By: Maryam Zamani
What are some of Strategic Management’s responsibilities?
Imagine you have the Strategic Management role in a company. Since business industry continuously evolves and changes, Strategic Management must face many internal and external challenges and opportunities. Strategic Management is one of the backbone roles in any growing and successful business and is needed to make key decisions when arranging the organization’s vision, mission, and values with its purpose. They are responsible for leading the organization’s direction, ensuring development, and responding effectually to changes in the business environment. One of many Strategic Management duties include analyzing the Environmental Factors that affect various strategic approaches in business decision making.
6 Environmental Factors that Shape Strategic Decisions:
- Political Factors
Political conditions in a country or a region can profoundly affect how an organization must operate. Political instability also creates many challenges for business decision makers. Some examples of this are things like:
- Tax policies
- Trade agreements
- Product standards
- Pricing policies
- Labor laws
A great example of political factor is with the recent change of government. One of the hot topics is putting tariffs on imported goods from neighboring countries. According to an article written by Alex Russell in UC Davis Magazine: “Tariffs are taxes utilized by the government, to be placed on imported goods, and the costs from this become imbedded within the price that every consumer pays before sale tax.” (1) Therefore, with the increase in price of goods or services strategic management must introduce a way to deal with less power of purchase which affects the profit and growth of the business.
- Economic Factors
During the economic recession, higher inflation rates, higher unemployment rates, higher interest rates showed us key factors for lower consumers purchase power. However, economic growth on the other hand is more likely to lead the organization to expand and invest in innovative products or services, creating more profit and employment. In a blog by Russell Walsh, he explains economic growth effect in business: “When business thrives, they invest in new products services and employees stimulating economic activity. Both private and government investment spurs economic development funding infrastructure, technology and innovation.” (2)
- Social Factors
- Social trends
- Demographics
- Change in customer preferences
- Lifestyle changes
These social and cultural factors play a crucial role in strategic management decision making. These factors have a great impact on consumer needs, which affects how management will operate and advertise their product. For instance, social media influencers have great power in consumer decision making of buying and using some type of product or services.
- Technological Factors
Organizations must always be up to date with evolving technology. They have to adapt their strategies to new technological trends to create new tools for innovative products or services. We are living in a world that is getting dominated by AI technology, and human forces are being replaced by robots. The creation and implementation of new strategic ways are necessity. CJPI Insights bring to attention to the fact that: “Optimus robots by Tesla can perform in variety of tasks, from assembly line work to logistics. Optimus robots are projected to operate at a cost of $20,000 each. Make them realistic and financially reliable alternative for many businesses.” (3)
- Environmental Factors
- Climate change
- Natural resources
- Environmental regulations
- Geological factors
These factors force the decision makers to have different methods accordingly.
In the blog study by Impact Day, it mentioned: “Industrial production particularly in sectors such as manufacturing, energy, and transportation can have adverse effects on the environment. Businesses play a crucial role in driving change by adapting cleaner production technologies, implementing energy efficient measures.” (4)
- Legal Factors
These factors are involved in the laws and regulations that direct businesses and organizations’ operations. Understanding legal factors in business will avoid legal liabilities protecting assets and ensure smooth operations.
Labor Laws
- Health and safety regulations
- Intellectual property laws
- Industry regulations
- Consumer rights
- Data protection
- Contract law
For instance, under labor law there were some changes during the year 2024 that affected many organizations (Minimum Wage and Overtime Increases, Reporting Requirements under the Corporate Transparency Act, Paid Leave Requirements, Pay Transparency and Equity). (5)
What are some tools that Strategic Management use to ensure growth?
- SWOT: Situational Analysis Summary: a strategic tool that organizations use to assess internal strengths and weaknesses plus external threats and opportunities.
S– Strength : Strong brand, loyal customers, skillful personnel, healthy financial outcomes, use of modern technology advantages.
W– Weaknesses: high employment turnover, lack of assets, weak brand, high level of debt
O– Opportunities: favorable external advantages, differentiated from competitors.
T-Threats: organizational threats can consist of economic reforms, consumer preferences, politics, increase in cost of materials, and increasing competitors.
- PESTEL Analysis: is another tool being used to analyze macro- environmental factors that impact business’ outcome. PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors. It is a system of broad fact finding to minimize external treats and understand opportunities for growth.
- 3. Porter’s Five Forces: this helps the Strategic Management to analyze the competitive forces threaten the organization.
- Threat of new competitors
- Bargaining power of suppliers
- Bargaining power of customers
- Threat of substitute products
- Industry rivalry
Porter’s Five factors provide an extensive overview of competitors identify threats and address the challenges ahead of time.
Conclusion
There are many threats and challenges that can harm business growth and success. In an industry, in which competition is forceful and technology constantly evolving the ability to understand the environmental factors, be ahead of competitors, be flexible and have a great vision is a must. It is some Strategic Management to create strategies that evaluate and control the internal and external factors, take advantage from tools like SWOT, PESTEL, and Porter’s Five Forces analysis.
Resources
- How Could Tariffs Affect Consumers, Business and the Economy? UC Davis economists discuss the past, present and potential future of tariffs in the US. By Alex Russell, Feb 18, 2025.
- The effect of economic growth on businesses. By Russell Walsh. 29 October 2024.
- How Might Tesla’s Optimus Robots Impact The Job Market. By CJPI Insights. Oct 11th, 2024.
- Environmental Impact in Business: Assessments, Issues, and Solutions. By edu. July 2nd, 2023.
- New Laws and Regulations Businesses Should Know About in 2024. February 8, 2024.
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