Strategic Management: Formulation and Implementation

Business And Its Environment

The development of mission and objectives involves analysis and appraisal of environment. The results of internal and external appraisals will help managers determine what goals and mission they can or should adopt, and the strategic options that are available.

Therefore, in formulating a strategy, the effective general manager makes strategic choices which are consistent with environmental factors. The biases or preferences for action shape the decision makers' view of the situation.

In spite of these decision-making biases, there are some common elements in the environment that decision makers analyze in their strategic decision making processes. Moreover, there are some common relationships between the strategic choices and the environment.

This chapter attempts to show how all organizations interact with and are affected by the environment in which they function.

The Factors That Shape Strategy

Organizations do not exist in a vacuum. Many factors enter into the forming of a company's strategy. Each exists within a complex network of environmental forces.

These forces, conditions, situations, events, and relationships over which the organization has little control are referred to collectively as the organization's environment.

In general terms, environment can be broken down into three areas:

  1. the macroenvironment, or general environment (remote environment) - that is, economic, social, political and legal systems in the country;
  2. operating environment - that is, competitors, markets, customers, regulatory agencies, and stakeholders; and
  3. the internal environment - that is, employees, managers, union, and board directors.

In formulating a strategy, the strategic decision makers must analyze conditions internal to the organization as well as conditions in the external environment, which are described in the following sections.