MODULE IN CBME 2 (Strategic Management)

Credits: 3 units

Pre-Requisite: None

I. Lesson Title: Strategic Management Process & Analytical Tools (Part 1)

II. Learning Outcomes:

At the end of this lesson, the students will be able to:

1. Explain environmental scanning and the different types of environments and its elements:
a. External Environment
b. Internal Environment
c. Macro-Environment
d. Micro-Environment

2. Understand the PESTLE Analysis

III. Lecture

EXTERNAL ENVIRONMENT: DEFINITION

Before even formulating strategies and tactics, we have to look into the firm’s competitive
environment by analyzing the industry structure and then assessing how the firm is positioned within
the industry. It is only when a firm understands how it is positioned in the industry that strategy can
be formulated. Companies scan the environment to identify trends that affect them in either positive
or negative ways. Business environments and how companies react to external factors are key to their
success (Ilano, 2017).

An external environment is composed of all the outside factors or influences that impact the operation
of business. The business must act or react to keep up its flow of operations. The external
environment can be broken down into two types: (1) the macro environment and (2) the micro
environment (Ilano, 2017).

DIFFERENCE BETWEEN MACRO-ENVIRONMENT AND MICRO-ENVIRONMENT

❖ Macro-Environment - consists of general factors that a business typically has no control over.
The success of the company de on its ability to adapt because it has no power over these factors,
such as climate, economy, political trends, etc.

❖ Micro-Environment - consists of the factors that directly impact the operations of a company. It
has control over this environment.

These two factors (macro-environment and micro-environment) shape the formulation of strategy.

MACRO-ENVIRONMENT

Macro environment refers to the external environment at large, featuring elements that are beyond
the power and influence of a firm and which reflect the realities of the outside world. (Ilano, 2017).

Management practitioners have developed numerous frameworks for assessing the key features of the
“external environment” facing a business. One of the most popular framework is the acronym
PESTLE, an analysis meaning P (political), E (economic), S (social), T (technological), L (legal or
legislative) and E (environmental or ethical).

This framework, however, is used to spot trends rather than make conclusions about the strategic
position of the company.

Trend – General direction to which something is developing or changing

Trendspotting – Process of identifying trends that affect an organization in either positive or negative
ways.

ELEMENT OF MACRO-ENVIRONMENT (PESTLE ANALYSIS)

The macro-environment can be categorized according to the following factors: political, economic,
social, technological, legal or legislative, and environmental or ethical (Ilano, 2017):

1. Political

Political environment pertains to government policies, directions, and initiatives: Industry

regulation and deregulation/Competition policy/Government tax policy/Government
regulations/Industry regulations/Government spending.

2. Economic

Possible economic trends on: Interest rates/Currency value/Exchange rate/Inflation rate/Public

spending power/Balance of payments/Monetary policies/Industry growth rates.
3. Social

Cultural facts, norms, and behaviors of the groups: Demographic change (population)/Changes in
styles, choices and fashion/Impact of community groups and pressure groups/Changing
lifestyles/Education level.

4. Technological

Refers to technological trends that matters to the industry: Rapid technological progress and
innovations.

5. Legal or Legislative

Laws relating to employment (minimum wages, benefits, taxation)/health and safety law).

6. Environmental (or Ethical)

Refers to environmental initiatives that can affect industry: Environmental protection regulations
(mining/logging)

MICRO-ENVIRONMENT

Elements of the Micro-Environment

The micro-environment can be categorized according to the following factors: suppliers, customers,
marketing intermediaries, financiers, public perception, competitors, shareholders and stakeholders
(Ilano, 2017).

Firms should also scan the micro-environment for critical trends that may affect their operations.

1. Suppliers
⮚ Firms rely on their suppliers for raw materials to process their products. What happened if
your suppliers don’t show up with your raw materials? You’ll have nothing sell, which will
have a direct impact on your operations.

2. Customers
⮚ Customers are a requirement to keep your business going. If no one buying, you have to
close the shop.

3. Marketing Intermediaries
⮚ Middlemen are very important in your business operations. They could be your distributors,
wholesalers, and other related people.
4. Financiers
⮚ The growth of the business depends on capital availability. The firm should have ready
source of capitalization in case of future expansion, etc.

5. Public Perception
⮚ Maintain good reputation with your clientele and the community in general where you are
doing business.

6. Competitors
⮚ Competitors exist to steal market share from other firms, hence they are the ones treated with
the most hostility.

7. Shareholders. People and institutions that have ownership over the firm.

8. Stakeholders. All groups that have a stake (interest) in the firm’s operations.

MACRO ENVIRONMENT VERSUS MICRO ENVIRONMENT

Figure 7. Macro Environment versus Micro Environment

PESTLE: ELEMENTS

Figure 8. PESTLE Analysis Elements (Kevin Appleby (n.d.)

HOW TO DO A PESTLE ANALYSIS (3-Step Guide):

Hereunder is a simple, three-step approach that can be used to conduct powerful PESTLE Analysis
(Thomas Bush, 2019).

1. Know the categories

Understanding the six broad categories of the PESTLE model

2. Do the research
⮚ What information to include
❖ Have a good think about yourself (with a goal of determining which categories are most
relevant to you)
❖ Requires a good understanding of the business or organization which you are looking at.
⮚ Where to find information
❖ Government reports
❖ Third party reports by specialist companies (cost money but reliable information)

3. Put it all together

Add an Introduction and Conclusion. A quick introduction which explains the “goal” of the
PESTLE analysis and a conclusion section (with plenty of specific analysis) drawing meaningful
conclusion from the data presented the report.

The analysis is used to spot trends rather than make conclusions about strategic position of the firms.
The process of environmental scanning seek to distill only the most important, useful and relevant
elements (variables) of the outside environment for analysis and as input to strategy formulation.
In discussing findings, all must be carefully controlled to keep the focus on identifying issues and then
resolve them. You will need to consider the implications of any factors you identify as well as the
likelihood of them occurring.

Example of PESTLE Analysis:

Figure 9. PESTLE Analysis of a Pharmaceutical Firm (online.visualparadigm.com)

References:
Davis, B. (2019). 5 Principles of Great Management. The University of Arizona Global Campus.
Retrieved from https://www.uagc.edu/blog/5-principles-of-great-management
Flores, A. (2020). Module in CBME 2 (Strategic Management). Dalubhasaan ng Lungsod ng San
Pablo.
Ilano, A.B., Business Policy and Strategy. First Edition. Manila, Philippines: Rex Bookstore, 2017
Managementstudyguide.com/strategic-management-articles,htm (n.d.).
Retrieved from http://www.managementstudyguide.com.