining this level will assure customer patronage. In other words, aside from cleaning the hair, a shampoo can delight its customers with other added attributes like fragrance, smoothness, and softness. The last level of change in customer behavior is customer intimacy. Customer intimacy refers to the relationship between the company and the customers. This is best described as warm, complimentary, supportive, and "businessly" personal. Customer intimacy is manifested in varied forms like sending birthday cakes, cards or sharing one's expertise with a "customer" who is in bad financial shape. In addition to being pleased about the product, customers continue supporting the product. Customer intimacy seals customer patronage or better referred to as customer loyalty. In effect, the relationships shown in Figure 3.1 are customer strategies that can help keep a product's staying power and competitiveness. company Custo mer Relatio nship Manag ement product customers Figure 3.2 Customer Relationship Management Today, customer relationship management (CRM) is the emphasis of most companies. In essence, it revolves around the interplay of three significant variables, namely, the company that produces the product, the product produced, and the customers who buy the product. To achieve optimum level of gain and patronage, products should be competitively priced, of good quality, accessible, and ideally the best. Companies should do their part in satisfying customer expectations and delighting them with quality, innovations, and personalized business relationships. Suppliers: The Business Partners In an environment characterized by cut-throat competition, businesses have to produce quality products. This degree of quality is greatly dependent on a number of variables, one of which is the supplier component. Doing business involves supplier-customer relationship. By definition, suppliers refer to individuals and companies engaged in the delivery of raw materials, machinery, technology, labor, expertise, skills, and other forms of services. They are essentially business partners. Without them, certain products cannot be produced and some services cannot be rendered. The supplier component is important for the following reasons: 1. It is responsible for the quality of the products produced and the services rendered. If the supplier is not managed well, it may result in the delivery and sale of substandard raw materials, low quality equipment and machinery, diluted admixtures of metals and chemicals, decrease in the number of delivered items, and deficiency in weight, size, and number of units of delivered items. 2. It affects continuity in operational processes (e.g., production, scheduling, and delivery). Delays in delivery schedules may cause inventory problems like stockouts, work stoppages, and work force displacement. A concrete example of an advantageous customer-supplier relationship is the "just-intime" (JIT) relationship between Toyota and its suppliers. Here, a memorandum of agreement is negotiated between the business partners, clearly stating the stock items to be delivered and their specifications like quantity, weight, and quality, the ordering lead- time and date of delivery, and the respective costs involved. Here, the supplier is assured of orders while the customer is assured of stock delivery. Both parties benefit from this formal arrangement. Community: The Business Concern The community is the intermixture of peoples coming from all walks of life with different "provincial or city cultures," different values, attitudes, aspirations, traditional beliefs, standards of living, family backgrounds, religions, and educational attainments. It is essentially heterogeneous but characteristically homogeneous in its end goal of attaining quality life. As such, the community, in principle, is the rationale of the "business framework." It is the very reason why stakeholders invest their capital and venture into business. It provides opportunities for businesses to thrive. It is "customers, suppliers, and competitors" all bundled as one. It is the primary concern of the government. A community has to be self-reliant. In instances when a community is not able to attain this level of self-sufficiency, the government, stakeholders, customers, competitors, and suppliers have a societal responsibility to help the deprived and marginalized poor improve and attain quality life. While the stakeholders and competitors play their respective roles in the management of an organization, the importance of the customers cannot be overemphasized, simply because they are the buyers or consumers of the products and services offered by the organization. Thus, different approaches to consumer patronage are essential to ensure repeat business. Studies on consumer behavior need to be done. In addition, supplier relationships have to be handled with a high degree of professionalism. Lastly, communities need to be a consideration of any organization in terms of its societal responsibility to them. Porter's Five Forces Model Organizations, particularly businesses, are the lifeblood of any nation. They sustain the continued existence and staying power of countries. As drivers of survival, growth, and development, businesses create and energize the pulse of selling, producing, venturing, and transacting activities. Companies, corporations, conglomerates, partnerships, transnationals, multinationals, enterprises, firms, and organizations are entities engaged in trade and commerce. As players in any economy, they are essentially competitors. Call them by any term; competition is the name of the game. Bargaining Power of Customers Threats of Substitute Competitive Rivalry within the Threats of New Entrants Products Industry Bargaining Power of Suppliers Figure 3.3 Porter’s Five Forces Model One of the more popular ways of strategizing an organization to attain profitability and market share is to scan the competitive environment. The competitive environment is best described and illustrated by Michael Porter's Five Forces Model of Industry Competition. An aerospace and mechanical engineer, Porter pursued his doctorate degree in industrial economics. He was a professor at the Harvard Business School. His book Competitive Strategy (1980), enumerated five forces that determine the intensity, profitability, and attractiveness of an industry: (1) bargaining power of suppliers; (2) the bargaining power of buyers/customers; (3) ease of entry of new firms; (4) availability of substitute products; and (5) rivalry among existing firms within the industry. Porter spelled out one by one when is each of these five forces high, and proposed ways of reducing these situations. 1. Suppliers are sources of input needed to produce goods and services. The bargaining power of suppliers is high when: a. few large suppliers dominate the market where they form a powerful oligopolistic bloc; b. there are no substitutes for the specified input; c. switching costs from one supplier to another are high; and d. customers of suppliers are not united but fragmented. To deal with this situation, strategies may include buying out, collaborating, and providing training on supply chain management. 2. The bargaining power of customers is high when: a. customers buy in large volumes; b. their products are not unique, such that they can be replaced or customers can produce those products themselves; c. suppliers are fragmented and few; and d. product switching is easy. To deal with this situation, firms can collaborate, reach out, create loyalty, and increase value-added incentives in customers, improve on supply chain management, and work hard to move purchase decision from price. 3. Factors that heighten barriers to threats of new entrants are: a. financial in nature like economies of scale, high initial investments, fixed costs, and cost advantage due to the learning curve; b. marketing advantages that include brand loyalty of customers, controlled distribution channels, protected intellectual property on products and services, and good supplier-customer relationships; and c. production and operation pluses like access to raw materials and scarcity and costs of qualified labor. To reduce the threats of new entrants, firms can produce better products, increase their efficiency, create and promote their brand image, enhance relationships with suppliers and distributors, and pursue aggressive marketing strategies. 4. Threats of substitutes are present when complementary, alternative, and similar products are in existence and sold at lower prices. To diminish these threats, 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; d. the barriers for exit are high; and d. the growth of a 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. Porter enumerated three fundamental generic strategies: (1) cost leadership, which can be achieved by exploiting economies of scale; (2) optimizing the learning curve, and (3) stressing on operational excellence. Furthermore, differentiation can be portrayed through product and service leadership and customer intimacy. Lastly, focus can be demonstrated by segmentation. END OF MODULE 3 Challenges in the Internal Environment MODULE 4 BUSINESS STRATEGIES LEARNING OBJECTIVES After completing this module, you are expected to: i. discuss the components of supply chain management; ii. define and explain the importance of inventory management; iii. contrast manufacturing from assembly; iv. examine the interrelationships of the sequential processes of the logistics circle; v. distinguish the role of innovation as a competitive strategy; and vi. explain why companies opt to implement stability or retrenchment strategies. Module 4 Business Strategies LEARNING ACTIVITIES Individual Activity ASSESSMENT/EVALUATION I. Synchronous Test with time limit. Long test link will be provided through our group chat. This is a synchronous test with a time limit. II. Asynchronous Learning See: Individual Activity Because of the volatility of the environment, business survival has become more challenging than ever. There is a greater demand for an honest review of functional activities and development of a proactive mindset through various strategic modes of growth and competitiveness. Realignment, enhancement, reinventing, strategizing, and refocusing have become more imperative to any organization. In this module, we will discuss value chain analysis and the different types of business strategies. These include growth strategies, competitive strategies, life cycle strategies, stability strategies, and turnaround strategies. Value Chain Analysis As global markets widen, businesses have to pay closer attention to where their raw materials come from, how they are produced, how finished products are stored and transported, and what their end products users are really asking for. The main business definition of any organization is to produce goods or render services, and to achieve these set goals and objectives, it engages in a series of activities. If an organization wants to be profitable, it has to sell value to its buyers-value that is worth paying for. Thus, the whole concept of value chain analysis comes to the picture. Value chain is a general term that refers to a sequence of interlinked undertakings that an organization operating in a specific industry engages in. It looks at every phase of the business from the time of procurement of raw materials to the time its products reach its eventual end users or consumers. The value chain concept is concretized in supply chain management. Here, value creation is greatly emphasized. Supply Chain Management Supply chain management is a broad continuum of specific activities employed by a company. It consists of the following: purchasing or supply management which includes the sourcing, ordering, and inventory storing of raw materials, parts, and services; production and operations, also known as manufacturing and assembly; logistics which is the efficient warehousing, inventory tracking, order entry, management, distribution and delivery to customers; and marketing and sales which includes promoting and selling to customers. Logistics Warehousing Scheduling Transportation Management Supply Delivery Sourcing and Ordering Organization Inventory Marketing & Sales Management Promotion Selling Production/Operations Manufacturing Assembly Figure 4.1 Supply Chain Management Supply Management Supply management is now a popular term used for purchasing which was formerly termed as procurement. It is a key business function that is responsible for: (1) identifying material and service needs; (2) locating and selecting suppliers; negotiating and closing contracts; (3) acquiring the needed materials, services, and equipment; (4) monitoring inventory stock keeping units; and (5) tracking supplier performance. In this stage, it is important to create "value" by establishing and managing supplier relationships, identifying strategic sources, accurately forecasting demand requirements, and understanding inventory management. Thus, the goal of supply management is to obtain the right materials by meeting quality requirements in the right quantity, for delivery at the right time and the right place, from the right source, with the right service, and at the right price. In addition, supply management objectives include improving the organization's competitive position, providing uninterrupted flow of materials, supplies, and services, keeping inventory and loss at a minimum, maintaining and improving quality, finding best-in-class suppliers, purchasing at lowest total costs, and achieving harmonious relations with suppliers. Sourcing and Ordering Following are the steps to take when an organization needs to source out raw materials or parts. 1. Specify the need clearly by writing down the details. Normally, the stock keeping unit (SKU) is coded with brief but complete details like date, identification number, the originating department, the account to be charged, complete description of the raw material/service, date needed, any special instruction, and signature of authorized person making the request. 2. Identify and analyze possible sources of supply. Generally, more than one supplier should be considered. The criteria for choosing suppliers are sound business sense and attitude, good record of accomplishment, sound financial base, suitable technical capability, quality orientation, customer service mentality, and effective logistical arrangements. a. Use a Request for Quotation when the need is clear, the commodities are in constant use, and quotations are easily obtainable. b. Use a Request for Proposal when the buyer has complex requirements and plans to use negotiation to determine price and terms. c. Lastly, use a Request for Bid when the desire is a competitive bid process. 3. Ask potential suppliers for their respective quotations, proposals, and bids. 4. Compare and evaluate submitted documents, then select the suppliers. Both buyers and suppliers agree and determine the terms of the contract. Correspondingly, the negotiated order placements follow. 5. Prepare, place, follow up, and expedite the purchase order (PO). The purchase order is a written requisition placement to purchase supplies. 6. Confirm that the order placed has actually arrived in good condition and at the quantity. Forward the shipment to its destination, properly document and register the receipt, and forward it to the accepting party/parties. 7. Lastly, invoice clearing and payment follows. In sourcing and ordering, value is generated when supplier relationships are created and managed in delivering quality products, delivering on time, delivering at competitive prices, providing good service back-up when needed, and keeping promises. Inventory Management Another facet of supply management is inventory management. The role of inventory is to buffer uncertainty. It includes all purchased materials and goods, partially completed materials and component parts, and finished goods. There are four broad categories of inventories. 1. All unprocessed purchased input or raw materials for manufacturing. Companies purchase supplies for any of the following reasons: to avail of quantity discounts, to anticipate future price increases, to safeguard against supplier problems, to minimize transportation costs, and to avoid supply shortage. 2. Work-in-process (WIP) 3. Finished goods include all completed products for shipment. 4. Maintenance, repair, and operating supplies (MRO) include the materials and supplies used when producing the products but are not parts of the products. Inventory Models Inventory management is ordering the right quantity of SKUs (Stock Keeping Unit) at minimum inventory costs. Inventory cost is the sum total of ordering costs and carrying costs. Ordering costs (set-up costs) are variable costs associated with placing an order with the supplier like managerial and clerical costs in preparing the purchase, while carrying costs (holding costs) are incurred for holding inventory in storage like handling charges, warehousing expenses, insurance, pilferage, shrinkage, taxes, and costs of capital. The inventory model answers two questions: "how much to order?" and "when to order?" The question, how much to order, is answered by determining the economic order quantity (EOQ). EOQ seeks to determine an optimal order quantity where the sum of the annual order costs and annual carrying costs is minimized. On the other hand, the question, when to order, is answered by computing for the reorder point (RP). The application of the EOQ Model presupposes that the following are known and constant: demand, order lead time, price, carrying cost, and ordering cost. Likewise, this model assumes that replenishment is instantaneous and stockouts are not allowed. Lead time refers to the span of time (in days) it takes for a stock to be delivered from the time it was ordered, while instantaneous replenishment is delivery of stocks all at the same time. The value of inventory management is evidently reflected in the minimization of costs. This is achieved when organizations develop efficient ways of procuring their raw materials like accurately forecasting demand and ordering in bulk to avail of quantity discounts. Reduction in carrying costs lower handling costs, storage expenses, and costs of capital. Optimum ordering of stocks increases efficiency while scheduled purchases contribute to a decrease in inventory costs. Toyota, for example, espouses the concept of just-in-time. Just-in-time (JIT) is an operational strategy whereby the company estimates its demand for raw materials and makes sure that they are delivered on time. To effectively implement JIT, Toyota found it necessary to establish good supplier relationships. As a result,

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