STRATEGIC MANAGEMENT

MODULE 2 STRATEGY FORMULATION

Overview
This module is designed to provide you with the knowledge and skills in strategy
formulation. Strategy formulation includes developing a vision and mission, identifying
an organization’s external opportunities and threats, determining internal strengths and
weaknesses, establishing long-term objectives, generating alternatives strategies, and
choosing particular strategies to pursue.
Lesson 1 The Business Vision and Mission
Lesson 2 The External Assessment/Environment Scanning

LEARNING OUTCOMES

At the end of the module the students would be able to:

describe the nature and role of vision and mission statements in

strategic management;

identify and describe the importance of the components of mission

statement;

define, discuss, and formulate vision and mission statements

applicable in a specific business endeavor;

evaluate mission statements of different organizations

describe how to conduct an external strategic management audit;

discuss major external forces that affect organizations;

identify key sources of external information;

discuss the importance of monitoring external trends and events.

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Lesson I - The Business Vision and Mission

2.4 The Need for a Vision – Mission Statement
The culprit of having achieved only so much or nothing at all can be traced to the
absence of vision-mission statement or having one which is improperly done or a vision
statement itself that is either impracticable or unachievable
2.5 Personal Vision statement
Why is a Personal Vision Statement Important? ... The best strategy for achieving your
goals starts with creating a vision of what you want. That is why a personal vision statement is
so important. It helps you identify a crystal-clear vision of a future that matters to you.

2.6 What is a Personal Vision Statement?

A personal vision statement is a summary describing what you want to

accomplish in your life. Think of it as a guide to help you navigate your way through life.
Your personal vision is unique to you. It reflects who you are now and who you
want to become in the future.
In a nutshell, your vision statement lays out a long-term view of your values and
the expectations you set for yourself.

There are other reasons why a vision statement matters. Here are three:
• You make more informed decisions about how you will spend your time,
energy, and money. Each of these resources is only available in limited
quantities. Use them wisely.
• You gain access to the ultimate motivational tool in life. There's nothing more
motivating than working on goals that define you and your aspirations for life.
• You have something to hang on to when you feel discouraged. When the days
are difficult, you have something to focus on and a reason to keep trying. 1

2.7 Importance (Benefits)/Purposes of Vision and Mission Statements

A vision statement describes the company's purpose, what the company is striving
for, and what it wants to achieve. Most writers of vision statements find that it is a
rewarding and inspiring process. It gives them the chance to articulate the characteristics
that influence the organization's strategy2

The mission and vision statements of a company help direct the organizational
strategy. ... Mission and vision statements help businesses to outline performance
standards and metrics based on the goals they want to achieve. They also provide
employees with a specific goal to attain, promoting efficiency and productivity. 3

A vision statement is the anchor point of any strategic plan. It outlines what an
organization would like to ultimately achieve and gives purpose to the existence of the

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organization. A well written vision statement should be short, simple, specific to your
business, leave nothing open to interpretation.2

2.8 Defining the Vision – Mission Statement

What is a vision statement?
A vision statement describes what a company desires to achieve in the long run,
generally in a time frame of five to ten years, or sometimes even longer. It depicts a
vision of what the company will look like in the future and sets a defined direction for the
planning and execution of corporate-level strategies.

1Source: “https://corporatefinanceinstitute.com/resources/knowledge/strategy/vision-statement/

What is a mission statement?

A mission statement defines what line of business a company is in, and why it
exists or what purpose it serves. Every company should have a precise statement of
purpose that gets people excited about what the company does and motivates them to
become part of the organization. A mission statement should also define the company’s
corporate strategy and is generally a couple of sentences in length.
2.9 Key Elements of a Good Vision Statement
While companies should not be too ambitious in defining their long-term goals, it
is critical to set a bigger and further target in a vision statement that communicates a

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company’s aspiration and motivates the audience. Below are the main elements of an
effective vision statement:
• Forward-looking
• Motivating and inspirational
• Reflective of a company’s culture and core value
• Aimed at bringing benefits and improvement to the organization in the
future

2.10 Why is a Mission Statement Important?

As shown in the diagram above, the combination of a mission

statement vision, and values tells a full story about Microsoft’s businesses and
points out the things that matter to the company. Being able to build an influential build
and influential statement is the first step to business success because all strategies are
developed and executed with a solid mission as the foundation. The statement guides
the management team in implementing strategies that help reinforce the company’s
identity and achieve its goals.
It is important for:
• Motivating employees
• Inspiring
• Strategic planning
• Setting planning
• Understanding why a business exist4
Vision vs. Mission/ Statement
In many instances, vision and mission statements are projected as one and the
same or synonymous and this is the practice among many business organizations. In
reality, strategic vision somehow differs from mission statement in the context:
a) A strategic vision concerns a firm’s future business path- “where we are
going” It addresses the following specific concern:
- Markets to pursue
- Future technology -product customer focus; and
- King of company that management is trying to create.
b) A mission statement focuses on current business activities- “who we are and
what we do”. The mission statement specifically addresses the following
concerns:
- Current product and service offering:
- Customer product and service offering;
- Technology and business capabilities.

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2.11Communicating the Vision- Mission Statement

Vision-Mission statement should be written in excellent and powerful language.
However, if this is not properly relayed or communicated to the parties who are supposed
to take part in delivering the expectations from the vision-mission statement, it may be
senseless after all. Vision and mission statement should not be only known to all
employees but they should internalize the vision-mission or better else own it.
To be meaningful and considered internalized or embraced by all parties
concerned, the vison-mission statement, must be relayed or communicated to all parties
in an exciting and inspiring manner to send the following messages:
- To challenge and motivate workforce;
- To invite the workforce to commit and pursue the vision
- To arouse a strong sense of organizational purpose;
- To induce employees to buy-in and
- To stimulate the employees to live with the business.
A simple yet important aspect of communicating the vision statement to
all the employees is to have a billboard at the main entrance or gate of the company
seeing to it that it is seen by all the employees which in the process could lead to
implanting such vision statement to the hearts and minds of the employees thereby
motivating and driving them to work hard within the bounds of such vision statement. The
same vision statement may also form part of the regular poster or contents of the bulletin
boards strategically located in the remises of the company or at all levels of floors of the
buildings. Good locations where vision statement may be posted are waiting areas and
canteens as well as other public places. More commonly, the vision statement is on the
front or earlier pages of annual and other publications of the business organization.

Beyond pushing and implanting the vision-mission statement of the firm

among its employees, communicating the vision-mission statement should not be limited
to the perimeter or compounds of the business. Some business firms do post it in
strategic places. The impact of this move is substantial because it informs the general
public and prospective customers of the idea of quality and social consciousness acting
as an effective public relation tool.

Lesson 2 External Assessment/ Environmental Scanning

This lesson examines the tools and concepts needed to conduct an external
strategic management audit/ environmental scanning/ Industry analysis. An external audit
focuses on identifying and evaluating trends and events beyond the control of a single
firm. An external audit reveals key opportunities and threats confronting an organization
so that managers can formulate strategies to take advantage of the opportunities and
avoid or reduce the impact of threats.

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2.12 The Nature of an External Audit

The purpose of an external audit is to develop a finite list of opportunities that could
benefit a firm and threats that should be avoided. It is aimed at identifying key variables
that offer actionable responses.
Key External forces
External forces can be divided into five broad categories:
1. Economic
2. Social cultural, demographic, and environmental forces
3. Political, governmental, and legal
4. Technological
5. Competitive
Changes in external forces translate into changes in costumers demand for both
industrial and consumer products, and services. External forces affect the type of
products developed, the nature of obstructive and market segmentation strategies, the
type of services offered, and the choice of businesses to acquire or sell.
Identifying and evaluating external opportunities and threats enables organizations
to develop a clear mission, to design strategies to achieve long- term objectives, and to
develop policies to achieve annual objectives.1
External Strategic Management audit is also called:
1. Environmental scanning
2. Industry analysis
Environmental Scanning is the process of conducting research through surveys,
observation and other method, of gathering and analyzing information for the
organization.
It covers a broader context as it involves evaluating, monitoring, and dissemination
of information from the external and internal environments to key people within the
corporation. Its purpose is to identify strategic factors: those external and internal
elements that will determine the future of the corporation.4
The external environment has two factors
1- Task
2- Social environment
Task environment- consist of those aspects of the organization that affect the company
itself. These factors are the stakeholders such as community, creditors, suppliers,
customer, competitors, and other organizations.
The social environment – includes the political, legal, economic, sociocultural, and
technological aspects.
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The political environment consists of government rules and regulations which the
organizations follow. These includes taxes and licenses, policies on health and sanitation,
registration, among others. When there are changes in government legislations.
companies may be affected either negatively or positively. There are of course legal
requirements that the companies should follow,
On the other hand, there are changes in the overall economy where the
organization operates. There is price fluctuation that a company should monitor the prices
of its raw materials and other costs related to the production of the product. An
organization should be able to monitor present monetary and fiscal policies, specifically
interest rates or money market rates.
The present inflation rate is studied together with the demand shifts in goods and
services. Present economic trends related to the behavior of primary products and
services which may affect the company’s product or service offering should be taken
consideration.
Recently, there is a clamor also for protecting the environment and the quest for
environment- friendly goods and services. The combined economic and legal forces on
the production of goods and services provide constraint on the part of the company to
produce quality and environment friendly goods and services, at a considerable price.
On the social side, consumer demographics are considered. The characteristics
of the general population affect the demand for goods and services. In the Philippines
for example, there is a widening gap between the rich and this affects the kind of products
and services that companies should offer.
For example, there is a vast market product that are packaged in sachets such as
shampoos, facial cleansers, cooking oil, detergents, among other. Even toothpastes,
deodorants, and baby powders are now offered in sachets. In developed countries,
seldom can one find products in sachets. They are packaged in big containers, cartons
or boxes. This buying power is determined by their purchasing power.
Environmental scanning is the ongoing tracking of trends and occurrences in an
organization's internal and external environment that bear on its success, currently and
in the future. ... Effective environmental scanning examines both quantitative and
qualitative changes. Ultimately, you should create a set of key environmental indicators—
internal, external, qualitative and quantitative—that you believe have the most important potential
impact on the work you do.5

2.13 What is Environmental scanning?

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Environmental Scanning Planning

2Source: https://www.marketing91.com/environmental-scanning/

Environmental scanning is a process that systematically surveys and interprets

relevant data to identify external opportunities and threats that could influence future
decisions. It is closely related to a S.W.O.T. analysis and should be used as part of the
strategic planning process.6

2.14 Purpose /Importance of Environmental Scanning

Environmental scanning is a constant and careful analysis of the internal and

external environment of an organization in order to detect opportunities, threats, trends,
important lessons, and weaknesses which can impact the current and future strategies of
the organization. Identification of these variables can either be used to build strategies
either to expand the business or to minimize their impacts on the growth of the business.

Environmental scanning is an important part of the business process as it is the

responsibility of an organization to keep a check on things which can put negative impacts
on their business and their consumers.

The members of the organization look for the prominent internal and external
threats which adversely affect the organization. Not only the issues which directly impact
their consumers and suppliers but also the issues which impact the competitors and
overall environment of t1he industry are scanned and new strategies are developed to
deal with these issues.

Large organizations have employees specially hired for the research purpose who
constantly research and learn about market changes and provide information to the
higher management so that the company does not lag behind because of the lack of

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knowledge about market place changes. Knowing the issues in business and market
changes, management can make important decisions for the future of the organization.

Environmental scanning plays an important role in the business process of an

organization. There are many advantages in performing environmental analysis that helps
the organization to stay safe from business loss and to stay ahead in the competition.

1. By performing environmental analysis, you can learn about the strengths,

opportunities available, and threats lurking around the industry. Having knowledge
about all these things you can make decision regarding your business and can
reform your business strategies.
2. The environmental analysis helps to determine whether the resources such as
human resource, capital resource, etc. are being used properly or not. It helps to
curb down the wastage of these important resources.
3. Constant environment scanning helps the organization to learn about the
opportunities and threats occurring in the industry and on the basis of that
information future strategies can be planned and implemented. Hence, it helps the
organizations to stay strong in the game.
4. Environmental scanning helps you to learn about the business strategies of
competitors. You can take ideas from the strategies and can also form your
strategies accordingly so that you can give constant competition to them.
5. The data collected from environmental scanning play an important role in long-term
business planning.
6. Environmental scanning helps you to stay connected with your consumers. You can
learn about the changing expectations of your consumers and provide them
services accordingly.

Environmental scanning is conducted to collect data on various areas such as

competition, employment trends, geopolitical climate, economic condition, industry,
technological advancement, industry, and global opportunities, etc.

It is important for the organizations to consistently track the changing trends and to
develop strategies accordingly. It also helps in decision making. For example, you can
learn about the current demands and expectations of the consumers and produce and
sell products accordingly so that you can expand your business.

However, in less dynamic organizations environmental scanning can be done once in a

year just to learn about the issues faced by the organization.

2.14 Components of Environmental Scanning

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1. Internal Environmental components:

Internal environmental components are the components which lie within the
organization, and changes in these components impact on the overall performance of the
organization. There are various internal environmental components such as different
resources like human resources, capital resources, technological resources, etc.;
objectives; organizational structure; value system; corporate structure; labor union, etc.

These components play an important role in structuring the future of an

organization therefore, it is important to analyze these components as part of
environmental scanning.

2. External Environmental components:

External components are the components which exist outside the walls of an
organization. Even though these components are not part of the organization, they still
impact the business of the organization. The external environment can be divided into
two categories such as microenvironmental components and macro environmental
components.

Micro Environmental components: Micro environment components consist

competitors, suppliers, industry, organization, consumers, market, etc.

Macro Environmental Components: Macro environmental components

consist of Demographical environment, economic environment, political environment,
cultural environment, technological environment, etc.6

How do you analyze the external environment?

If you are wondering how you can conduct environmental analysis, here are
simple steps you could follow:
1. Understand all the environmental factors before moving on to the next step.
2. Collect relevant information
3. Identify the opportunities for your organization.
4. Recognize the threats your company faces.

The Economic Factors

The economic factors or forces referred to in Table 1 and - 2 point to identifying
quantitative parameters relevant to the firm in business perspectives. The analysis of the
societal environment necessitates consideration of the key economic indicators that will
affect the business directly or indirectly. Examples of the key economic indicators that
need to be considered in the analysis of the societal environment are shown in Table 3.

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Table 1. Some Important Variables in Societal Environment

Economic Technological Political-legal Sociocultural

• Economic • Regulation on • Form of • Customs norms
development technology transfer government values
• Per capita • Energy availability • Political • Language
• Climate costs ideology • Demographics
• GDP rates • Natural resource • Tax laws • Life expectations
• Monetary and availability • Stability of • Social institutions
fiscal policies • Transportation government • Status symbols
• Unemployment network • Government • Lifestyles
level • Skill level of work attitude toward • Religious beliefs
• Currency force foreign • Attitude towards
convertibility • Patent - trademark companies foreigners
• Wage levels • Internet availability • Regulation on • Literacy levels
• Nature of • Telecommunication foreign • Human rights
competition infrastructu ownership • Environmentalism
• Membership in assets
regional • Strength of
economic opposition
association groups
• Trade
regulations
• Protectionist
sentiments
• Foreign
policies
• Terrorist
activity
• Legal system
(Adapted from Wheelen and Hunger, (2004)

Table 2. Some Important Variables in International Societal Environment

(Wheelen and Hunger 2004)

Economic Technological Political-legal Sociocultural

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• Economic • Regulation on • Form of • Customs norms

development technology transfer government values
• Per capita • Energy availability • Political • Language
• Climate costs ideology • Demographics
• GDP rates • Natural resource • Tax laws • Life expectations
• Monetary and availability • Stability of • Social institutions
fiscal policies • Transportation government • Status symbols
• Unemployment network • Government • Lifestyles
level • Skill level of work attitude toward • Religious beliefs
• Currency force foreign • Attitude towards
convertibility • Patent - trademark companies foreigners
• Wage levels • Internet availability • Regulation on • Literacy levels
• Nature of • Telecommunication foreign • Human rights
competition infrastructu ownership • Environmentalism
• Membership in assets
regional • Strength of
economic opposition
association groups
• Trade
regulations
• Protectionist
sentiments
• Foreign
policies
• Terrorist
activity
• Legal system

Table 3. Relevance of Key Economic Features

Economic features Strategic importance

Market size Small market does not tend to attract new
firms; Large market attracts firms looking
to acquire rivals with established positions
in attractive industries.
Market growth rate Fast growth breeds new entry; slow
growth spawns increase of rivals and
shake out weak rivals.

Capacity surpluses/ Shortages Surpluses push prices and profit margins

down; shortages pull them up
Industry profitability High profit industries attract new entrants;
depressed conditions lead to exit

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Entry/ exit barriers High barriers protect positions and profits

of existing fimrs; low barriers make
existing firms vulnerable to entry

Product is big-ticket item for buyers More buyers will shop for lowest price

Standard products Buyers have more power because it’s

easier to switch from seller to seller

Rapid technological change Raisers risk; investments in technology

facilities/equipment may become obsolete
before they wear out

Capital requirements Big requirements make investment

decisions critical; timing becomes
important; creates barrier to entry and exit

Vertical integration Raises capital requirements; often

creates competitive and cost differences
among fully vs. partially vs non-integrated
firms
Economies of scale Increase volume and market share
needed to be cost competitive

Shortens product life cycle; increases risk

Rapid product innovation because of opportunities for leapfrogging

2.15 SWOT Analysis

Though it appears as a very simple tool for analysis SWOT analysis has become
a popular tool for doing qualitative analysis of the potentials of business organizations
particularly in the context of assessing their competitiveness. SWOT stands for
strengths, weaknesses, opportunities and threats. Thompson and Strickland

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emphasized that for a company’s strategy to be conceived, it must be matched with the
resources, strengths and weaknesses as well as the best market opportunities and
external threats to well-being. 4

2.16 Factors to consider in Societal Analysis

In relation to strategic management, the strength and weaknesses component of

the SWOT represents its internal environment whereas the opportunities and threats
component of the SWOT represents its external environment. This simplistic view on
the concept of SWOT as it relates to strategic management is shown in Figure 1.
A strength is something a firm does well or a characteristic that enhances its
competitiveness. It consists of the following:
a) valuable competencies or know-how;
b) valuable physical assets;
c) valuable human assets;
d) valuable organizational assets;
e) valuable intangible assets;
f) important competitive capabilities;
g) an attribute that places a company in a position of market advantage.

A weakness is something a firm lacks, does poorly, or a condition placing it

at a disadvantage. Weaknesses are deficiencies of the firm which are considered
competitive liabilities.
Weaknesses of the firm relate to the following:
a) deficiencies in know-how or expertise or competencies;
b) lack of important physical, organizational, or intangible assets
c) missing capabilities in key areas.

Opportunities refer to situations where there are potentials from developing into
products or services or other business opportunities. They are considered options by
which the business organizations can explore or venture into to enhance its competitive
Advantage or pursue the agenda of growth and expansion.

Threats usually come in the form of internal and external factors that may put the
firm in uncompromising situation. They come in the form of situations, scenarios or
developments largely influenced by factors external to the firm either from its competitors
or the economy and the society at large. If not noticed and nothing is made to preempt
or avert the threats, they can have serious and devastating impacts in the business both
in the immediate and long-term future.
The following are examples of situations which can pose as threats to the business
in general:

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a) emergence of cheaper/better technologies;

b) introduction of better products by rivals;
c) intensifying competitive pressure;
d) onerous regulations;
e) rise in interest rates;
f) potential of a hostile takeover
g) unfavorable demographic shifts;
h) adverse shifts in foreign exchange rates;
i) political upheaval in country.

Environmental
SWOT Analysis

Internal
Environment External
Environment

Strength Weaknesses Opportunities Threats

Figure 1 SWOT Diagram as Tool for Analysis8

2.17 What to Look for in the SWOT

As to what to look for in the course of doing SWOT analysis for the firm, Table 4 is
a helpful guide. In Table 4, the first column shows the potential resource strengths which
may come in the form of healthy financial condition, strong brand name/ reputation. Cost
and price advantage, etc. Weaknesses on the other hand may prevail or exist on account
of having no clear direction, weak financial condition, obsolete production system or
technologies, etc. The third and fourth columns of Table 4 identified other conditions
determinant of the firm’s opportunities and threats.

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Table 4. SWOT Analysis- What to Look for

Potential Potential Resource Potential Potential External
Resource Weaknesses Company Threats
Strengths Opportunities
• Powerful • No clear strategic • Serving • Entry of potent
Strategy direction additional new competitors
• Strong financial • Obsolete facilities customer • Loss of sales to
condition • Weak balance groups substitute
• Strong brand sheet; excess debt • Expanding to • Slowing market
name/ image • Higher overall new growth
reputation costs than rivals geographic • Adverse shifts in
• Widely • Missing some key areas exchange rates
recognized skills/competencies • Exporting and trade
market leader • Subpar profits product line policies
• Proprietary • Internal operating • Transferring • Costly new
technology problems… skills to new regulations
• Cost • Falling behind in R products • Vulnerability to
advantages and D • Vertical business cycle
• Strong • Too narrow integration • Growing
advertising product line • Take market leverage of
• Product • Weak Marketing share from customers or
innovation skills skills rivals supplier
• Good customer • Acquisition of • Reduced buyer
service rivals needs for
• Better product • Alliances or product
quality JVS to expand • Demographic
• Alliances or coverage changes
joint ventures • Openings to
exploit new
technologies
• Openings to
extend brand
name/image

2.18 Assessment of Strength and /weaknesses

The internal or micro components in the SWOT take the form of strengths and
weaknesses from which strategic planners can draw motivation and inspiration. The
proven strengths of the firm can be capitalized, applied or sustained to maintain or
enhance the competitive advantage of the firm. Strengths can be deduced by examining
the potential source of strengths as listed down in the first column of table 4.
The weaknesses on the other hand have to be acknowledged but efforts have to
be made to overcome these weaknesses in the hope that they can be transformed into
assets or strengths sooner or later. Through training and development for instance,

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weaknesses of personnel in the organization can be addressed and later considered not
a weakness but either an opportunity or strength. Through product development,
weaknesses can be minimized and chances are, these can result in other or new products
considered as strengths or by doing so, the weaknesses of the product or service are
reduced to minimum that they are no longer considered insurmountable weakness or
threat to the organization.
Weaknesses being a high risks factor for the organization should be handled with
care and utmost confidentiality. Managers and concerned parties should see to it that
organizational weaknesses remain a closely guarded secret seeing to it that these are
not made known to the public or divulged to the competitors as they could have damaging
and devastating implications in the immediate and long -term plan.
Organization Competencies
Every organization be it a business organization, non-government organization,
including government organizations exist for certain motives and intents or reasons for
being in the business. In doing so, such organizations must have something in
themselves that these bodies will not engage in any kind of business without having the
necessary skills or capacity to do or undertake, what it seeks to undertake. In other
words, the organization has something in its shelves a competitive product or service that
it can push forward.
Forming part of the major asset considered to be internal to business is
organizational competency.
This is in fact one of the reasons why investors engage in business simply because
they have it which can be capitalized as competitive advantage. It may be somehow
difficult to compete with the old guards of the industry but given the competency that they
have plus more of that they will develop along the way, the new entrants hopefully become
competitive in due time.
The abovementioned discussions are presumptions that business organizations
must have something or competencies to speak of to be able to do business in a
competitive manner. The existence of competencies in the organization speak of the
organization’s capacities in terms of tangible and intangible assets from which it derives
its motivation and strength to conduct business.
The concepts of competencies or competency of a firm evolves around the
company’s asset or primary strength upon which the conduct of the business is anchored
upon. It is something that drives or motivates business organization to pursue a business
and capitalize on it in pursuit of its business.
While competency may be considered inborn or genetic to some individuals,
competency of business organizations is viewed as the product of organizational
experience and represents real proficiency in performing an internal activity. It is
something developed or nurtured as the business commences and eventually progresses

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in the conduct of its business. It is a result of process and learning exercise driven by its
own experience and desire to excel in the running of its business.
Within the broad context of competency is a subset or specific category known as
core competence. Core competency refers to a well – performed internal activity that
is central (not peripheral or incidental) to a company’s competitiveness and profitability.
Distinctive competency on the other hand is competitive valuable activity that a
company performs better than its rivals. It is something unique to a company that makes
it different from the rest of the business organizations within its industry or sector that
enables to outdo or outcompete its rivals.
How competencies are acquired
Having competency involves deliberate efforts to develop the ability to do
something resulting from doing any of the following activities:
a) selection of people with requisite knowledge and expertise;
b) upgrading or expanding individual abilities;
c) molding work products of individuals into a cooperative effort to create
organizational ability;
d) a conscious effort to create intellectual capital.

Often, a core competence results form collaboration among different parts of an

organization. Typically, core competencies reside in a company’s people, not in assets
on the balance sheet. A core competence gives a company a potentially valuable
competitive capability and represents a definite competitive asset.4
2.19 Sources of Information in the External Environment
The sources of information in the external environment are shown in Table 5.
Table 5 - The sources of information in the external environment
Information source Internal External
Personal - Subordinates -Customers
- Peers - Suppliers
- Superiors - Business associates
- Other internal - Peers
(e.g. the sales - - Professional adviser (e.g.
force) bankers management
- Reports consultants)
- Memos - Newspapers
- Schedule - Periodicals
- Company -Government publications
- Meetings - Web sites
- Databases - Commercial databases
- Intranets - Annual reports

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- Clippings service
- Television and radio
- Advice agensies7

.
2.20 Monitoring the External Environment
External monitoring provides the information needed for strategic planning and
crisis management” (Yukl, 2013 p.198,). External monitoring is crucial because it forces
the organization to be vigilant of competitors, forces a re-evaluation of current trends and
deflects threats from the outside environment.

External monitoring educates the organization by making them more aware of the
following:

• the concerns of customers and clients

• availability of suppliers and vendors
• actions and trends of competitors
• market trends
• economic conditions
• government policies
• technological developments

2.21 Guidelines of External Monitoring

• recognize pertinent information that may/ may not affect the organization
• use a variety of sources that are relevant to an organization
• learn about the needs and wants of the company
• know the activities of the competitors
• help formulate strategic plans with the information obtained
Five example Questions that an Organization Must Ask Themselves in Order to
Implement Effective External Monitoring
1. What are the needs and wants of customers and clients?
2. How do customers and clients feel about the product?
3. Who are the competitors?
4. How will new technology affect the organizations?
5. How will the organization be affected by a changing economy? 8

Suggested Readings

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1. David, Fred R., Strategic Management. 12th Edition. South Carolina. Prentice Hall. Chapter 3 pp.
102-118
2. Orcullo N. A. .Jr., “Environmental Scanning”. Rex Book Store. Manila Philippines,2007. Chapter
8. Pp. 146-163.
3. Theconversation.https://theconversation.com/school-vision-and-mission-statements-should-not-
be-dismissed-
asemptywords97375#:~:text=The%20benefits%20of%20vision%20and%20mission%20statement
4. Leighton, Nick. https://www.forbes.com/sites/forbescoachescouncil/2019/10/08/five-reasons-why-
you-need-a-personal-vision-statement-and-how-to-write-one/?sh=6d
5. Vanderels, Norja. https://www.linkedin.com/pulse/importance-vision-mission-statements-norja-
vanderelst

Discussion questions

1. Why is there a need for a vison statement?

2. Distinguish vision from mission.
3. Characterize what is considered strategic vision.
4. Briefly describe how vision and mission statements should be communicated.
5. Summarize the concepts of vision and mission statements.
6. Briefly describe the context of environmental scanning and discuss why it is
considered relevant or important in strategic management.
7. Identify and discuss some of the factors forming part of the societal environment.
8. Given the choices between macro and micro environment; what is considered more
significant relative to business competitiveness?
9. Distinguish the strengths and weaknesses of the organization by illustrating some
examples.
10. Summarize the steps in Environmental Scanning or Environment Audit.

Learning Exercises/ Activities

1.Write a composition of your personal vision.

2.Search at least five (5) company’s vision. Compare and choose which
company having a good vision statement.
3.Illustrate/demonstrate the environmental scanning of a certain company
applying (SWOT) tools
4. Prepare an analysis of internal environment scanning of your chosen company.

End Notes
1Chastain, A. Jan. 17, 2021. “Why You Need a Personal Vision Statement and How to Create One”,
Retrieved May 4, 2021. https://www.simplelife365.com/post/how-to-create-a-personal-vision-
statement#:~:text=Why%20is%20a%20Personal%

2 Amed A. March 19, 2019 “Importance of Mission Vision in Org. Strategy. Retrieved May 4, 2021.

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https://smallbusiness.chron.com/importance-mission-vision-organizational-strategy-16000.html-

3 Eisentein,L. Nov. 19,2019, “What Is a Vision Statement and Why Is it Important?” Retrieved May4, 2021.
https://www.boardeffect.com/blog/what-vision-statement-why-
important/#:~:text=A%20vision%20statement%20describes%20the,that%20influence%20the%20ganizati
on's%20strategy .
4 |\\CFI “What is a vision Statement” Retrieved May 4, 2021.
“https://corporatefinanceinstitute.com/resources/knowledge/strategy/vision-statement/
5.David, Fred R., Strategic Management. 12th Edition. South Carolina. Prentice Hall.
6. Mujahid Khalid. “The nature of an External Audit”. Retrieved May 8, 2021.
https://www.scribd.com/doc/56102985/The-Nature-of-an-External-Audit

7 docsity. External Assessment “Retrieved May 8, 2021. External Assessment

https://www.docsity.com/en/external-assessment-strategic-management-lecture-handout/170545/
8 Orcullo N. A. .Jr., “Environmental Scanning”. Rex Book Store. Manila Philippines,2007.
9Fordham University. “Environmental Scanning” Retrieved May 9, 2021.
https://www.google.com/search=environmental+scanning+meaning&rlz=1C1CHBD_enPH950PH950&oq
=Environmental+scanning&aqs=chrome.1.0i4

10 Hitesh Bhasin. “Environmental Scanning.” Retrieved, May 9, 2021.

https://www.marketing91.com/environmental-scanning/

11 Vouri Vilma. “Sources of Information on the External Environment” . Retrieved, on May 9, 2021
https://www.researchgate.net/figure/SOURCES-OF-INFORMATION-ON-THE-EXTERNAL-
ENVIRONMENT-23_tbl1_309609670

12 Teamwonderful. “External Monitoring”. Retrieved May 10, 2021.

https://teamwondeful.weebly.com/the-external-
environment.html#:~:text=%E2%80%9CExternal%20monitoring%20provides%20the%20information,thre
ats%20from%20the%20outside%20environment

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