CHAPTER 6: STRATEGIC ENVIRONMENTAL ANALYSIS TOOLS AND TECHNIQUES

 3 General Methods of Gathering Information

1. Environmental Scanning- making a critical surveillance of different events happening in the environment
2. Environmental Monitoring- keeping track of the sequence of events
3. Competitive Intelligence- gathering of information about a company’s competitors

I. Physical Environment
 Strategic Factors: Physical Resources, Climate, Wildlife
 Objective: to determine the possible strategic factors that can reduce the negative or unfavorable impacts of the
expected changes on the physical environment of the company
 Strategic approach: environmental scanning
 Information or data are collected from: Secondary sources

II. Societal Environment or General Environment

 Strategic Factors: PEST
o Political or Legal Segment
o Economic Segment
o Sociocultural Segment
o Technological Segment
 Objective: to determine the trends of strategic factors that are relevant to growth of an industry
 Strategic approach: environmental scanning
 Strategic tool used: PESTEL or STEEP Analysis (deeper analysis of the collected data)
 Information or data are collected from: Secondary sources

III. Industry Environment- the immediate environment surrounding a business.

 Strategic Factors:
o Customers
o Suppliers
o Creditors
o Employees
o The government
o Competitors
 Objective: to determine the different forces that drive competition and the extent of competition so a company
can position itself in an industry
 Strategic approach: environmental scanning, environmental monitoring, competitive intelligence
 Strategic tool used: Porter’s Five forces of competition model

IV. Internal Environment

 Strategic Factors:
o Corporate culture
o Organizational structure
o Business resources
 Objective: to determine how culture influences strategy formulation; what structure can effectively and efficiently
achieve organizational goals; and which business resources contributes to the achievement of competitive
advantage
 Strategic tool used
o SWOT Analysis- intended to evaluate a company’s strengths & weaknesses
Strengths Opportunities
a. resources a. high economic growth
b. core competencies b. weak competitors
c. strong market position c. positive change in the political environment
d. managerial and employee skills d. new technological environment
e. product and service quality e. new markets

Weaknesses Threats
a. weak finance a. economic slowdown
b. poor quality reputation b. intense competition
c. employee skill gap c. negative change in the environment
d. poor managerial skills d. global warming
e. undifferentiated product or services e. technological threat
 o VRIO Framework (value, rareness, imitability, & organization) - evaluates which resources are
considered Valuable, Rare and difficult or costly to imitate, and if the company is well-organized to exploit
its resources to gain competitive advantage
o Value Chain Analysis- identify which activity adds value to a product so the profit margin is improved
and competitive advantage is achieved.
o BCG growth-share matrix- determine the status of the product portfolio or strategic business unit (SBU)
against its highest or closest rival in terms of market share and market growth.
Market share- acts as the proxy for competitive advantage
Market growth- acts as the proxy for industry attractiveness

Stars- products have high market share and growth rates in high growth industries; they are cash generators
and cash users
Question marks- products have low markets but consume large amounts or cash
Cash cows- leaders in mature market that generate steady cash flow but utilize small amounts only
Dogs- products have low market share and low growth rate; they generally consume large amounts of cash

Additional Infos:
 TOWS Matrix- variant of the SWOT model
o S-O Strategies- how to use strengths and weaknesses to exploit or benefit from opportunities
o W-O Strategies- how to overcome weaknesses by taking advantage of opportunities
o S-T Strategies- how to use strengths to avoid or minimize threats
o W-T Strategies- how to minimize weaknesses to avoid threats
 The 4 environmental analysis are interrelated, they do not have to start with physical and end with internal
environment.
 The tools used in the analysis complement each other.
 The information collected from the analysis of a particular environment is used to conduct the analysis of other
environments.
 The final results of the forecasted data from the environmental analysis are primary inputs when formulating a
company’s strategies at different levels.

CHAPTER 7: CORPORATE LEVEL STRATEGY

 STRATEGY
 Comes from the Greek word strategia (art of a troop leader or a general)
 The analysis, decision, and action that enables a company to succeed.
 The comprehensive plan that states how a company will achieve its mission and objectives.
 A plan formulated after an extensive critical analysis of a company’s resources which is then implemented in
order for a company to achieve its mission and objectives effectively.

 STRATEGIC TYPES OF BUSINESS (represents companies’ common strategic orientation & combination of structure,
culture, and processes)
1. Defenders- businesses with few product lines and they intend to defend them from new products entering the
market.
2. Prospectors- companies with broad lines of product; creativity is important than efficiency.
3. Analyzers- multi-divisional companies that compete in at least 2 types of industries (1 stable, 1 variable),
while maintaining stability and flexibility.
4. Reactors- businesses that do not have firm or consistent strategic orientation.

Strategy formulation- the first stage of strategic management process; the process of developing a comprehensive plan
to effectively manage the external environmental strategic forces.

 HIERARCHY OF STRATEGIES

I. CORPORATE STRATEGY (top-level management)- a comprehensive master plan that describes the overall direction
of a company.

3 General Orientations
1. Growth strategy- aims to expand company’s present operating activities. Internal growth- happens when a
company expands its operation domestically or globally. External growth- happens when a company enters into
mergers, acquisition or strategic alliances.
 1.1) Concentration strategy- when a company can reasonably determine that its current product lines have real
growth potential.
2 Types:
a. Horizontal growth strategy- business expands its business operation by entering into other geographic
locations and by increasing the range of product lines for the current market.
Exporting- ships goods to other foreign countries.
Licensing- enters into agreement w/ another company from another country
Franchising- enters into agreement with a franchiser to use the name & system
Joint Venture- combines its resources w/ other companies to produce new products
Acquisition- purchases a foreign company
Green field development- constructs its own plants and invests in other assets
Turnkey Operations- constructs operating facilities and transfer the same to the host country
BOT (build, operate, transfer) Scheme- constructs facilities, operates them when completed
and turns them over to the host country
b. Vertical growth strategy- company takes over the function of the supplier and a distributor in a vertical
growth strategy.
Full integration- takes 100% control of the value chain
Taper integration (backward)- acquires not more than 50% of its requirements from outsiders
Quasi-integration (forward)- purchases most of its requirements from outsiders
Long-term contracts- enters into agreement w/ other companies to provide goods with each
other over a specified period of time
1.2) Diversification strategy- when the original industry appears matured, plateaued, and consolidated already
Concentric diversification strategy- more appropriate in less attractive industry and for a
company w/ a strong competitive position.
Conglomerate diversification strategy- a company enters into another industry which is not
related into the industry where it presently belongs

2. Stability strategy- a company plans to continue activities without substantial change in its direction.
2.1) Pause or proceed-with-caution Strategy- company takes temporary timeout from its major activities while
observing changes in its external environment
2.2) No-Change Strategy- industry is not facing turbulent variables and company is enjoying the fruits of its
continued successful activities
2.3) Profit Strategy- temporary plan for a company in its desire to increase its profits when revenues are
declining

3. Retrenchment Strategy- company experiences poor competitive position and operating performance and
competitive disadvantage.
3.1) Turnaround Strategy- a company is not critically bleeding financially. It undergoes 2 basic phases-
Contraction & Consolidation
3.2) Captive Company Strategy- company has a weak competitive position in the industry, weak company
becomes the captive of a strong company
3.3) Sell-out or Divestment Strategy- selling the entire company including all the business units and divisions,
however, divestment occurs when a company only sells its business units and divisions that does not operate
profitably
3.4) Bankruptcy or Liquidation strategy- company is suffering heavy losses terminates its operations.

CHAPTER 8: BUSINESS LEVEL STRATEGY

II. BUSINESS STRATEGY (middle-level management)- provides a plan on how a company should compete in an
industry, gain, and sustain competitive advantage.

Classifications of Business Strategy

1. Competitive Strategy- outperform or battle against all competitors, whether a close rival or not, for a company’s
advantage.
2 kinds of competitive strategies
1.1) lower cost strategy- produce a comparatively similar product more efficiently than its competitors
Cost leadership- serve a broad target market with low cost product or services.
Cost focus- employ when a target market is narrow, and aims to compete in cost

1.2) differentiation strategy- compete using uniqueness of its products from the perspective of the
 customer relative to its value, quality, features, or even services provided after the sale.
Differentiation- serve a wider target market and achieve competitive advantage by offering products
which are unique relative to the quality and value the customer’s view.
Differentiation focus- focuses on the needs of a narrow market by providing a product or service that is
differentiated by competitors.

2. Cooperative Strategy- achieve competitive advantage by working w/ other companies

1.1) Collusion- competitors expressly or impliedly agree to reduce their production so that prices of goods
produced will increase or remain high.
1.2) Strategic Alliances- entering into a long-term arrangement for mutual benefits
Mutual service consortium- partnership established by similar companies in an industry who put
together their resources but not their core competencies
Joint venture- similar participating companies, while preserving their own legal entities, temporary
establish an independent separate unit
Licensing- a particular company grants rights to another company in another country to produce or sell
the products of the former.
Value chain partnership- a company makes a long-term agreement with its key supplier or distributor for
mutual advantage.

Offensive tactic- competing in the market location of competitor

Frontal assault- company attack its competitors head-to-head, from pricing down to distribution
Flanking maneuver- company attack the market where its competitor is weak
Guerrilla warfare- characterized by the use of small intermittent attacks on the market held by a competitor
Bypass attack- redefines the market where a company offers a new product that makes its competitor’s product
outdated
Defensive tactic- competing in the current market location
Increase entry barriers
Increase the expected aggressive retaliation
Lower the inducement for possible attacks

Crafting a Business Level Strategy

1. conduct a thorough evaluation of the industry or market identified at a corporate level
2. assess the internal resources and capabilities of a company
3. define the specific business level strategy to be adopted
4. map the tactic to be employed

CHAPTER 9: FUNCTIONAL LEVEL STRATEGY

III. FUNCTIONAL LEVEL STRATEGY (lower-level management)- intended to maximize the resource productivity of a
company so that the value is created as perceived by customers.

4 Functional Units
1. Marketing strategies- deliver customer-value products
2. Financial strategies- maximize the financial value of the company
3. Human Resource strategies- guide the development and implementation of various programs
4. Production and Operation strategies- reconcile a company’s resources and market requirements

1. MARKETING STRATEGY
1.1) Competitive Position Strategy- dictates the marketing strategy that is adopted by a company based on its
competitive position
1.2) Market Strategy- the term “market” refers to the buyers of a product or service, not the place; it is intended
to determine the growth in a target market.
1.3) Pricing Strategy- set a competitive price in a market that will give a fair return on investment
1.4) Promotion and distribution- the plans for a company’s activities intended to communicate its products to
target customers and persuade them to purchase.
 Promotion Mix Strategies
a. Push strategy- makes use of distribution channels in promoting and selling a product
b. Pull strategy- company engages in advertising and customer promotion to influence a buyer to
purchase a product
 Distribution Strategies
a. Personal Selling Strategy- the sales force presents the products to customer to make sales
 b. Retailing Strategy- company distributes and sells goods directly to final consumers for their personal
use
c. Wholesaling Strategy- sells goods to companies that are buying for resale

2. FINANCIAL STRATEGY
2.1) Financing Strategy- a strategic plan that seeks to determine how a company supports the financial
requirements of its operating activities
 Aggressive financing strategy
 Conservative financing strategy
 Maturity matching financing strategy
2.2) Investing Strategy- concerned w/ the management of investing portfolio of a company to maximize returns
at certain levels of risks
 Management Strategies- reflects how a company manages its investment portfolio at a particular level
of risk.
 Passive Management Strategy- a company places its investment portfolio when market prices
are rising and giving higher returns; adopted for the bull market
 Active Management Strategy- a company places its investment portfolio when market prices
are falling with a shorter cycle; employed during the bear market
 Asset Allocation Strategies- companies invests funds in the mixture of assets that have low correlation
to each other
 Strategic Asset Allocation Strategy- when company has fix allocation of its investment portfolio
 Tactical Asset Allocation Strategy- the portfolio is change when market conditions change
 Investing Strategies
 Value Investing Strategies- purchases assets that are offered at a discounted price, which gives
the intrinsic value of the investment.
 Growth Stock Investing Strategy- companies that have above average earnings growth not
withstand their valuation and the type of assets acquired
 Momentum Investing Strategy- when a company buys securities that have average earnings in
a short period of time and sells those that have poor growth

3. HUMAN RESOURCE STRATEGY- organized plan about a company’s human resource policies and practices and the
way they integrate w/ other functional areas
3.1) Overarching Human Resource Strategy- a broad and encompassing strategy that is concerned with the
overall effectivity of a company in terms of human resource
3.2) Specific Human Resource Strategy- plan that defines what a company intends to do in various specific
areas

4. PRODUCTION AND OPERATION STRATEGY- the core functional unit of a business; transforms raw materials into
finished goods
4.1) Infrastructure Operation Strategies- gives preference to activities related to product planning and quality
control system.
 Production Planning and Control- aims to ensure that the right quality of products is efficiently
produced at the right time
 Inventory Management- aims to control the efficient flow and transfer of raw materials to finished
goods in order to prevent too high or too low levels of inventory.
 Capacity Planning- aims to produce and maintain enough products to meet the customer demand that
will resolve the issue of inventory shortage or overage
4.1) Structural Operation Strategy- considers the tangible shape and architecture of producing goods or
providing services
 Process Design- selection of requirements, resources and processing methods to convert inputs to
outputs
 Layout Design- physical arrangement of resources and the process that transforms and transfers
goods
 Facility Layout- aim to ensure that there is an efficient and smooth flow of production and resources,
manpower, and equipment

5. RESEARCH AND DEVELOPMENT STRATEGY- aims to introduce improvement and innovation to business
procedures and products which ultimately lead to new processes and products

6. TECHNOLOGY STRATEGY- aims to create value to a company through the use of technology in the production and
operation processes
Additional Notes:
 The functional level strategy supports the business level strategy
 The business level strategy supports the corporate level strategy.
 The starting point in the formulation of a functional level strategy is to review the orientation of the business level
strategy; orientation can be cost-focused or differentiation-focused