CHALLENGES IN THE INTERNAL
ENVIRONMENT
INTERNAL ENVIRONMENT
• It is the setting in which an
organization locally exists.
• It is also referred to as a “local
milieu”.
As one studies the local environment, there
are existing unique and interrelated
VARIABLES THAT DIRECTLY AFFECT ANY
ORGANIZATION OR BUSINESS.
1. GOVERNMENT: The Business
Caretaker
• It is the SOLE legitimate institution
tasked with overseeing organizational
operations in the country.
The government undertakes the following:
1. Provides the needed infrastructure
a. Physically in the form of roads,
bridges, electricity, 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
payments 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.
2. CULTURE: A Communal Convergence
The Philippines has its own culture – a culture
that was greatly influenced by diverse
cultures: Chinese, Japanese, Spanish,
American
FILIPINOS CERTAIN DISTINCT BELIEFS,
TRADITIONS AND PRACTICES, which are either
a pride to the country or OTHERWISE…..
 The trait of HOSPITALITY
The Pineapple has been internationally
recognized as a symbol of hospitality and a
sign of friendliness, warmth, cheer,
graciousness, and conviviality.
Their doors are open to relatives and friends,
most especially during town celebrations
called “fiestas”.
 The practice of BAYANIHAN
Filipinos, most especially in the provinces, are
generally helpful. This practice creates an
atmosphere of unity and concern among the
townspeople.
 Take care of their parents,
old relatives, and siblings
 Pakikisama ang Utang na
Loob
Obligation to repay a person from whom one
has received a favor
 The habits of Ningas kugon,
Mañana, and Filipino time
- Ningas – Kugon
“Leaving your work either half – baked or
unfinished.
- Filipino Time
“Minutes or hours behind the standard time”
- Manana Habit
“Mamaya na or Bukas na lang”
 The attitudes of CRAB MENTALITY
and BAHALA NA
 The virtue of RESILLIENCY
 The idea of KANYA – KANYA
 The consciousness of BEING
POLITICALLY INVOLVED
FILIPINOS CERTAIN DISTINCT BELIEFS,
TRADITIONS AND PRACTICES
 The trait of HOSPITALITY
 The practice of BAYANIHAN
 TAKE CARE OF PARENTS, OLD
RELATIVES, AND SIBLINGS
 Pakikisama and Utang na Loob
 The habits of NINGAS KUGON,
MAÑANA, and FILIPINO TIME
 Crab Mentality and Bahala Na
 The virtue of RESILIENCY
 The idea of KANYA-KANYA
 Being Politically Involved
3. STAKEHOLDERS: The Business
Inventors
-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 foe 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 paying business taxes.
4. COMPETITORS: The Business Threats
Competitors continuously strive to outplay
and outsmart each other, hoping to get a
larger share of the target market. They fall in
different categories:
 Same Products – companies who sell
exactly the same products or offer the
same services (Ex. Unilever and
Procter and Gamble)
 Similar Products – they are
companies who sell similar products.
Tea and Coffee are similar products.
 Substitute Products – ex. The
competitors of marketplaces are fast-
food centers who sell primarily
cooked food.
 Different Products – they are the
companies who sell different products
but market to the same market
segment.
Competitors also differ with respect to
the strategies they adopt:
 Complementary Competition ( Ex.
Real Estate company that sells low-
cost housing to target markets,
classes C and D
 Collaborative Competition (ex. Oil
companies in the country. They are in
“friendly” competition.
 Corrupted Competition – they
compete with legitimate businesses
(false branding)
HOW CAN A COMPANY KNOW WHO ITS
COMPETITORS ARE?
a. Determining similarity in
characteristics
b. Studying consumers
 c. Researching company data
d. Considering corporate success
5. CUSTOMERS: The Business Challenge
Customers make the market.
They are the very reason why companies
pursue new products developments and
differentiate their existing products and
services.
Customers are the focus of companies’
business plan and programs and the thrust of
their strategies.
Without CONSUMERS, companies haveno
reason to exist.
6. SUPPLIERS: The Business Partners
SUPPLIERS refer to individuals and companies
engaged in the delivery of raw materials,
machinery, technology. Labor, expertise,
skills, and other forms of services.
Without SUPPLIERS, certain products cannot
be produced and some services cannot be
rendered.
The supplier component is important for the
following reasons:
a. It is responsible for the quality of the
products produced and the services
rendered
b. It affects continuity in operational
processes (ex. Production, scheduling,
delivery)
7. COMMUNITY: The Business Concern
It 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 heterogenous but
characteristically homogenous in its end goal
of attaining quality life.
Porter’s Five Forces Model
1. 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 substitute for the
specific input
c. Switching costs from one supplier to
another are high
d. Customers of suppliers are not united
but fragmented.
2. The bargaining power of customers is
high when:
a. customers buy in large volumes
b. Their products are not unique
c. Suppliers are fragmented and few
d. Product switching is easy
3. Factors that heighten barriers to
threats of new entrants are:
a) Financial in nature like economies
of scale, high initial investments,
fixed costs
b) Marketing advantages that
include brand loyalty of
customers
c) Production and operation pluses
like access to raw materials and
scarcity and increase switching
costs.
4. Threats of substitutes
Threats of substitutes are present when
complementary, alternative, and similar
products are in existence and sold at lower
prices.
5. Competitive rivalry among players is high
when:
a. There are many players with similar
strategies
b. Rivalry is not differentiated
c. The barriers for exit are high
d. The growth of a company is at the
expense of the other
SEVEN (7) VARIABLES THAT DIRECTLY AFFECT
ANY ORGANIZATION OR BUSINESS.
1. GOVERNMENT: The Business
Caretaker
2. CULTURE: A Communal Convergence
3. STAKEHOLDERS: The Business
Inventors
4. COMPETITORS: The Business Threats
5. CUSTOMERS: The Business Challenge
6. SUPPLIERS: The Business Partners
7. COMMUNITY: The Business Concern
Chapter IV: BUSINESS STRATEGIES
VALUE CHAIN ANALYSIS
As global markets widen, businesses have to
pay closer attention 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.
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 product reaches its eventual end
users or consumers.
SUPPLY CHAIN MANAGEMENT
- It 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
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; (3)
negotiating and closing contracts; (4)
acquiring the needed materials,
services, and equipments; (5)
monitoring inventory stock keeping
units; and (6) tracking supplier
performance.
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
2. Identify and analyze possible sources
of supply.
3. Ask potential suppliers for their
respective quotations, proposals, and
bids.
4. Compare and evaluate submitted
documents, then select suppliers.
5. Prepare, place, follow up, and
expedite the purchase order (PO).
6. Confirm that the order placed has
actually arrived in good condition and
at the quantity.
7. Invoice clearing and payment follows.
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.
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 of ordering costs and
carrying costs.
• The inventory model answers two
questions: “how much to order?” and
“when to order?”
PRODUCTION AND OPERATIONS
 are processes that transform
operational input into output to
satisfy consumer needs and
requirements. This transformational
process consists of manufacturing and
assembly.
MANUFACTURING is the process of
producing goods using people or machine. It
commonly refers to industrial production
where raw materials are converted into
finished goods.
THE LOGISTICS CIRCLE
1. WAREHOUSING – the function of
physically packing finished goods or
merchandises in a building, room, or
any space for temporary storage.
2. SCHEDULING – the act of organizing
these inventory units and booking
them for delivery.
3. DISPATCHING – products are for
transfer. This may include posting,
mailing, shipping out, transmitting,
forwarding, or releasing commodities.
4. TRANSPORTATION SCHEDULING and
other logistics are necessary to make
dispatching cost efficient.
5. DELIVERY – it closes the entire
logistics circle.
Companies can adopt different modes of
marketing to attract sells and customers.
They can aggressive promote the
products through advertisements in
newspapers, magazines, radio, television,
and other forms of promotional mediums.
In summary, supply chain management is
a complete sequence of processes that
includes purchasing, production and
operations, and marketing and sales. It is
actually a complete management cycle,
where efficiency between the procedures
essentially brings about optimum output.
GROWTH STRATEGIES
• It is a mode adopted by an
organization to achieve its main
objectives of increasing in volume and
turnover.
• It can be internal or integrative.
EXAMPLES:
 Tinder (dating App) – an online dating
app and geosocial networking
application
 Uber - an American mobility as a
service provider.
INTERNAL GROWTH STRATEGIES
 Approaches adopted within the
company. These broad strategies can
be any of the following: market
penetration, market development,
product development, and
diversification
A. Market penetration – suggests that
for an organization to increase its
growth. It can be actualized by selling
more of its current products/services
to its current to its customers and
buyers.
Example:
If we are selling six-pack of Coca-cola,
then we can push for a 12-pack
B. Market development – the process
where a company can sell more of its
current products by seeking and
tapping new markets.
Example:
If a company has a chicken fast-food chain
in Luzon, then it can open new outlets in
the Visayas and eventually in Mindanao.
C. Product development – an internal
growth strategy where the company
sells “new” products to an existing
market.
Example:
A company develops a versatile shampoo
product that can be used without wetting
the hair.
D. Diversification is a growth
strategy that involves entering
into a new market or industry -
one that your business doesn't
currently operate in - while also
creating a new product for that
new market.
COMPETITIVE STRATEGIES
 Essentially long-term action plans
prepared with the end goal of
directing how an organization will
survive and compete.
 These strategies are formulated to
help organizations gain competitive
advantage after evaluating and
comparing their strengths and
weaknesses against their competitors.
 Example:
 a mobile phone company may
differentiate its phones from the
other products through a sleek design
and different colors.
 Low-cost Leadership Strategy – the
objective of the low-cost leadership
competitive strategy is to offer
products and services at the lower
cost possible in the industry.
Example: Cebu Pacific Airlines uses the low-
cost leadership strategy to capture the
broadest reach of air traveling customers by
offering airfares at low prices
 Broad Differentiation Strategy – the
objective of this strategy is to provide
a variety of products, services or
product/service features that
competitors do not offer or are not
able to offer to consumer.
Example:
 A mobile phone with a television
feature is a broad differentiation
strategy product.
 Fast foods with playgrounds like slides
and see-saws
  Best-cost Provider Strategy – a
combination of the low-cost
leadership and broad differentiation
strategies.
Example:
Baclaran increases its customer base by
selling varied, wide-ranged numbers, and low-
cost products in large quantities.
 Focused/markets-niche Lower Cost
Strategy – implemented when the
organization concentrates on a
limited market segment and creates a
market niche based on lower costs.
Example:
Specialized audio and video equipment store
that sells only these two types of products
 Focused/market-niche
Differentiation Strategy – this
strategy is implemented when the
organization concentrates on a
limited market segment and creates a
market niche based on differentiated
features like design, utility, and
practicality.
Example:
Rolex has an elite clientele base. It sells
limited editions of watches. One look and one
can immediately say that the person is
wearing a Rolex watch.
OTHER COMPETITIVE STRATEGIES
Innovation Strategy – this strategy is difficult
to implement. The goal of a competitive
innovation strategy is to radically catapult or
leapfrog the organization by introducing
completely new and highly differentiated
products and services that give an
organization a competitive posturing.
Example: Robotics – where automation,
engineering science, computing, and
manufacturing are collaboratively used to
create a cybernetics product.
Operational Effectiveness Strategy – the
objective of this strategy is to make an
organization perform better by making the
structure lean, streamlining wasteful and
inefficient processes, harnessing better facility
and equipment maintenance, and increasing
workforce activity.
EXAMPLE: include customer satisfaction
Economies of Scale - economies of scale
lowers costs because of volume. The more a
product/service is produced, the lower the
costs are for producing the product and
rendering the service.
Example: a larger manufacturing company
can invest in more efficient production
technology that smaller manufacturing firms
simply can’t afford to invest in.
Technology Strategy – can be applied system-
wise through digital integration.
Example. In 2003, Apple launched its iTunes
Music service in cooperation with record label
and consisting of digital rights management .
RETRENCHMENT STRATEGIES
• Liquidation - the most radical action
a company takes when the company
is losing money.
• Divestment – implemented when a
company consistently fails to reach
the set objectives or when the
company does not fit well in the
organization.
• Turnaround Strategy - adopted when
the organization has reached a
significant level of non-performance,
non-productivity, demoralization, and
unprofitability.
A. Climate and culture – the strategy is to first
study the organization and audit the job
descriptions of each of the employees vis-à-
vis their functionality in their departments or
business units.
B. Products and Services – as questions like
what product/service are marketable in the
industry, which of these products and services
needs improvement or major design, and
what distinct features can be introduced to
attract buyers.

C. Production and Operations – this is the

easiest phase to sort out and manage. The
CEO can look into the processes of the
organization, determine which processes are
redundant and defective, and undertake
piecemeal improvements.

D. Infrastructure – technology is the best

infrastructure strategy that can bring out
radical improvements.

E. Finances – when an organization needs a

turnaround strategy, it is because its finances
are waiving a “red flag”. This mean that the
organization is losing money or is marginally
profitable, causing concerns to the investors.