STRATEGIC MANAGEMENT

EXTERNAL
ENVIRONMENT
Prepared by:

Jackie Tubia Beatingo

Kier C. Baral
Vebian S. Balanza
 OBJECTIVES:

▪ - To explore tools for analyzing industry and competitive

forces
▪ - To understand the significance of the macro-
environment in strategic planning
▪ - To identify potential opportunities and threats for
organizations
▪ - To provide insights into the process and benefits of
external environmental analysis
 EXTERNAL ENVIRONMENT
▪ The external environment is those conditions external to the
organization, which influences the organization and its industry,
especially those that influence the intensity of competition.
▪ The PESTEL framework is a broad but useful mnemonic to group
external environmental influences into political, economic, social,
technological, environmental, and legal factors. Structural breaks are
major and unpredictable events in the external environment.
▪ These are likely to require a sudden rethinking of an organization's
purpose and strategy.
▪ The industry life cycle likens the life of an industry to a living organism
that goes through stages of introduction, growth, maturity, and decline;
each step exhibits distinct characteristics that should be considered
against the organization’s purpose.
▪ The five competitive forces are the primary influences affecting the
choice of industry and competitive positioning, which involve an
organization's competitive advantage and profitability.
▪ Hyper competition is a dynamic state of constant disequilibrium and
competitive change in an industry.
 THE PESTLE FRAMEWORK
▪ PESTLE, a mnemonic for political, economic, social,
technological, environmental, and legal factors, is the most
comprehensive and used approach for grouping and
reviewing macro-environmental trends in strategic
management.
▪ Changes in these fields over time will likely contribute to
industrial change.
▪ If an organization's external environment is monitored and
audited, it will be better able to respond to trends and
respond faster than its competitors.
THE PESTLE FRAMEWORK
▪ PESTLE, a mnemonic for political, economic, social,
technological, environmental, and legal factors, is the most
comprehensive and used approach for grouping and
reviewing macro-environmental trends in strategic
management.
▪ A PESTLE analysis studies the critical external factors
(Political, Economic, Sociological, Technological, Legal,
and Environmental) that influence an organization.
▪ It can be used in various scenarios to guide people,
professionals, and senior managers in strategic decision-
making.
THE PESTLE STRATEGIES
▪ Political trends
▪ Political considerations include developments in the
conduct of local, regional, and foreign governments and
agencies and the thought and behavior of prominent
organizations and individuals: in many ways, government
policies and regulatory decisions influence competition.
▪ Significant uncertainty hangs over financial markets, for
example, because of a potential trade war between the
United States and China.
 E
THE P STLE STRATEGIES
▪ Economic trends
▪ Economic trends include resource and price use,
interest rates, disposal income, employment, inflation,
and productivity. Emerging economies in China, India,
and several other Asian countries have led the world
in economic growth rates since the 2008 financial
crisis.
▪ Though globalization has slowed in the aftermath of
the global financial crisis, it shows every sign of
continuing at a slower pace.
THE PESTLE STRATEGIES

▪ Social trends
▪ Social factors include economic, social, and
lifestyle changes, gender roles and group
identities, national cultures, ethics, morals, and
aspirations.
▪ The post-WWII baby boom in Western countries
created a strong and distinct community of
customers who will spend more on health and
leisure as they age.
THE PESTLE STRATEGIES
▪ Technological trends
▪ The technology involves impacts on personnel,
organizational practices, goods and services, and
operations from current and emerging technological
changes.
▪ The proliferation of smartphones and applications for
price scanning and the expanded internet usage
changes the nature of shopping and the role of
information more generally.
THE PESTLE STRATEGIES
▪ Legal trends
▪ Legal considerations include legislation and administrative
action, boundary requirements, standards, and labor regulations.
▪ It can also include topics of globalization that deal with
international trade and competition law.
▪ National legal systems differ enormously, and their
consequences are profound for individual industries.
▪ One of the most significant trends is to tighten regulatory
accounting standards after massive corporate failures – like
Enron, Tyco International, Peregrine Systems, and WorldCom –
and the dot.com bubble burst.
THE PESTL E STRATEGIES
▪ Environmental trends
▪ Environmental factors include not only quality of
life, sustainability, and resource recycling but also
logistical and infrastructure possibilities.
▪ Issues such as environmental wealth, global
warming, and plastic packaging waste and
intensive farming escalate.
▪ Many companies would have to take these into
account.
INDUSTRY LIFE
CYCLE
INTRODUCTION STAGE

▪ Production is low initially, costs are high, and demand is

deficient.
▪ There may be a wide range of products and services and
diverse organizations.
▪ The first to perfect a robust design and applications could
capture a large portion of the future market as a first mover.
▪ Success is not necessarily based on the best function or the
lowest cost, but rather a robust product supported by a
marketing mix that locks in first users, who frequently buy for
novelty reasons and early adopters in the brand's personality.
GROWTH STAGE

▪ The time when first movers are well known in their

industries and take dominant roles.
▪ The expansion comes as the latest items get familiar to
consumers, dealers, and retailers.
▪ Supplier companies gain expertise and leverage more
significant economies of scale to deliver lower prices.
▪ When a bandwagon effect gathers strength, a tipping
point is reached at a sales. As a dominant design
establishes itself, the number of competing organizations
rises and then reduces to a handful.
MATURITY STAGE

▪ A mature industry is relatively stable, and a handful of

competitors have been reduced to the competition.
▪ Observers often use the term category killer to identify a
company that has managed to remove much of the round
for a product or service category.
▪ During the maturity period, individual growth levels can no
longer be sustained without taking market shares from
other rivals.
DECLINE STAGE

▪ The reasons for the decline lie in the global environment

and PESTLE variables.
▪ A significant explanation for this is technological change.
▪ Old technology may rally, though – a 'sailing ship effect' –
as steamships were introduced, sailing technology
became more productive.
▪ The integration of computing, telecommunications, and
media technology has changed industries in modern
times, bringing in new life cycles.
THE FIVE
COMPETITIVE
FORCES
▪ Arguably the most crucial contribution to thinking about strategic
strategies came from Michael Porter (1980), who introduced the
competitiveness of the market and the concept of five competitive
powers.
▪ The core factor is the strength of the competition between
established competitors; four others affect this – the threat of new
company, the bargaining power of customers, the bargaining power
of suppliers, and the threat of substitutes.
▪ The strength of these forces and how they influence one another
influences industry productivity and forms its structure.
▪ The strength of these forces and how they influence one another
influences industry productivity and forms its structure.
THE FIVE COMPETITIVE FORCES
THE THREAT OF NEW ENTRANTS (NEW
BUSINESS)
▪ New external competition brings additional capacity pressures to
existing market shares, influencing the industry's prices, costs,
and investment.
▪ Because of this, many existing companies in a threatened
industry will hold down profitability and make their business
less appealing to potential entrants.
▪ If entry barriers are small and the market’s competitiveness is
strong, a new company will enter the industry, push down
prices, and increase costs for established competitors.
▪ The challenge for new entrants is to find ways to resolve the
entry barriers without the high investment costs that cancel the
profitability of industrial operations.
THERE ARE EIGHT SOURCES OF BARRIERS TO ENTRY
THAT ENTRANTS HAVE TO CONSIDER AND OVERCOME:
▪ 1. Supply-side economies of scale
▪ – incumbents have a cost advantage over incumbents from
economies of scale and can sustain lower prices.

▪ 2. Demand-side benefits of scale

▪ – incumbents have a reputation for quality and service that comes
from size.

▪ 3. Customer switching costs

▪ – there is a high cost to customers of incumbents in switching to
entrants.
▪ 4 Capital requirements
▪ – cost and availability for investment in new areas will likely
be high for entrants.
▪ 5 Incumbency advantages independent of size
advantages
▪ are stemming from the first advantage, such as proprietary
technology, access to resources, and locations.
▪ 6 Unequal access to distribution channels
▪ – fewer wholesale and retail channels may mean these are
tied up by incumbents.
▪ 7 Restrictive government policy
▪ – competition policy, regulation, and licensing
may foreclose entry to entrants from overseas.

▪ 8 Expected retaliation
▪ – the ability and history of incumbents to
retaliate when faced with new competition
may deter entrants.
THE BARGAINING POWER OF
CUSTOMERS
▪ Potential customers or groups of customers can force
suppliers in the industry to lower prices, demand
more customized features, and force up service
quality. This activity drives down an organization's
profitability and shifts the balance of power and value
in favor of buyers.
THE BARGAINING POWER OF SUPPLIERS
▪ The strength of suppliers will influence the
profitability of customer organizations; if
this is strong, suppliers can negotiate
higher prices to their advantages.
THE THREAT OF SUBSTITUTE PRODUCTS
AND SERVICES
▪ Most often, there are substitutes, but it is difficult to
determine if they appear different in type from the
goods or services of the industry. However, the threat
of substitutes influences the profitability of an
industry because it can allow customers to go
elsewhere. The danger of substitutes becomes high as
it is clear that competitors give the industry 's offer an
enticing price performance trade-off. The switching
cost for the customer must be small, not just in terms
of cost but also in terms of comfort and assurance.
 RIVALRY AMONG EXISTING
COMPETITORS
▪ The other four influences this latter competitive force.
Depending on how actively rivals use the other forces to
reinforce positions, increase revenue, and save costs, it is
the most effective. The rivalry is healthy when there are
numerous and rough competitors of equal power and
size. In this case, winning customers without taking them
from rivals is difficult for any organization. If the industry
has a CEO, the leader who determines the industry's
economic conditions, competition would likely be
unpredictable and expensive for the industry.
SWOT
▪ Strength Weakness Opportunity Threat
Swot method developed for business and
industry, but it can also use in the work of
community health and development,
education and even for personal growth.
▪ When can we use SWOT? SWOT can offer helpful
perspectives at any stage of an effort. •Solution for
problems •Make decisions, identifying your
opportunities for success. •Determine if there's
changes to make •Adjust and refine plans
 ELEMENTS OF SWOT
▪ Strength- Describe what an organization excels at and what
separates it from the competition.
▪ Weakness- Weaknesses stop an organization from
performing at its optimum level.
▪ Opportunities- Refer to favorable external factors that
could give an organization a competitive advantage.
▪ Threats- refers to factors that have the potential to harm an
organization
STEPS TO DO A SWOT ANALYSIS
▪ Step 1: Determine your Objective Step
▪ 2: Gather Resources Step
▪ 3: Compile Ideas Step
▪ 4: Refine Findings Step
▪ 5: Develop Strategies Benefits of SWOT Analysis • A SWOT analysis
makes complex problem more manageable • A SWOT analysis requires
external consider •A SWOT analysis can be applied to almost every
business question •A SWOT analysis leverages different data resources
•A SWOT analysis may not be overly costly to prepare
 OPPORTUNITIES
1. Market Growth and Expansion:
 Entering new markets or segments that show growth potential.
 Expanding into international markets.
 Capitalizing on emerging trends and consumer preferences.
2. Technological Advancements:
 Adopting new technologies to improve operational efficiency.
 Developing innovative products or services based on technological
advancements.
 Leveraging digital platforms for marketing, sales, and customer engagement.
3. Changing Demographics and Lifestyle:
 Catering to changing demographics and preferences.
 Offering products/services that align with evolving lifestyle trends.
 Customizing offerings for specific customer segments.
▪ 4. Regulatory and Legal Changes:
Benefiting from favorable regulatory changes that open up new opportunities.
Adapting to industry standards and regulations to gain a competitive edge.
▪ 5. Economic Factors:
Leveraging economic upswings to increase sales and profitability.
Capitalizing on changes in exchange rates for international trade.
▪ 6. Collaborative Opportunities:
Forming strategic partnerships, alliances, or joint ventures.
Leveraging the expertise of other companies to enhance capabilities.
▪ 7. Social and Cultural Shifts:
Creating products/services that align with socially responsible trends.
Addressing societal challenges and contributing positively to communities.
▪ 8. Environmental Concerns:
Developing eco-friendly products and processes to cater to environmentally conscious consumers.
Capitalizing on the growing demand for sustainable practices.
▪ 9. Competitor Weaknesses:
Identifying gaps in the offerings of competitors.
Exploiting competitor vulnerabilities to gain market share.
▪ 10. Customer Feedback and Insights:
Listening to customer feedback to identify unmet needs.
Developing solutions that directly address customer pain points.
▪ 11. Mergers and Acquisitions:
Identifying potential targets for acquisition to expand market presence.
Taking advantage of consolidation opportunities within the industry.
▪ 12. Changing Consumer Behavior:
Adapting to shifts in how consumers make purchasing decisions.
Developing new sales channels to reach customers where they are.
▪ 13. Global Trends:
Leveraging global trends such as urbanization, mobility, and connectivity.
Identifying opportunities arising from geopolitical changes.
▪ 14. Health and Wellness Trends:
Capitalizing on the increasing demand for health and wellness
products/services.
Developing solutions that improve physical and mental well-being.
▪ 15. E-commerce and Digital Transformation:
Embracing the shift to online shopping and digital platforms.
Creating seamless omni-channel experiences for customers.
 THREATS
1. Competition: Intense competition from existing and new competitors
can erode market share, pricing power, and profitability.
2. Technological Changes: Rapid technological advancements can make
existing products or services obsolete and disrupt traditional business models.
3. Market Trends: Shifts in customer preferences, demographics, and
buying behaviors can affect demand and require adjustments to product
offerings.
4. Economic Factors: Economic downturns, inflation, currency
fluctuations, and interest rate changes can impact consumer spending and
business investments.
5. Regulatory and Legal Changes: New regulations, laws, and compliance
requirements can increase costs, limit operations, or require adjustments to
business practices.
▪ 6. Political Instability: Changes in government policies, geopolitical
tensions, and political unrest can disrupt supply chains, affect market access,
and create uncertainty.
▪ 7. Environmental Factors: Increasing environmental regulations,
sustainability concerns, and natural disasters can impact operations,
reputation, and resource availability.
▪ 8. Social and Cultural Shifts: Changes in societal values, cultural norms,
and social trends can influence product acceptance and brand perception.
▪ 9. Supplier Issues: Dependence on specific suppliers or shortages of
critical inputs can disrupt production and increase costs.
▪ 10. Customer Power: Concentrated or powerful customers can demand
lower prices, better terms, and higher quality, affecting profitability.
▪ 11. Technological Disruption: Emerging technologies can lead to new
competitors and business models that threaten established industries.
▪ 12. Cybersecurity Threats: Data breaches, cyberattacks, and information
security vulnerabilities can damage customer trust and disrupt operations.
▪ 13. Globalization: Increased international competition, trade barriers, and
market dynamics can impact market access and sourcing strategies.
▪ 14. Resource Scarcity: Shortages of essential resources, such as raw
materials or energy, can lead to increased costs and operational challenges.
▪ 15. Mergers and Acquisitions: Competitors' strategic moves, such as mergers
and acquisitions, can reshape the competitive landscape and impact market
dynamics.
▪ 16. Social Media and Reputational Risks: Negative publicity, social media
backlash, and reputational damage can quickly spread and harm brand equity.
▪ 17. Changing Distribution Channels: Shifts in how products reach
customers, such as the rise of e-commerce, can disrupt traditional
distribution models.
▪ 18. Labor Market Trends: Skill shortages, changing labor laws, and
evolving workforce expectations can impact labor costs and
availability.
▪ 19. Demographic Changes: Aging populations, changing
population sizes, and shifts in demographics can affect target markets
and demand.
▪ 20. Intellectual Property Concerns: Intellectual property theft,
patent disputes, and infringements can impact innovation and
competitiveness.
▪ References:
▪ Witcher, B. J. 2020, Absolute essentials of strategic management (1st Ed.) Routledge, New
York
▪ Retrieved from
▪ https://b-ok.cc/book/5304725/25a98e
▪ Young, F. C., 2015, Strategimanagementnt made simple. Manila: REX Book Store
▪ Flores, Marivic F. 2017, Business policy and strategy. Intramuros, Metro Manila: Unlimited
Books
▪ Library Services and Publishing Inc.
THANK YOU!