INTERNAL ENVIRONMENT FACTORS

Internal Environment - is the setting in which an organization locally exists.

Internal Environment Analysis - is the process of assessing of internal resources and capabilities of an
organization to know its strengths and weaknesses. The organizational internal factors such as goals,
policies, resources, structure, culture, etc.

Importance of Internal Environment Analysis - analyzing the internal environment of a company is

crucial because it helps the organization understand its own strengths and weaknesses. By knowing
what it's good at and where it needs improvement, a company can make better decisions, set realistic
goals, and plan strategies that work well with its internal capabilities. It's like looking in the mirror to
see what you're good at and where you can improve to be your best self.

FACTORS

SUPPLIERS

- The reliability, quality, and cost of supplies directly influence how smoothly an organization can
execute its plans. For example, if a strategic goal involves producing a new product, the availability of
high-quality materials from suppliers is crucial. Unstable or costly supplies can disrupt operations and
affect the organization's ability to meet its strategic objectives. Effective collaboration with suppliers
ensures a steady flow of resources and supports the successful implementation of the strategic plan.

EMPLOYEES

- The organization’s labor force comprises of all the individuals who are employed by the organization.
Employees are responsible for work in an organization. The firm must take care of the needs of its
employees by providing a work environment that is conducive for them. People are the central
resource of every organization. Thus, organizational excellence begins with the performance of their
employees. It is their dedication and commitment of organizational purposes that make the
difference. Whether organizational goals can be achieved depends on the willingness of the people to
make the necessary contributions. The performance of employees is a true benchmark (standard, or
point of reference) of organizational performance.

- the people within an organization can be a driving force for success when aligned with strategic
goals. Engaged, skilled, and collaborative employees can propel the organization forward, while
challenges like resistance to change or skill gaps need to be addressed for effective plan execution.

COMPETITORS

- These are companies that offer similar or alternative products and services. In pursuit of survival and
growth, organizations must compete with one another. The presence of competition and rivalry
forces each organization to offer quality products at minimum prices. Therefore, to be successful, a
company must provide greater customer value and satisfaction than its competitors do. Competition
indeed brings out the best in an organization and requires the management to constantly strive for
excellence.
- competitors as an internal environmental factor influence how a company plans its strategy. Knowing
what other businesses are doing helps a company make smart decisions. If competitors are offering
similar products or services, the organization might need to find ways to stand out or be more cost-
effective. Monitoring competitors helps in adjusting strategies to stay competitive and meet customer
needs effectively. It's like playing a game where understanding your opponents helps you plan your
moves better for success.

CULTURE

- culture, within an organization, is like its unique personality—the shared values, beliefs, and
behaviors that shape how people work together. This internal environment factor significantly
influences the organization's strategic plans by impacting decision-making, collaboration, and overall
alignment with the company's goals. When the culture supports the strategic objectives, it becomes a
powerful force for success; however, conflicts between culture and strategy can hinder progress.

STAKEHOLDERS

- are considered internal factors because they have a direct interest and influence within the
organization. Their opinions, needs, and expectations shape the company's decisions and strategies.
Including stakeholders in strategic planning ensures that the organization considers the perspectives
of those directly involved, like employees, customers, and shareholders, to make plans that align with
their interests and contribute to overall success.

FINANCIAL INSTITUTIONS

- These include banks, insurance companies, and other financial organizations. Firms depend on these
financial organizations to provide them with capital to carry out their business activities.

- impact organizations by affecting access to funds, interest rates, and overall economic conditions,
influencing how a business plans and manages its strategies.

CUSTOMERS

- According to Peter Drucker, “the ultimate aim of all business organization is to create a customer”
(The Practice of Management, p. 37). Customers exchange resources, usually in the form of money,
for an organization’s products and services. The customers expect the management to provide them
with quality products and services at reasonable prices which allow appropriate rates of return to its
owners. Management on the other hand, seeks to win customers’ loyalty through factual information
about their products which have been designed and developed, keeping in view the customers’

- business needs to adapt and align its plans based on customer behavior, preferences, and feedback,
making customers an essential part of the external environment.

COMMUNITY (not sure if included in internal) - community, can affect the organization's strategy
through factors like public opinion, social values, and local economic conditions. Organizations often
need to consider and adapt to the needs and expectations of the community as part of their external
environment.

GOVERNMENT (not sure if included in internal) - government as a rule-setter for businesses. Its laws,
regulations, and policies create a framework that organizations must operate within. Changes in
government decisions or policies can impact how a company plans and operates its strategies. For
instance, new tax laws or industry regulations can directly affect the way a business conducts its affairs
and shapes its strategic plans.

BUSINESS STRATEGIES

VALUE CHAIN ANALYSIS

- As global markets widen, businesses have to pay closer attention to where their raw materials come
from, how they are produced, how finished products re stored and transported, and what their end
products users are really asking for.

- The main business definition of any organization is to produce goods or render services, and to
achieve these set goals and objectives, it engages in a series of activities. If an organization wants to
be profitable, it has to sell value to its buyers—value that is worth paying for. Thus, the whole
concepts of value chain analysis come to the picture.

- Value chain is a general term that refers to a sequence of interlinked undertakings that an
organization operation 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 products reach its eventual end users or
consumers. The value chain concept is concretized in supply chain management.

SUPPLY CHAIN MANAGEMENT

- Supply chain management 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.

Difference of Value Chain to Supply Chain

- The value chain is a process in which a company adds value to its raw materials to produce products
eventually sold to consumers, on the other hand the supply chain represents all the steps required to
get the product to the customer.. Moreover, The value chain gives companies a competitive advantage
in the industry, while the supply chain leads to overall customer satisfaction.
SUPPLY MANAGEMENT
- 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; negotiating and closing contacts; (3) acquiring the needed
materials, services, and equipment; (4) monitoring inventory stock keeping units; and (5) 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. Normally, the stock keeping unit (SKU) is
coded with brief but complete details like date, identification numbers, the originating
department, the account to be charged description of the raw materials/service, date
needed, any special instruction, and signature of authorized person making the request.
2. Identifying and analyze possible sources of supply. Generally, more than supplier should be
considered. The criteria for choosing suppliers are sound business sense and attitude, good
record of accomplishment, sound financial base, suitable technical capability, quality
orientation, customer service mentality, and effective logistical arrangements.
a) Use a Request for Quotation when the need is clear, the commodities are in
constant use, and quotations are easily obtainable.
b) Use a Request for Proposal when the buyer has complex requirements and
plans to negotiate to determine price and terms.
c) Lastly, use a Request for Bid when the desire is a competitive bid process.
3. Ask potential suppliers for their respective quotations, proposal, and bids.
4. Compare and evaluate submitted documents, then select the suppliers. Both buyers and
suppliers agree and determine the terms of the contract. Correspondingly, the negotiated
order placements follow.
5. Prepare, place, follow up, and expedite the purchase order (PO). The purchase order is a
written requisition placement to purchase supplies.
6. Confirm that the order placed has actually arrived in good condition and at the quantity.
Forward it to the accepting party/parties.
7. Lastly, invoice clearing and payment follows
INVENTORY MANAGEMENT

- Another facet of supply management is inventory management. The role of inventory is to buffer
uncertainty. It includes all purchased materials d goods, partially completed materials and component
parts, and finished goods. There are four broad categories of inventories.
1. All unprocessed purchased input or raw materials for manufacturing. Companies purchase
supplies for any of the following reasons: to avail of quantity discounts, to anticipate future
price increases, to safeguard against supplier problems, to minimize transportation costs, and
to avoid supply shortage.
2. Work-in-process (WIP)
3. Finished goods include all completed products for shipment.
4. Maintenance, repair, and operating supplies (MRO) include the materials and supplies used
when producing the products but are not parts of the products.
Importance of Inventory Management
- Inventory management is vital because it ensures a company has the right amount of products or
materials at the right time. It helps prevent shortages, so customers can always find what they need,
and it avoids having too much, which ties up money and space. It's like finding the balance between
having enough cookies to sell without letting them go stale on the shelf. Good inventory management
keeps the business efficient and customers satisfied.
INVENTORY MODELS

- Inventory management is ordering the right quantity of SKUs at minimum inventory costs. Inventory
cost is the sum total of ordering costs and carrying costs. Ordering costs (set-up costs) are variable
costs associated with placing an order with the supplier like managerial and clerical costs in preparing
the purchase, while carrying costs (holding costs) are costs incurred for holding inventory in storage
like handling charges, warehousing expenses, insurance, pilferage, shrinkage, taxes, and costs of
capital.

PRODUCTION AND OPERATIONS

- 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 resources. It commonly
refers to industrial production where raw materials are converted into finished goods.

- Assembly is the process 20 of putting together raw materials into a desired output.

Difference of Manufacturing to Assembly

- Manufacturing is like making something from scratch – creating parts and putting them together to
produce a finished product. On the other hand, assembly is more about putting together pre-made
components or parts to create the final product. It's like baking a cake from scratch for manufacturing
versus assembling a ready-made cake using pre-baked layers and frosting. Manufacturing involves
building from the ground up, while assembly involves combining existing pieces.
THE LOGISTIC CIRCLE

- Now a popular term in supply chain management, logistics management includes the supervision of
certain sequential processes. These includes warehousing, scheduling, dispatching, transportation,
and delivery.

1. Warehousing is the function of physically packing finished goods or merchandises in a

building, room, or any space for temporary storage. While these items are stocked in
storerooms, they are timetabled for release to customers or buyers.
2. Scheduling is 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 release commodities.
4. Transportation scheduling and other logistics are necessary to make dispatching cost
efficient. The goal is to minimize transporting costs. Therefore, considerations have to be
prioritized in terms of location site, ease, or gravity of traffic, safety, and labor requirements.
5. Delivery to the specified site is undertaken. It closes the entire logistics circle.

MARKETING AND SALES

- Products are produced and services re rendered for ultimate release to customers. Therefore, there
is a need to market this merchandise to interested buyers. Companies can adopt different modes of
marketing to attract and sell to customers.

- Aside from coming up with good and distinct products, businesses can offer competitive pricing like
special offers, quantity discounts, and volume sales, among others. They can aggressively promote the
products through advertisements in newspaper, magazines, radio, television, and other forms of
promotional mediums.

GROWTH STRATEGIES

- Particularly, growth strategies are carefully studied and deliberately carried out by organizations for
the following reasons: they want to survive the hypercompetitive environment and not perish; they
want to increase their earnings or income; they want to create their advantage among competitors; or
they may want to increase their market leadership in a given industry.

- Growth strategy is a 21 mode adopted by an organization to achieve its main objectives of increasing
in volume and turnover. Growth strategies can be internal or integrative

 INTERNAL GROWTH STRATEGIES Internal growth strategies are approaches adopted within
the company. These broad growth strategies can be any of the following:

 Market penetration suggest that for an organization to increase its growth,

market penetration can be actualized by selling more of its current
products/services to its current customers or buyers. It is the least risky for
any company to pursue. For example, if we are selling six-pack of Coca-Cola,
then we can push for a 12-pack, 24-pack, and so on.

 Market development is the process where a company can sell more of its
current products by seeking and tapping new markets. It is a little more
challenging. For example, if a company has a chicken fast-food chain in Luzon,
then it can open new outlets int the Visayas and eventually, in Mindanao.
  Product development is ab internal growth strategy where the company sells
“new” products to an existing market. In this strategy, there is a need for the
organization to be more creative in coming up the differentiated products and
services. The products or services need not be new in its truest essence but
instead, may be results of products/service enhancement, redesign, or
reinvention. For example, a company develops a versatile shampoo product
that can be used without wetting the hair.

 Diversification is product/market mix growth strategy that involves creating

differentiated products for new customers. Oftentimes, it is going to another
product/service area that is NOT related to one’s current business or
operations. For example, an aircraft manufacturer can diversify and go into
the restaurant business or an accounting firm can manufacture a new robot
pilot for airline companies.

COMPETITIVE STRATEGIES

- Competitive strategies are designed to deal with this so-called reality of hypercompetition.
Competitive strategies are 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 evaluation
and comparing their strengths and weaknesses against their competitors.

 Low-cost Leadership Strategy. The objective of the low-cost leadership competitive strategy
is to offer products and services at the lowest cost possible in the industry. This strategy is
implemented when the organization makes every effort to be the most effective, if not the
overall, low-cost provider of a service or product. For 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 the broad differentiation competitive

strategy is to provide a variety of products; services or product/service features that
competitors do not offer or 22 not able to offer to consumers. This strategy is implemented
when the organization offers a unique product/service with distinct traits and features that
will appeal better to its customers/buyers.

 Best-cost Provider Strategy. This strategy is a combination of the low-cost leadership and
broad differentiation strategies. It is implemented when the organization gives its customers
more value for money by emphasizing both low-cost products and services with unique
features. The end goal is keeping its customers.

 Focused/market-niche Lower Cost Strategy. This strategy is implemented when the

organization concentrates on a limited market segment and Creates a market niche based on
lower costs. For example, there are low-cost condominium units that cater to middle class
 employees. An affordable and relaxed dwelling residence is an example of using a
focused/market-niche lower cost strategy

 Focused/market-niche Differentiation Strategy. This strategy is implemented where the

organization concentrates on a limited market segment and creates a market niche based on
differentiated features like designs, utility, and practicality. An example of this
focused/market-niche differentiated strategy is Rolex. 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. Cost, design, quality, and branding are distinct features of Rolex watches.

Other Competitive Strategy Other competitive strategies include innovation strategy, operational
effectiveness strategy, economies of scale, and technology strategy.

 Innovation Strategy. Although innovation, in the strictest sense of the world, is anything
that is new and original, this strategy is difficult to implement, the goal of 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.

Role of Innovation as a Competitive Strategy

- Innovation as a competitive strategy is like staying ahead in a race by coming up with
new and better ways to do things. It's about being creative and introducing fresh ideas,
products, or processes that make a company stand out. Just like having a secret weapon
in a competition, innovation gives a business an edge over others by offering something
unique or more efficient.

 Operational Effectiveness Strategy. Some organization operate with a high degree of

inefficiencies in their internal business process like wastes, downtime, longer cycle
times, complaints, rejects, loses, absences, and others. These forms of incompetence,
wastefulness, and inadequacies translate into financial leaks and reduction in potential
profits. The objective of an operational effectiveness 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 work
force productivity.

 Economies of Scale. When applied as a competitive strategy, economies of scale lowers

costs because of volume. In the other words, the more a product/service is produced,
the lower costs are for producing the product and rendering the service.

 Technology Strategy. The advantage of gearing toward technology cannot be

overemphasized. Technology can be applied system-wise through digital integration. As
organizations realize the benefits of going digital, they aggressively pursue this thrust.
Functional activities like accounting, marketing, purchasing, human resource
 management, production, and operations are interconnected using enterprise resource
planning.

LIFE CYCLE STRATEGIES

- The life cycle of any product/service refers to the lifespan that a commodity/service undergoes from
its introduction stage to its growth, maturity, and decline stages. The phases in the life cycle of a
product/service are sequential in development. While a product undergoes its life cycle, external and
internal forces in the environment affect the product/service ranging from consumer expectations,
technological development, and competition to other wide-ranging issues and challenges. Take note
too, that products and services have different life cycle patterns.

 The introduction stage is the period of launching the product/service for acceptance. In this
phase, the product/service is new; hence, there is a need to create awareness. Strategies
include promotions, giving discounts, and market development, among others. Depending on
the type of product/service, the acceptance phase may either be strong or long.

 The growth stage is the phase where the product/service gains acceptance by the
consumers, in this phase, sales and profit slowly increase and emphasis is now on continuous
market development and improvement. Competition become more challenging. Here, the
organization can focus on the branding, building customer loyalty, and promoting repeat
business through customer patronage.

 The maturity stage is the period where the product has reached its penultimate level. Here,
the established product tends to remain steady and the number of competitors increases.
Although sales and profits generally reach their peak, it is in this phase where the
organization should start reinventing its product/services to maintain their current levels.
Product differentiation is recommended in this stage, as well as efficient operations and
formulation of creative marketing strategies.

 The decline stage is the period where the product/service begins to reach or is reaching
lowest point. Here, sales and profits decline and price competition is intense. An organization
can choose to keep the status quo, reduce prices to generate more sales, consolidate with
other organizations, or simply exit the market. Implementing strategies like product/service
reinvention and aggressive marketing can be helpful.

STABILITY STRATEGY

- For organizations that are doing fine or doing better in their existing businesses, they may choose not
to implement any growth strategy. They may not want to apply any competitive strategy and hence,
decide to keep the status quo. Not adopting any growth or competitive strategy is a choice that
organizations make. Stable with their current businesses, some organizations are comfortable with
their current, market niche and any loud strategy may attract the attention of competitors

RETRENCHMENT STRATEGY

- Sometimes, companies encounter serious difficulties. When a company’s survival is threatened or

when it is not competing effectively, it usually takes time to sit down and review its current situation.
There are different modes of dealing with this situation. They are the following:

1. Liquidation is the most radical action takes when the company is losing money and thus, is
further compounded by a disinterest on the part of the stockholders to do anything more to
save it. In such cases, the business may be terminated and its assets sold.

2. Divestment is implemented when a company consistently fails to reach the set objectives or
when the company does not fit well in the organization. Thus, the stockholders would
preferably sell it or set is s a separate corporation.

3. A turnaround strategy is adopted when the organization has reached a significant level of
nonperformance, non-productivity, demoralization, and unprofitability, and therefore has to
implement restorative strategies. Organizations in this level have serious problems that may
lead to possible closure. Once an organization decides to continue, turnaround strategies are
implemented. In a turnaround strategy, the organization should focus on the following areas:
climate and culture, products and services, production and operations, and finances.

a) Climate and Culture. The toughest and most challenging area for any organization
undergoing a turnaround strategy is the climate and culture. Generally, a new chief
executive officers comes in and takes over the critical organization. With a
generally demoralized and uncertain workforce, employees feel a certain
ambiguity and hesitancy. Aside from job security, they are unsure how the new
CEO will manage the organization. Essentially, the strategy is to first study the
organization and audit the job description of each of the employees vis-à-vis their
functionality in their departments or business units. After in-depth study is done,
certain people strategies can be adopted.

b) Products and Services. A review of the products offered and services rendered is
needed; ask questions like what product/services are marketable in the industry,
which of these products and services need some improvements or major redesign,
and what distinct features can be introduced to attract buyers., note that some
products and services that were once saleable and attractive may eventually lose
their customer appeal/ because of rivalries among competitors, these goods may
have become obsolete. Dysfunctional, too expensive, of low quality and therefore,
not competitive. When the organization gives due and serious attention to these
concerns, the product/service competitiveness aspect would have been half
addressed.

c) Production and Operation. In the implementation od turnaround strategies, 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. Questions asked will include finding out
 whether the processes are lean and efficient, whether there is a need 25 to
conduct facility, equipment, production, and operation review, whether the
percentage of wastes, rejects, and downtime is high, and whether cycle time is
high or very high. Once the organization competently reviews and addresses these
areas, financial savings can easily be generated.

d) Infrastructure. Turnaround strategies can easily achieve significant improvements

when the infrastructure is correctly assessed and appropriate interventions are
introduced or reinforced. Technology is the best infrastructure strategy that can
bring about radical improvements. An organization seeking to turn itself around
can look at its structure and system and implement needed step-ups and
enhancement.

e) Finances. When an organization needs a turnaround strategy, it is because its

finances are waving a “red flag”. This may mean that the organization is losing
money or is marginally profitable, causing concerns to investors. Once the aspect
of climate and culture, products and services, production and operations, and
infrastructure have been adequately confronted and substantial interventions have
been successfully implemented, the financial aspects will take care of itself.

Why companies opt to implement stability or retrenchment strategies?

- Companies choose stability or retrenchment strategies when they want to play it safe. Stability is like
staying steady, not making big changes, while retrenchment is about cutting back and simplifying.
They might do this to recover from challenges, reduce risks, or focus on what they already do well. It's
a bit like taking a step back to catch your breath or regroup when things are tough, instead of charging
ahead with big changes.