The Influence of Corporate External Environment on
Strategy
Bc. Veronika Baurová, Bc. Martin Janečko, Ing. Marcela Papalová, PhD.
Department of Management, Faculty of Economics,
VŠB-TU University Ostrava
[email protected], [email protected],
[email protected]
Abstract
The research examines empirically the influence of external environment in strategic
management in small and medium-sized companies in Moravian - Silesian Region.
Questionnaires were selected for data collection.
The survey results show that companies are affected by the environment. The influence of
factors is different. The difference is due to the nature of business. Businesses are responding
to the impact of factors in their strategies.
Key Words
Strategy management, Strategy, Strategic tools, External environment, External factors.
Introduction
The strategy is a broad-based concept, assessing – to a certain extent - competitiveness of the
organization, objectives formulation and policy necessary in achieving these goals. The
essence of strategy formulation is to put into context of the organization and its environment
(Porter, 1998, 2008).
The environment, in which organizations are located, is defined nowadays by large
degree of uncertainty. The environment is very dynamic, branches influence each other. The
option to reduce uncertainty, to capture the trend and to reveal relationships of interactivity, is
the active implementation of strategic management (Johnson, Scholes and Whittinghton,
2008).
Establishing of a strategy and its level of fulfilment is often depending on the
organization's ability to formulate objectives in response of stimuli from the environment. It is
a different level of companies' ability to cope with external influences as a main factor
affecting success, endurance and performance of firms (Mallya, 2007; Grant, 2010).
Classical rational approach to strategic planning is often criticized by Mintzberg and
Quinn (Mintzberg et al., 2003), questioned by (Mintzberg Ahlstrand and Lampel, 2005), on
the other hand, there are still many supporters of planning process (Ansoff, 1991; Joyce,
1999; Stonehouse and Pemberton, 2002; Wittmann and Reurter, 2008).
Strategic management process uses a variety of tools. These tools make it easy
management of strategic management throughout the process, especially in the analysis of
internal and external environment in forecasting and formulating goals (Johnson, Scholes and
Whittinghton, 2008; Porter, 2008; Stonehouse and Pemberton, 2002; Grant, 2010).
Objectives and methodology
Strategic management was primarily the domain of large companies. Nowadays the usage of
strategic management is still expanding in small and medium-sized enterprises (SMEs´). Also,
strategic management research includes primarily environment of large corporations.
Research will concentrate on the less explored area of strategic management in SMEs´.
Respondents were divided into three categories: micro (0-9 employees), small (10-49
employees) and medium (50-249 employees). The large companies (over 249 employees)
were not included in the research.
The aim and objectives of the research
The aim of this research was to study the usage of strategic management in small and
medium-sized businesses in Moravian-Silesian Region (M-SR). This includes: firstly, the
extent of the usage of strategic tools in these companies, secondly a focus on the influence of
corporate external environment; thirdly, on the effects of some organisational characteristics.
In this paper, attention is focused on assessing the influence of corporate external
environment. More specifically objectives of research in this area were:
-
Which factors are shaping the strategies of companies?
-
How influenced are organizations by external environment?
-
What geographic area is monitored by the companies?
-
How are businesses strategies affected by the surrounding areas?
Methodology
The research was divided into three stages.
The first phase of the research was devoted to defining the research areas and methods
of data collection. The aim of this research is to study the usage of strategic management in
SMEs´ in Moravian - Silesian Region. Questionnaires were selected for data collection.
Second stage consisted the empirical research in small and medium sized companies in
Moravian-Silesian Region. In cooperation with the Chamber of Commerce 370 questionnaires
were sent out and 74 questionnaires were filled. This number includes five large companies.
These companies were not included in the results. The survey used the results from 69
questionnaires.
The third stage covered data analysis, presentation of results and preparation of research
reports. Descriptive statistics (frequency, mean median) and inferential statistics (correlation,
tests of significance) will be used in the data analysis.
Results
Research, inter alia, discussed the influence of corporate external environment. The list of
factors affecting the company was compiled. The list included: customers, competition,
suppliers, political factors, legislative changes, macroeconomics indicators, technological
trends, market trends, social factors, ecological factors.
How influenced are organizations by external environment?
Table No. I: List of external environment factors and their significance/insignificance
contains the results of significance or insignificance of the individual factors. It was clearly
selected range of customers and competitors; their relative frequencies were the highest, more
than 50%. Social, ecological factor and macroeconomics indicator were located on the
opposite side. They were identified by only few respondents for a very significant impact.
I: List of external environment factors and their significance/insignificance
Factors
Customers
Competition
Technological trends
Suppliers
Legislative changes
Market trends
Political factors
Social factors
Ecological factors
Macroeconomics indicators
Very significant
Very insignificant
Ranking
Ranking
1
2
3
4
5
6
7
8-9
8-9
10
Frequency (%)
75,7
56,5
20,3
14,49
10,1
7,2
5,8
2,9
2,9
1,4
9-10
9-10
2
5
7-8
6
4
3
1
7-8
Frequency (%)
0
0
18,8
5,8
1,4
2,9
8,7
15,9
24,6
1,4
Source: Own research
Technological factors achieved specific results. Their influence was at the same time for
some respondents very important, for approximately the same percentage of very
unimportant. The results correspond to the business nature.
What geographic area is monitored by the companies?
The following chart shows the geographic area that companies followed up (Fig. No. 1: The
monitoring area by company size). The Czech Republic was the most studied area in
categories of micro and small firms. Only 6% of respondents in the category of micro
companies followed the nearest area - the area of micro-region.
The worldwide area was watched by one third of small-size companies. Firms in the
category from 50 to 249 employees monitored mainly area of European Union -80%.
As the influence of factors the results affected not only by size of company but also the
nature of business.
90%
80%
80%
70%
60%
Micro region
50%
50%
40%
45%
Region
Country (The Czech Republic)
36%
32%
EU
30%
Worldwide
20%
10%
14%
12%
6%
10%
10%
5%
0%
0%
0%
0%
0%
0-9
10 - 49
50 - 249
Source: Own research
1: The monitoring area by company size
How are businesses strategies affected by the surrounding areas?
Firms in the process of environment analyzing pursue the strategies of other entities.
It could be a strategy of competition, customers, surroundings businesses (not only
competitive), and authorities. Results of the monitoring can be adopted and formulated into
their own strategies.
II. Companies following up surrounding entities
Number of emploees
0-9
10 – 49 50 – 249
Follow up entities / Company size
Yes, I follow up the competition´s strategy
13%
32%
30%
Yes, I follow up the customer´s strategy
9%
14%
0%
Yes, I follow up the strategy of surroundings
businesses (not only competitive one)
34%
41%
60%
Yes, I follow up the authorities' strategy
3%
5%
0%
No, I do not follow up other entities
41%
9%
10%
Source: Own research
The Table No. II Companies following up surrounding entities and figure 2: The
strategy following other entities shows a clear relation between the company size and the
environmental monitoring. A large number of micro-businesses didn´t follow other entities
(41%). If they monitored the strategy, it was the strategy of surrounding businesses.
70%
Yes, I follow the competition´s
strategy
60%
60%
Yes, I follow the customer´s
strategy
50%
41%
41%
40%
34%
30%
Yes, I follow the strategy of
surroundings businesses (not only
competitive one)
20%
Yes, I follow the authorities'
strategy
10%
32%
30%
14%
13%
9%
10%
9%
3%
No, I do not follow other subjects
5%
0%
0%
0%
0-9
10 - 49
50 - 249
Source: Own research
2: The strategy following other entities
The categories of small and medium-sized companies (49-249 employees) followed largely
the strategy of surroundings businesses. One third of these firms pursued a strategy of
competition. It was surprising; the 10% of medium-sized companies did not follow the
strategy of others.
Discussion
The standard approach for developing the strategy includes an analysis of the external and
internal environment. Analyses provide information about threats and opportunities - from the
external environment and the strengths and weaknesses reflect the internal environment.
Strengths and weaknesses are more easily influenced by the organization, they can be
changed within a certain timeframe, while the factors derived from the external environment,
are more complicated. Threats and opportunities forced to respond in organization strategy are
essentially unchangeable in the short term. These threats and opportunities are very difficult
to influence from long term. Therefore, it is important to recognize and evaluate them. In the
case of identifying potential threats it is then desirable for continuous monitoring (Pearce and
Robinson, 1998; Carpenter, Bauer and Erdofan, 2011).
This article shows that small and medium-sized firms are more or less influenced by
environment. The high frequency of evaluation of social factors as insignificant give raise to
several questions. Do business leaders realize the relationship between social environment
and consumer sector? Or reflection a quality of the social environment and potential
employees? The low evaluation of the significance of environmental factors could be
associated with some degree of environment ignorance.
Theoretical framework of strategic management is well documented in academic
circles, but mapping of their applications is relatively occasional (Vaitkevičius, 2007). Studies
of strategic management tools are particularly infrequent for small and medium enterprises.
Stonehouse and Pemberton (2002) studied UK companies. They compared large companies
and SMEs´ in area of strategic planning. The usage of strategic tools of SMEs in Western
Australia, Singapore, Hong Kong and Malaysia were mapped in Frost's study, which also
compared the results with previously conducted research by Clark and Husseyn (Frost, 2003).
Kraus and Reiner (2006) examined the views of businesses on strategic planning and
conducted applied research methods and techniques.
The comparison of the results from these studies is limited. Historical development of
each country is specific as the structure of their economy. The usage of strategic management
tools is obviously affected by all these differences. The evaluation of the environmental
factors also reflects specifics of countries. The results of the survey in the Moravian-Silesian
region are not easily transferable to other regions.
Conclusion
The survey used the results of 69 questionnaires. Respondents were divided into three
categories of micro (0-9 employees), small (10-49 employees) and medium (50-249
employees). The large companies (over 249 employees) were not included in the research.
Respondents chose from a compiled list of factors with the most influence. These
factors were customers, competition, followed by technological trends. The order of the most
insignificant elements was dominated by ecological and social factors and technological
trends.
The Czech Republic was the most monitored location in categories of micro and small
firms. Firms in the category from 50 to 249 employees monitored mainly area of European
Union -80%. The worldwide area was watched by one third of small-size companies.
A large number of micro-businesses didn´t follow other entities (41%). If they monitor
the strategy, it was the strategy of surrounding businesses. The categories of small and
medium-sized companies (49-249 employees) followed largely the strategy of surroundings
businesses and one third of these firms monitored a strategy of competition.
This article was granted by SGS, VŠB-TU Ostrava, Faculty of Economics., SP2013/143,
within project “Využívání nástrojů strategického řízení malých a středních podnicích”.
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