E C&E Publishing, Inc. STRATEGIC MANAGEMENT A Procedural Approach with CasesPREFACE UNIT1 Chapter 1 Chapter 2 Chapter 3 Chapter 4 ENVIRONMENTAL ANALYSIS. . . Understanding Strategic Management. Nature of Strategic Management. .......0000s0+0 Definition of Strategic Management Stages of Strategic Management ©... Evolutionary Phases of Strategic Management Importance of Strategic Management. Purposes of Strategic Management. Benefits of Strategic Management Strategic Management Model. Chapter Discussion The Physical Environment Analysis The External Environment. External Environment Analysis Process . The Physical Environment . Conducting a Physical Environment Analysis Chapter Discussion The Societal Environment Analysis The Societal Environment. Conducting a Societal Environment Analysis. Chapter Discussion... The Industry Environment Analysis . The Industry Environment. . Conducting an Industry Environment Analysis Chapter Discussion... Scanned with CamScannerChapter 5 Chapter 6 Unit 1 Summary UNIT2 Chapter 7 Chapter 8 The Internal Environment Analy: The Internal Environment . Conducting an Internal Environment Analysis Chapter Discussion. Strategic Environmental Analysis Tools and Techniques... , Strategic Management Tools Used to Analyze the Physical Environment, Strategic Management Tools Used to Analyze the Societal Environment . Strategic Management Tools Used to Analyze the Industry Environment Strategic Management Tools Used to Analyze the Internal Environment SWOT Analysis Model VRIO Framework. Value Chain Analysis Model . BCG Growth-Share Matrix Model... Chapter Discussion. STRATEGY FORMULATION... Corporate Level Strategy... Concept and Nature of a Strategy Corporate Strategy... Growth Strategy. Stability Strategy Retrenchment Strategy . Crafting a Corporate Level Strategy . Chapter Discussion. ..... Business Level Strategy... Business Strategy - ‘Competitive Strategy Cooperative Strategy Factors Influencing the Sel red Skills and Resou! ee to Resolve in Business Level Strategy Formulation, Issues ing a Business Level States lection ofa Business Level Strategy Cral : Chapter Discussion: Scanned with CamScannerChapter9 Functional Level Strategy. Marketing Strategy Financial Strategy. . 105 106 14 7 Human Resource Strategy .. Production and Operation Strategy .. Research and Development (R&D) Strategy Technology Strategy Crafting a Functional Level Strategy Chapter Discussion. ... Unit 2 Summary .. 17 127 129 131 UNIT3 STRATEGY IMPLEMENTATION 137 Chapter 10 Strategy Implementation: Corporate Level Understanding a Business Organization . Strategy Implementation at the Corporate Level The Hierarchy and Consistency of the Vision, Mission, Goals, and Objectives (VMGO) . . Chapter Discussion. . Chapter 11 Strategy Implementatio: Concept and Nature. 138 139 2 45 £147 jusiness and Functional Levels. . +149 Unit 3 Summary -157 UNIT4 — STRATEGY EVALUATION AND CONTROL... Chapter 12 Strategy Evaluation and Control: Corporate Level . Nature of Strategy Evaluation , ‘The Strategy Evaluation Process Approaches to Corporate Level Performance Evaluation Chapter Discussion, Scanned with CamScannerBusiness and Functional Levels . . . Chapter 13 Strategy Evaluation and Control: Business Level Strategy Evaluation. Functional Level Strategy Evaluation Chapter Discussion Unit 4 Summary .......s0sce00eeeeeeeeeeeeees UNITS — CASESTUDY . Chapter 14 Case Study Analysis. Initial Steps in a Case Study Analysis . Conducting a Case Study Analysis. Case 1 - Netflix S Scanned with CamScannerChapter 1 | Understanding Strategic Management NATURE OF STRATEGIC MANAGEMENT Strategic management is considered the capstone course of all management and business subjects. The bedrock of strategic management is made up of various business courses such as the principles of management, managerial economics, human behavior in an organization, strategic marketing, organizational management, strategic human resource management, managerial accounting, financial management, and quantitative management. Figure 1.1 illustrates this relationship or the interrelatedness of the subjects. Financial \(Human resource | Managerial management} | management accounting Figure 1.1 Strategic management and other business courses +A manager performs several functions such as planning, organizing, staffing, directing, and controlling with equal importance. However, strategic management gives preferential attention to planning, Strategic managers spend more time and effort on planning as compared to other mariagerial functions. ; ‘A managerial position can be at the top, middle, or lower levels. These three levels entail performing all managerial functions and making economic decisions of varying degrees of importance to a company. The concern; however, of strategic management is to address the roles and needs of a top-level manager with substantial input and participation of managers at the middle and lower levels as shown in Figure 1.2. ‘ ‘Planning starts and ends at the top level. The ‘top-level management sets and defines the overall direction of a company. The leadership styles and practices of managers at this level show how strategic management is applied in a business. In a similar manner, the middle- and lower- level managers define their plans and directions according to the overall direction of the top-level management. Scanned with CamScanner baA Unit 1 | Environmental Analysis Focus of strategic management Figure 1.2 Focus of strategic management ic management is business policy. Business policy refers [the fogeronnee ie eee a of a company as determined by the members of thes Rvel management. Before the introduction of strategic management in the 1950s, most manage, applied the principles of business policy in the course of defining or redefining the overall dire ofa company. Today, managers are personal witnesses to How a company, properly armed withtte principles of strategic management, successfully handles the challenges of hypercompetition, wii happens almost everywhere in the international market. To summarize, business policy and strategic management are similar since both are concerne! with the long-term performance of a company. However, they differ on their approach to analyzing | and evaluating the various forces affecting a business. Business policy only considers the forcs ‘comprising the internal environment, while strategic management evaluates the forces from boit | internal and external environments when defining the long-term goals, of a company. process of defining Summing up, the nature of strategic management are as follows: a. Itrecognizes universally accepted principles of other management and business cours. b. It focuses on the planning function of the top-level management with substan! contributions and commitment from other management levels, department units #! various stakeholders in decision-making. : ©. It conducts environmental ses comprisi = anal} isi | ‘ a lyses on the elements ‘ising the external and i at ects the achievement of short- and long-term company gos Scanned with CamScannerChapter 1 | Understanding Strategic Management bd DEFINITION OF STRATEGIC MANAGEMENT .__ Several authors and researchers had defined and conceptualized strategic management from different perspectives and orientations, However, these various definitions have one thing in common: they all recognize the principles of management. Wheelen and Hunger (2010) defined strategic management as a set of managerial decisions and actions that: 1. Determines the long-run performance of a company 2. Includes environmental scanning, strategy formulation, strategy implementation, and evaluation and control 3. Emphasizes the monitoring and evaluation of external opportunities and threats in light of acompany’s strengths and weaknesses ¢ David 2013) defined strategic management as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable a company to achieve its objectives. Strategic management operationally refers to a management's continuous rational process of defining the long-term direction of a company after critically evaluating the different competing forces surrounding and. within it to gain competitive advantage. While some people associate strategic management with strategic planning, strategic planning involves the setting of the direction of a firm, whereas strategic management has to do with how to get to that direction. STAGES OF STRATEGIC MANAGEMENT The following are the three stages of strategic management: 1. Strategy formulation 2. Strategy implementation 3, Strategy evaluation and control Strategy formulation. This stage refers to the development of long-term goals and objectives of a company after conducting a thorough analysis of the various forces comprising its environment. Strategy implementation. This is the stage wherein different strategic plans are put into action and aré aligned with defined business programs, procedures, and budgets. Strategy evaluation and control. This is the last stage of strategic management wherein the operating performance of a company is monitored and evaluated, and remedial action is made. (tae) 1. Define strategic management. 2. Discuss the three stages of strategic management. Scanned with CamScanner~\S NAGEMENT i jONARY PHASES OF STRA GIC MAT a a sone snthas undergone the following evo tegic management " a ‘eater financial planning Phase 9, Medium-term planning phase phase 4, Strategic planning jie management phase Hs 4, Strategic During this early phase, top-level managers = short-term finan ae: cy ae ee ire different departments an oa a rine require ieee wih he comDeny AE ent departments nao ‘The financial plans, targets, and analy edie a mesg “ a and technology) guide ten ase Doe the second phase, the top-level managem ite Medium-term planniOh x planning process from one Yea" 0 five years. Information and, extends the tine Pris by various functional units and departments are still coming fon used in sets tas departments compete for @ DIBBSE chunk in eure alse an tm er on meting® ind project justifications. The projections, base Lon bist = and simple analyses, assist the top management in directing the company toward its goals ng objectives. : Strategic planning phase. Given the disadvantages of the first two phases, for example the system becomes highly political as units compete for bigger budgets,'and more meetings are spet for project justifications, the planning process is assigned to selected staff to devise a strategic plan for the company. Consultants assist in the development of the five-year plan. This time, tthe planning process is done by the top-level management who prepare strategic plans with little participation and inputs from the lower levels. al planning phases Strategic management phase. For strategic plans to be effective, the various inputs and pattitipation from different levels of management, units, and departments should be considered. In short, planning has to be decentralized. Information from within and outside the company is collected and used in formulating strategies, plans, objectives, and goals. si IMPORTANCE OF STRATEGIC MANAGEMENT “oa ficompany as 0. achieve an acceptable level of profitability by improving and solidifying casomer ast u endless challenges brought about by changes in local and intérat ‘gic Management is important for a business for the following reasons: 1. Itcan provide a clear overall direction, | 2. Itean overcome direct and indirect competition, : 3. Itean achieve a competitive advantage. : 4. Itcan attain superior business performance. Scanned with CamScannerChapter 1 | Understanding Strategic Management Questions 1. How do you explain the four evolutionary phases of strategic management? 2. What is the importance of strategic management? PURPOSES OF STRATEGIC MANAGEMENT The critical role that strate; disregarded; however, a busin do the following: if 2 ‘gic management plays in the success of a company can inevitably be ess with a well-defined strategic management process will be able to Exploit business opportunities from a changing environment Identify priorities requiring financial assistance 3. Assist in reducing business risks 4, Continuously define and redefine direction 5. Build competitive advantage BENEFITS OF STRATEGIC MANAGEMENT The benefits that a company can obtain from ado; largely considerable. Studies reveal that a com, has the following characteristics pting strategic management practices are ;pany that implements strategic management practices 1. A clearer sense of strategic vision for the company 2. A sharper focus on what is strategically important 3. An improved understanding of a rapidly changing environment 4. Readily aligned resources for optimal results 5, Easier implementation of ris control measures to minimize uncertainty STRATEGIC MANAGEMENT MODEL This book adopts a simple strategic management model, which is illustrated in Figure 1.3, to facilitate the study of the subject and hasten the preparation and review of strategic plans. In this model, the forerunner of the core stages of the strategic management process is strategy analysis. Strategy analysis, otherwise known as environmental scanning, involves the gathering of relevant and reliable information and a thorough evaluation of the different forces comprising the exterrial and internal environments of a company, including the analysis of the company itself. Strategy formulation, the first stage in strategic management, involves the development of a comprehensive plan to manage external forces and exploit opportunities with the use of a company’s Scanned with CamScannerA Unit 1 | Environmental Analysis 1s, Strategy implementation covers the structuring of organiza f monetary values to various activities and projects, and draw 1 tage of the model is strategy evaluation and coe lation of an entire company and its vai strengths and resource: i it oF programs, assignment ‘various operational procedures. The last st Tt ineludes activities regarding the performance evalu operating units. Strategy Analysis * Physical environment analysis Societal environment analysis Industry environment analysis Internal environment analysis ! VS 2 ' = Formulation Strategy Implementation Strategy Evaluation and Control een « Organizational programs: Performance evaluation 4. Business eel strategy © Budget and ex penditures © Mar fit ‘+ Functional level strategy ‘+ Operational procedures ected Competitive advantage, direction, ; direction, growth, and customer Value and satisfactic tion Figure 1.3 Strategic management modet fel L. State the purposes of strategic management. 2. Explain the benefits that a company can derive from practic icing strategi, ic Management. Cx» Scanned with CamScannerChapter 1 | Understanding Strategic Management by CHAPTER Discussion : 1. Surf the Internet and select a company. answer the following questions: a b. © 4d. What advantages did the business obtain in practicing strategic management? 2: Mini-Case. Read the mini-case of questions comprehensively. Read its annual report and other related documents and Does the company practice strategic management? Why of why not? How does the company give importance to strategic management? Who are involved in the practice of strategic management? i Equity Technologies Corporation and answer the discussion Equity Technologies Corporation Equity Technologies Corporation, a business that offers warehouse facilities and services for equipment, knows what it means to be prepared. Located in Mobile, Alabama, the company has long had plans and procedures in place to counter the threat posed by hurricanes and other severe weather. For instance, Equity Technologies promotes family and individual preparedness and has set up a means of communicating with employees when dangerous weather threatens. Employees carry = laminated cards with contact information for supervisors and a voice recorded call-in number with updates about the company’s status. But it was the risk of Y2K-related disturbances that motivated Equity Technologies to get serious about its disaster preparedness ‘and business continuity plans. “We are a small company which does business around the world. To be competitive, my clients must feel confident that we are ready for everything,” said Equity Technologies Corporation’s President and CEO Cathy Anderson-Giles. “It wasn’t hard to put together a plan, you just have to make ita priority.” First, the company identified workers to serve as the contacts for the 72-employee operations. These key contacts, then, established safety and security teams which analyzed Equity Technologies Corporation's entire emergency process. The teams realized that communication between the company and the outside world was the single most important operational factor in an emergency. As a result, Equity Technologies purchased generators to power their phone system during utility outages and trained co-workers to set them up within seven minutes. Not only does the | + company havé emergency plans and procedures in place, it has made a commitment to review the plans and tools each year at the start of the hurricane season. “We have the annual review on our corporate calendar,” said Anderson-Giles. “Being prepared means being ready for any kind of emergency, be it hurricane, utility disruption, or manmade disaster.” Source: 12+ case study examples. (n.d.). Retrieved from https://www.template.net/business/case- templates/case-study-example Ln ES) Scanned with CamScannerA Unit 1 | Environmerital Analysis = xR 2 S Does Equity Technologies Corporation practice strategic management? Why o, why not? Why does Equity Technologies Corporation give or not give imp, ‘ortance tp strategic management? Do you agree with the steps taken by President and CEO Cathy become competitive? Why or why not? What other actions will Technologies Corporation? Anderson-Giles tp You consider to provide future direction to Equity Scanned with CamScannerLl NX THE PHYSICAL ENVIRONMENT ANALYSIS Leaming Objectives At the end of this chapter, the student should be able to: 1. identify the different external environments that surround a company; 2. explain the three major processes in conducting an external environment analysis; and 3. discuss the importance of analyzing the physical environment of a company. Scanned with CamScannerin an environment sur, ARONMENT it operates in an envire 0p, THE EXTERNAL ENV! a vacuum Rather err ine its profitability, competi ces, These Fores eCmmpany. has three layers, amg it dividuals who represent the importay ‘The scanning team must be composed of diverse in 1 > units of a company. They must have the ability to make an effective environmental scanning. hs .d that environmental scanning is a continuous process which ensures that companies are ./) emphasize I \/ not caught by surprise by competitors. vy Collecting and analyzing secondary data, Data are considered secondary when they ax collected by others for their own purpose but have been considered useful by other individual companies, or organizations. When collecting secondary data, the focus should be on what te company needs. The sources of information must be highly considered for validity and reliably. The data to be collected should be about or related to the following: 1. Industry where a company belongs : 2. Product or service and its substitutes 3, Customers, suppliers, and competitors 4, Emerging technologies 5. Government programs and priorities that may affect a company. Collecting and analyzing primary data. Secondary data are not enough when making? projection of possible trends in the environment. There is a need to conduct an interview and a fo ie p discussion with major stakeholders to obtain primary data: This process provides @ bette are bout the priority concerns and issues of stakeholders without compromising ¢! * and considerations to protect and value their privacy and interest. Identifying issues that consistently surface. Members of the scanning team must be abe to detect issues and concerns that arise that consistently appear ind arise reps tod neen e repeatedly. Issues th ly Scanned with CamScannerInterpreting results and preparing a r aed Interpreted in ight of the operations, resources, Theresohs of an environmental scanning must pro ion: 4, Trend of past events and probability ofthe forecast 2. Probable time frame ofthe trend 3. Impact on the company reaction or response of the company sed tool when conducting an environmehtal scanning is the STEEP or PESTEL discussed in the succeeding chapters, identifies the different variables of ‘the political, economic, social, technological, and egal environments of a company. Environmental Monitoring ime frame of emerging issues 3. Deciding on the action tobe taken dentifying emerging issues. An environmental scanning provides information on series of ing identifies top emerging issues It determines what really happens in the environment and wl “The commonly used strategic management tool when practicing environmental monitor trend analysis. Tis tool attempts to detect a pattern and uses to predict future events, Environment Analysis bh Scanned with CamScannerA Unit 1 | Environmental Analysis Exercises canning from environmental monitoring, ky 1. Differentiate environmental s es 2. Explain the steps in conducting an environmental scanning: Competitive Intelligence Competitive intelligence is a sy information about business competitors. It : competitors. Its entirely different from business espionage, Companies conduct competitive intelligence to understand the different forces in the market ang ystematic process of collecting, analyzing, and interpreting tors. It is intended mainly to monitor the probable moves ¢ which is an unethical practice. develop the most appropriate marketing strategy. | The following are the steps in conducting competitive intelligence: | 1. Identify the sources of information | 2. Validate collected information 3. Analyze the information 4. Make projection 5. Define the action to be taken Identify the sources of information. Good sources of information about competitors are annual reports, websites, mission and vision statements, newspapers and magazines, financial statements, and publications of research offices. All types of information about competitors, whether qualitative or quantitative and published or unpublished, must be gathered. : __’ Validate collected information. Only information that can provide valuable and strategic insights to a company must be validated. It involves the comparison of information culled from sist emaees ant offices and the services of experts in assessing relevant information. I important to avoid information overload so that the ir i e erent Said Process of assessing relevant informatio Analyze the information. Data collected refle a ation. ct the past and current performances of competitors When analyzing collected information, it is important to avoid mang assumptions and Projections. Gathered information must simply be analyzed using various tools such 3 comparative analysis, horizontal analysis, mix rato analysis, and other qualitative techniques. Make a projection. is jecti i Projection. The process of making a projection means that the probable actions of Scanned with CamScannerChapter 2 | The Physical Environment Analysis bh Define the action to be taken, company’s action to combat the outlined courses of action to be a The last stage in competitive intelligence is to identify a Projected moves of competitors. Companies usually have several idopted depending on the moves of their competitors. The ane. used strategic management tool when conducting competitive intelligence is the five forces of competition model. Its complemented by sensitivity analysis which identifies the various forces affecting the competition in the marketplace, THE PHYSICAL ENVIRONMENT __ The physical or natural environment of a company includes physical resources, wildlife, and climate. These elements are inherent and beyond the control of a company. It is important to conduct a physical or natural environment analysis to determine possible strategic factors for the following, reasons: 1, Changes in the natural environment have a direct impact on the societal environment that affects companies in terms of resource availability and cost. 2. Changes in the natural environment have an indirect impact on the task or industry environment that affects a company’s growth in a particular industry. An analysis of the physical environment of a company includes concerns on the following: 1. Availability of raw materials used in production, including fresh water and clean air 2. Unpredictable weather conditions, increase in sea level; and erratic climate change because of global warming 3. Increasing greenhouse gas emissions because of the carbon footprints of industrial factories Studies reveal that there is a positive correlation between the operating performance and sustainability of a company and its concern with the issues affecting the natural environment. There are companies that operated profitably for several decades but finally closed because of shortages in raw materials. Moreover, some newly organized businesses cannot simply start their operating activities because potable fresh water needed for operatiortis not readily available. The changes in the physical or natural environment are analyzed and: evaluated through environmental scanning or environmental monitoring, with focus on the availability of raw materials, weather condition, and climate change. The primary concern is to address the issues regarding the sustainability of a company. Questions 1. What are the three layers comprising the external environment of a company? 2. Why isthere a need to conduct a physical environment analysis? Scanned with CamScannera ae A Unit 1 | Environmental Analysis CONDUCTING A PHYSICAL ENVIR' onment analysis is ¢ ONMENT ANALYSIS ; i ironmental. sc conducted using an envi e sri itori dure which focus Initially, a physical environ ays i tal monitoring. proce mi tool. It is later supplemented Se cceey objective is to reduce the impact of the hangs " environmental sustainability, whose P! Sasrneteoret te i si u oi i i nt on a company. This can easily aus fetes ha ply leoment that pose opportunities and threats ai ly : ‘cal ‘The following procedural steps must be followed when conducting a physical environmen, analysis: 1. List the forces from the physical environment that are currently affecting the company, These forces include climatic conditions, temperature, sea level, and availability of fresh water and raw materials, 2. Gather information, preferably quantitative, from reliable sources. 3. Evaluate the level or impact of the effects of these forces on the company (e.g, very strong, strong, moderate, and negligible). 4. Determine the frequency of occurrences and the level of weather-related events such as storms, floods, and droughts. 5. Assess if the company is vulnerable to climate-related effects, such as regional shifts in the availability of energy and water, the reliability of infrastructure and supply chains, and the Prevalence of infectious diseases. 6. Group the identified climate change effects into six risk categories: regulatory, supply chain, product and technology, litigation, reputational, and physical, _ /A template to facilitate the analysis of the physical environment is provided i (Table 6.1). Provided in Chapter 6 al 1. Explain how envirorimental monitoring is conducted, 2. Discuss the steps in conducting competitive intelligence. : Scanned with CamScannerChapter 2 | The Physical Environment Analysis by \. CHAPTER Discussion“ 1, Surf the Internet and perform the following: a. Describe the physical or natural environment surrounding companies located in Luzon, Visayas, and Mindanao, b. Identify the programs and regulati i i *gulations adopted by the European Union, United States, and ASEAN to reduce carbon dioxide and other greenhouse gases. c. Explain how different countries invest in sustainable energy, including wind, solar, and water power, to support advocacies on environmental sustainability. 2. Mini-Case. Read the mini-case of F Walmart de México and answer the discussion questions comprehensively. ‘Walmart de México When Walmart de México y Centroamérica decided to buy the power generated by Electrica del Valle de México's (EVM) wind farm, EVM's struggling project received a significant boost. While the proposed wind farm was lotated in an area with abundant wind resources, absent a creditworthy offtaker, the project would not have been able to line up financing, With Walmart de México's 15-year PPA (Power Purchase Agreement) in hand, the developers were able to gain financial backing, buy and erect the turbines, and begin generating electricity by 2010. For Walmart de México, becoming the wind farm’s offtaker accomplished-a number of important objectives. EVM guaranteed electricity rates below those charged by Mexico's state-controlled utility, shaving costs for the famously thrifty retailer. In addition, the project allowed Walmart de México to get closer to'some of its sustainability goals. The wind farm would supply electricity to 348 Walmart de México facilities in Central Mexico, providing 18% of the electricity Walmart de México consumed in 2010. ‘The wind farm was just one part of the efforts Walmart de México was undertaking in the sustainability area. The company had pledged to meet ambitious goals, looking to reduce waste in its and its suppliers’ operations. In the energy area, the company was hoping to receive 50% of its energy from renewable sources by 2015, even in a period of rapid growth, increasing its square footage in Mexico by 12% in 2012 alone. All told, the efforts of Walmart de México had made it the world’s leading retailer in the area of sustainability—a distinction the company hoped to build on. The success of the EVM wind farm had ignited Manuel Gémez Pefia’s thinking about further renewable energy projects. Gémez, Walmart de México's director of sustainability, was considering ways the project financing structure might be further adopted to allow Walmart de México to participate in and benefit from other projects. Gémez was also considering the mix of renewable energy sources. In addition to wind, solar and mini hydroelectric projects were possibilities that Walmart de México could consider. Le FO | Scanned with CamScannerA Unit 1 | Environmental Analysis RR RE ee : kc had to work in-concert wi Any project that Walmart de México underloel ical leadersp Mexico's electricity grid and rate-making structure, TT ergy sources: to move te announced a cominitment to electricity from Fenewabn TA exis sovemne country away from its traditional reliance on n@! pu ssnvission rates for renewable eners\, controlled electricity utility had simplified the "TT there were no special fe and had constructed a few projects of 5 OW Tr ruives for the construction o in taf for renewable energy ae nore, there was 2 dearth of nena Project ‘ae vr take into account Walmart de México’s capabilities and focus, Gomez ae ed made sustainability a priority, corporate 4 activity-of eee Whllethe compet” stood, them 3o0.far fcocn the company’s central 1 i take on projet trettment group analyzed sustainability Projects on the Same basis ag company’s in it. any other project—concentrating on the return on investment. Gémez believed that the situation called for creative thinking. source: Walmart de México: Investing n renewable energy. (2016, June 27). Retrieved from https://som, ; yale.edu/case/2011/walmart-de-m-xico-investing in-renewable-enersy 1. How can the company leverage its sterling credit rating to get renewable ehergy projects off the ground? 2: For the EVM wind farm, Walmart de México’s equity investment was minimal and just sufficient to meet the requirements for Mexico's self-supplied tariff. Should the | company take a larger equity position in furthering energy projects rather than ” simply serving as an offtaker? : 3. What technologies should Walmart de México employ to achieve its renewable | energy goals? 4, Should the i ; ‘ technology? hold a portfolio of projects or just concentrate on one 5. How could Walm ‘ " coutrics whee eee expand the program to other Central American 6 Is there a way to include suppliers into a renewable energy program’ Scanned with CamScannerLl THE SOCIETAL ENVIRONMENT ANALYSIS Learning Objectives At the end of this chapter, the student should be able to: 1. identify the various forces comprising the societal environment of a company; 2. explain the importance of conducting a societal environment analysis; and . describe how to conduct a societal environment analysis. Scanned with CamScannerA Unit 1 | Environmental Analysis of political or legal, economic, sce THE SOCIETAL ENVIRONMENT any consists © Pged of several variables, infune The societal environment of a comp: igh are comp a and technological factors These areas, Whi oe TT ects can be felt directly by a growth of the industry in which a company Table 31 shows the different segment ryt id business. i imes indirectly by @ industry and sometimes indirect es them. Pe eta ae ind Their Different Strategic Factors ironment a | its of the Societal Environment : | Table 3.1 The Segments cuits Sacileral se \ Political or Leva interest rates > Level of education Internet ava ee i cr trends + Population growth rate | + Spending 5 ai fi 38 = . Population age ee eared distribution ao . © Genetic Immigration laws » Currency market Birth rates and life ia engineering expectancies + Wireless ) «Provision: on special . gener price «Pension plans and ‘communication iw ace health care +| «Patent protectién + Government + Mone; + Concern for the ‘= Computerized id proves Disposable income | * environment operation The Political or Legal Segment The political system, tax laws, government programs and priorities, and other variables under the political or legal segment directly affect a business or the industry where it operates For example, Executive Order No. 28, series of 2017, which banned the use of fireworks in households or places of residence nationwide, adverseiy affected businesses producing firecrackes. Similarly, Executive Order No. 26, series of 2017, which banned smoking in public places nationwide has reduced the consumption of cigars and cigarettes which negatively affected tobacco companies. However, the Build, Build, Build Program of the Duterte administration favorably contributed ae Browth of businesses manufacturing construction materials. These recent developments a re al ane ms ney ake precise Sane ir strategies fit accordingly to the demand of The Economic Segment Such as interest rates, inflati which is manifested by key economic indicato® For example, ployment levels, affects all types of business their buying behavior, Production it 'sposable income of consumers who tend to limit atrial requirements and labor free Pon oe hich ultimately leads to issues regarding borrowing and capital investment sp. areas high interest rates discourage consumers £0 Scanned with CamScannerBu Strategic managers must seriously consider the nature of operation of a company and its related economic Variable that has significant influence when scanning and monitoring the economic segment. For example, a companj that largely imports raw materials for the production of goods has to be aware of the currency exchange rate. However, this is not a concern of companies that are highly dependent on locally sourced raw materials. Chapter 3 | The Societal Environment Analysis The Sociocultural Segment ‘The sociocultural segment refers to the customs, traditions, values, beliefs, and lifestyles in a society for a period of time. Some important variables comprising this segment include a greater concern for the environment, the level of education, and an increase of women in the workforce. ‘The impact of this segment varies among businesses across industries. For example, mining companies and coal-processing plants are facing pressure from environmental groups for the possible shutdown of their operations. The shift from carbonated drinks to healthy drinks will Feduce the sales volume of the former. People today spend more time in amusement parks, theme parks, beaches, and resorts to relax instead of flocking to bowling centers, which was the fad three decades ago. Existing businesses and possible new entrants to the industry must critically evaluate the changes in the sociocultural segment to remain competitive in a new environment. [eka 1. Provide five variables under the political and economic forces. 2, Explain how the trends in the political segment affect the operation of a business. The Technological Segment ‘The accelerated pace of changes and advancements in technology and communication has tremendously affected almost all types of businesses across industries. This segment can make a product obsolete overnight and, at the ‘same time, provide opportunities for creating new products in a short period of time. It makes the demographic landscape borderless, reshapes the industry structure, and lowers barriers that hinder the entry of new products or competitors. The continuous advancement of the Internet has provided more opportunities to businesses engaged in e-commerce, e-banking, and e-publications. The advancements in technology and communication, however, are misfortunes to some businesses that are not able to predict the former's possible effects on the opeyations of the latter. Companies that produce cameras and typewriters, for example, have financially suffered, and telegram provider companies have no other recourse but to close their operations. Strategic managers must be aware that the technological segment creates demands instead of simply producing supplies to satisfy the existing demands. The Other Segments The other segments, which are of equal importance and must also be critically considered when conducting a societal environment analysis, are the demographic and global segments. The changes Scanned with CamScannercegments. In a similar 4 Unit 1 | Environmental Anat other segment m he sofas erage go te operations fas ca oe ect i raphe Prd and sng ESgnent the gab ‘APEC, and ASEAN), an; 1e demands ofthe ASEay and colleges that concentrated many eet or mses wood hasdosaet The ofthe global segment. ‘CONDUCTING A SOCIETAL ENVIRONMENT ANALYSIS technological, environmental, ind legal forces. This ‘happening in the industry to which a company belongs. PPESTEL analysis are discussed in Chapter 6. ‘To conduct a societal environment analy 4. List down the most important ich environmental force. The niu that are applicable to the company les varies from company to compar elements, either locally or globally, by gathering formation comes from reliable sources. . waa Yaviables using the historical trend as the ss roach or both may be adopted when making projec! based onthe possible effects of other environmental forces. *80n the company. the possible future trend A quantitative oF qualitative a trends, 4. Adjust the projected tena 5. Quantify the possible effec 6 Draw strategic actions to mini ic actions, tom mize the effects ‘°F the identified environmental forces: BER Scanned with CamScannerChapter 3 | The Societal Environment Analysis bh Though each company or each industry has its own unique set of societal forces, the trend in economic forces generally affects all types of industries and businesses. For example, an increase in oil prices reflects an increase in the prices of all goods and services, which results in the decrease of consumption. 1. Explain why the demographic and global segments need to be included in performing a societal environment analysis, 2. Describe how a societal environment analysis is conducted. Scanned with CamScannerfe Chapter 3 | The Societal Environment Analysis Bx CHAPTER Discussion 1. Surf the Internet and look for two companies from different industries. Then, perform the following: s a, Determine at least three variables under each societal segment, which need to be evaluated, that may affect the future of tlie companies. b. Do these companies have the same variables under different societal environment forces? Why or why not? Discuss your answer. 2. Mini-Case, Read the mini-case of Ant Financial and answer the discussion questions comprehensively. Ant Financial In 2015, MYbank launched the Flourishing Farmer Loan Program, which is an effort to extend financial services to rural China. Because the bank’s program targeted customers who had no experience with banking, MYbank looked to determine credit- worthiness by using big data from Internet transactions to create a nationwide credit- rating system for individuals and small enterprises. Credit-scoring was new to China, and the bank’s pioneering efforts could pave the way for economic development in the rural areas. : MYbank was an offshoot of the Alibaba Internet empire founded by Jack Ma. Ma had built Alibaba’s online platforms to bring buyers and sellers together in China. Having found success in facilitating online transactions, Alibaba began offering financial services. In time, these financial service units were spun out from the Alibaba group, which was first organized under Alipay and rebranded under the name Ant Financial Services Group. By 2013, Ant Financial consisted of Alipay and Alipay Wallet, two services that facilitated online transactions (similar to PayPal); Yv‘eBao, a money market fund with 570 billion yuan ($93 billion) under management; Zhao CaiBao, a third-party financial services platform; and Ant Micro, a micro-loan provider. Each of ‘Ant Financial's units had cooperative arrangements with Alibaba’s online platforms, providing data for business transactions and facilitating the transfer of funds. In March 2014, Ant Financial received regulatory approval to create an online bank—MYbank. MYbank was among the first of five privately owned banks to be granted approval by the China Banking Regulatory Commission. MYbank was initially authorized to make loans but not accept deposits. Besides looking at models of private ‘ownership, the regulators were evaluating the implications of online banking services. While cautious, the China Banking Regulatory Commission welcomed new banking models that could increase available capital for private entrepreneurs and encourage economic growth in a way that the state-owned banks were not set up to provide. Regulators were also eager to see if private banks could support economic growth in the rural regions that are far from the main cities. Le Scanned with CamScanner4 : aro Unit 1 | Environmental Analysis Flourishing Farmer Loan p, low online banking forall ee juce the cost of loans for indivig 1 market for financial and Inter There was much riding on the success of the An effective program could convince regulators t a services, Better access to credit could not only red! and small businesses but also expand the potential services. Bank officials had designed the Flouris Internet to communicate with loan applican worthiness. To make the program sustainable, n k shing Farmer Loan Program to use, ts in rural areas and judge their cr, MYbank faced a number of challeng , sbruary 24). Retrieved from https. Source: Ant financial: Flourishing farmer loans at MYbank. (2017, Fet foal Hee eae totT ent ancastourishng farmer ioansxt-m/bank Discussion Questions 1. Could MYbank’s big data and algor small loans without incurring the expense o mortar branches? 2. Was the ‘rural customer base for online banking robust enough. to create "profitable program at scale? 3, What did MYbank do to make a national credit-rating system for small enterpris successful? : ithmic approach identify good credit risks) f multiple loan officers and brick-ax Scanned with CamScanner