CHALLENGES IN THE
INTERNAL ENVIRONMENT
Prepared by:
MARY MAR B. LAHOYLAHOY
Young, Feline C. Strategic Management Made Simple (2015)
CBM Faculty
Topics
• Internal Environment
• Government: The Business Caretaker
• Culture: A Communal Convergence
• Stakeholders: The Business Investors
• Competitors: The Business Threats
• Customers: The Business Challenge
• Suppliers: The Business Partners
• Community: The Business Concern
• Porter’s Five Forces Model
INTRODUCTION:
• The internal environment not only
influences the activities and
choices of employees but also
affects the behavior of employees
within the organization. These
factors influence the behavior of
people working in the organization
and also impact their ability to
make decisions.
INTRODUCTION:
• The internal environment not only
influences the activities and
choices of employees but also
affects the behavior of employees
within the organization. These
factors influence the behavior of
people working in the organization
and also impact their ability to
make decisions.
Internal Environment
While the external environment plays an essential role in
the survival and competitiveness of an organization, the
internal environment presents a more direct impact on
how organizations should conduct themselves toward
success. There are different challenges within the
internal environment of an organization. Thus, this
chapter discusses the constructs within the internal
environment itself and the relevance and application of
Porter's Five Forces Model.
Young, Feline C. Strategic Management Made Simple (2015)
Internal Environment
• The internal environment is the setting in
which an organization locally exists. As one
studies the local environment, there are
existing unique and interrelated variables
that directly affect any organization or
business.
• These areas are government, culture, the
stakeholders, competitors, suppliers,
customers, and the community.
Young, Feline C. Strategic Management Made Simple (2015)
Government: The Business Caretaker
•The government is the sole legitimate
institution tasked with overseeing
organizational operations in the
country.
Young, Feline C. Strategic Management Made Simple (2015)
Culture: A Communal Convergence
•a nation's culture is the communal
aggregation and convergence of the
country's philosophy, beliefs, traditions,
values, attitudes, aspirations, and
practices that have historically evolved
since a nation's inception.
Young, Feline C. Strategic Management Made Simple (2015)
Culture: A Communal Convergence
• The trait of hospitality
• The practice of bayanihan
• Filipinos generally take care of their parents, old relatives, and
siblings
• pakikisama and utang na loob
• The habits of ningas kugon, mafiana, and 'Filipino time.'
• The attitudes of crab mentality and bahala na.
• The virtue of resiliency
• The idea of kanya-kanya
The
•Young, consciousness of being politically involved
Feline C. Strategic Management Made Simple (2015)
Stakeholders: The Business Investors
• Stakeholders are business investors. Some are actively
involved in the conduct of their business while others
prefer to be silent investors. Stakeholders are assets
to the country. They provide opportunities for
exchange of products and services. They initiate
business operations and compete among themselves.
They boost and energize economic activity, provide
employment to the community, and help the
government by paying business taxes.
Young, Feline C. Strategic Management Made Simple (2015)
Competitors: The Business Threats
•There are various forms of competition as
well as several types of competitors.
Competition is an economic scenario where
nations, communities, organizations,
companies and individuals offer and sell
their products and services.
Young, Feline C. Strategic Management Made Simple (2015)
Competitors: The Business Threats
Competitors continuously strive to outplay and outsmart each other,
hoping to get a larger share of the target market. They fall in different
categories:
• Same Products. They are companies who sell exactly the same
products or offer the same services.
• Similar Products. They are companies who sell Similar products. Tea
and coffee are similar products.
• Substitute Products. Some companies sell substitute products. For
example, the competitors of marketplaces are fast-food centers who
sell primarily cooked food, and secondly, convenience.
• Different Products. Still, there are companies who sell different
products but market to the same market segments.
Young, Feline C. Strategic Management Made Simple (2015)
Competitors also differ with respect to the
strategies they adopt.
• Complementary Competition
• Collaborative Competition
• Corrupted Competition
Young, Feline C. Strategic Management Made Simple (2015)
Customers: The Business Challenge
• Customers make the market. They are the very reason
why companies pursue new product developments and
differentiate their existing products and services.
Customers are the focus of companies' business plans
and programs and the thrust of their strategies.
• Consumer behavior is a marketing reality that is difficult
to discern, understand, and study with definiteness. The
following facts on customer approval, customer
patronage and customer loyalty can help address this
"uncertainty."
Young, Feline C. Strategic Management Made Simple (2015)
Changes in Consumer Behavior
Young, Feline C. Strategic Management Made Simple (2015)
Customers: The Business Challenge
• Customer delight, a condition where customers become excited over the
products or the services offered. Customer delight may come from
experiencing quality service, product excellence, product versatility, or
any attribute that will greatly gratify and create a distinct impact on them.
• Customer intimacy refers to the relationship between the company and
the customers. This is best described as warm, complimentary, supportive,
and "businessly" personal. Customer intimacy is manifested in varied
forms like sending birthday cakes, cards or sharing one's expertise with a
"customer" who is in bad financial shape.
• Customer loyalty refers to customers continue supporting the product and
it seals customer patronage.
Young, Feline C. Strategic Management Made Simple (2015)
Customer Relationship Management
Today, customer relationship
management (CRM) is the emphasis
of most companies.
In essence, it revolves around the
interplay of three significant
variables, namely, the company that
produces the product, the product
produced, and the customers who
Young, Feline C. Strategic Management Made Simple (2015)
buy the product.
Suppliers: The Business Partners
• Suppliers refer to individuals and companies engaged in the
delivery of raw materials, machinery, technology, labor,
expertise, skills, and other forms of services. They are
essentially business partners. Without them, certain products
cannot be produced and some services cannot be rendered.
Young, Feline C. Strategic Management Made Simple (2015)
The supplier component is important for the
following reasons:
• It is responsible for the quality of the products produced and
the services rendered.
• It affects continuity in operational processes (e.g., production,
scheduling, and delivery).
Young, Feline C. Strategic Management Made Simple (2015)
Community: The Business Concern
• The community is the intermixture of peoples coming from all
walks of life with different "provincial or city cultures,"
different values, attitudes, aspirations, traditional beliefs,
standards of living, family backgrounds, religions, and
educational attainments. It is essentially heterogeneous but
characteristically homogeneous in its end goal of attaining
quality life.
Young, Feline C. Strategic Management Made Simple (2015)
Porter's Five Forces Model
• Organizations, particularly businesses, are the lifeblood of any
nation. They sustain the continued existence and staying power
of countries. As drivers of survival, growth, and development,
businesses create and energize the pulse of selling, producing,
venturing, and transacting activities, Companies, corporations,
conglomerates, partnerships, transnationals, multinationals,
enterprises, firms, and organizations are entities engaged in
trade and commerce. As players in any economy, they are
essentially competitors. Call them by any term; competition is
the name of the game.
Young, Feline C. Strategic Management Made Simple (2015)
Porter's Five Forces Model
Young, Feline C. Strategic Management Made Simple (2015)
Porter spelled out one by one when is each of
these five forces high, and proposed ways of
reducing these situations:
1. Suppliers are sources of input needed to produce goods and
services. The bargaining power of suppliers is high when:
• few large suppliers dominate the market where they form a
powerful oligopolistic bloc;
• there are no substitutes for the specified input;
• switching costs from one supplier to another are high; and
• customers of suppliers are not united but fragmented.
Young, Feline C. Strategic Management Made Simple (2015)
2. The bargaining power of customers is high when:
• customers buy in large volumes;
• their products are not unique, such that they can be replaced
or customers can produce those products themselves;
• suppliers are fragmented and few; and
• product switching is easy.
Young, Feline C. Strategic Management Made Simple (2015)
3. Factors that heighten barriers to threats of new entrants are:
• financial in nature like economies of scale, high initial
investments, fixed costs, and cost advantage due to the
learning curve;
• marketing advantages that include brand loyalty of customers,
controlled distribution channels, protected intellectual
property on products and services, and good supplier-customer
relationships; and
• production and operation pluses like access to raw materials
and scarcity and costs of qualified labor.
Young, Feline C. Strategic Management Made Simple (2015)
4. Threats of substitutes are present when
complementary, alternative, and similar products are in
existence and sold at lower prices. To diminish these
threats, enhance brand loyalty of customers and increase
switching costs.
Young, Feline C. Strategic Management Made Simple (2015)
5. Competitive rivalry among players is high when:
a. there are many players with similar strategies;
b. rivalry is not differentiated;
c. the barriers for exit are high; and
d. the growth of a company is at the expense of the other.
Young, Feline C. Strategic Management Made Simple (2015)
Conclusion
• By studying the internal environment, firms
identify what you CAN do. By exploiting
their core competencies or competitive
advantages, and by innovatively bundling
and leveraging their resources and
capabilities, firms create value. Value is the
foundation for earning above-average
returns.
Young, Feline C. Strategic Management Made Simple (2015)
Reference:
• Young, Feline C. Strategic Management Made Simple (2015)
Young, Feline C. Strategic Management Made Simple (2015)
ACTIVITY: 1 Challenges of the Internal
Environment
1. Discuss the impact of organizational culture on strategic management. How can a strong or weak organizational
culture influence the successful implementation of strategic initiatives, and what strategies can leaders employ to
align culture with strategic goals?
2. Examine the role of resource constraints in shaping the strategic landscape of an organization. How do limited
resources affect decision-making, and what innovative approaches can be adopted to optimize resource allocation for
strategic success?
3. Explore the relationship between employee engagement and the execution of strategic plans. What are the key
challenges associated with employee commitment to strategic changes, and how can leaders foster a culture of
engagement that supports the achievement of long-term strategic objectives?
4. Analyze the impact of technology and innovation on the internal environment of organizations. How do technological
advancements present both opportunities and challenges for strategic management, and what strategies can
companies employ to stay ahead in the rapidly evolving business landscape?
5. Evaluate the significance of effective change management in overcoming internal resistance to strategic changes.
What are the common barriers to successful change implementation, and how can organizations establish robust
change management practices to navigate and mitigate these challenges?
